Distributed Generation (DG) is a hot topic these days, and many analysts are painting a rosy picture of small electric generating facilities dotting homes and businesses across the American landscape, delivering power to nearby consumers and businesses. Deutsche Bank, Morgan Stanley, UBS, and PricewaterhouseCoopers (PWC), to name only a few, have recently published pieces on the rise of DG – some even describe an extreme scenario where a grid is no longer needed. In a PwC survey, more than 90% of utility and power executives based in North America thought DG would play a significant role in meeting future electricity demand. I agree.
The central station model has dominated electric markets for the last hundred years as it enabled superior economics through scale and improved efficiencies. Importantly, the centralized approach has facilitated affordable and reliable power for almost all Americans. However, new innovations and manufacturing advances have led to cost reductions that have boosted the economic attractiveness of DG – now, for the first time, you can generate significant volumes of clean power in your own back yard with next-to-no externalities. With this new economic reality, it’s no surprise that the same PwC survey found that 82% of global executives surveyed saw DG as an opportunity as opposed to a threat.
The benefits of DG have long been known. Putting more power generation near demand will reduce the required investment in transmission infrastructure by decreasing the distance electrons need to travel before reaching the end-user. DG technologies, such as Solar PV, have no emissions and can help reduce the cost of externalities inherent in traditional generation technologies that rely on exploding volumes of carbon based fuels. It will also support energy security by spreading power generation over many more sites. With aging energy infrastructure in the U.S., the recent U.S. EPA ruling, and rising concerns around the vulnerability of our grid, these benefits are more valuable today than ever.
The question seems to have shifted from “if DG will gain share of current power production” to “when,” and “when” is starting now. What can the PV sector do to both support and benefit from this paradigm shift?
The good news for solar folks is that solar PV has and will continue to play a big role in this transformation. The declining costs and modular design and installation of solar PV have, at least in part, paved the way for the so-called distributed revolution. However, there is still more work for us to do:
Stop fighting with each other – Let’s start with learning to all get along. This is such low-hanging fruit, as too much time and resources are spent fighting each other. Trade cases and unfounded litigation not only add cost, but even worse, also distract the industry from focusing on what is most important: reducing costs and educating the public on the virtues and economics of solar. While the market and its players have grown significantly, we must still stand together as an industry to effectively address many of the upcoming challenges.
Invest in innovation – The $/kWh price of power from PV needs to continue to move down. Much of the recent decline in price has come from equipment and raw material cost reductions. It will be challenging for equipment costs, particularly that of modules, to continue to fall at this rapid pace. For example, from 2012 to 2013, U.S. module pricing fell ~30%. We’ll need to find other ways to reduce system cost in the future.
Some of these reductions will certainly come from other parts of the value chain such as project financing, where costs appear to be moving down as investors become more comfortable with solar energy’s risks, and as new investment vehicles allow access to more investors. However, to continue to drive system pricing down in the long term we will need to work together as an industry to reduce redundant and unnecessary costs (e.g. by developing more universal standards and standardized contracts) and harness some good old, product-level innovation, which, outside of a few clever innovations and good marketing, has been largely absent.
Innovations are required across each step in the value chain – cell, module and balance-of –system – and should aim to boost efficiencies, lower material costs, promote modular design, reduce installation time, support data exchange, and introduce “smarter” systems. This will require us all to invest more time, resources and money, but the returns will be attractive if we succeed, as Solar City’s recent acquisition of Zep suggests.
Integrate storage into PV systems and the grid – Storage with sound economics may be the last missing piece, and the good news is that the technology is progressing quickly. Costs of more traditional battery storage systems (e.g. Lithium ion) are projected to fall quickly, and advances are being made with new technologies seemingly each month. This is needed if DG, particularly DG solar, is going to reach significant scale and overcome future challenges such as the need to shift renewable load outlined in CAISO’s now famous duck chart.
Again there is good news here – lots of companies are engaging in interesting and novel approaches, such as Green Charge Networks, Tesla/SolarCity, AES and SolarGrid Storage (to name only a few). We need to support and help accelerate this trend. This could come in the form of investment, but also in commercial collaboration to open new sales channels. Success here will result not only in good economic returns on the storage side, but it will also support the growth of our key solar businesses by increasing overall demand.
We’ll also need help from others. Clearly this will not be an easy transition without the support of policymakers and utilities themselves. To be clear, there will likely always be central station power and utility-scale solar is not dead. For the foreseeable future there seems to be little doubt that many regions, industries and homes will need the stability provided by the grid. In fact, we expect utility scale PV to continue to grow over the next two years as current pipelines are built out – we just believe that the DG market will grow faster and play a larger role in serving our nation’s power needs.
Here at Yingli Solar, we’re trying to do our part to address the above issues. In 2011 we opened our PVTL (Photovoltaic Testing Laboratory) in San Francisco to evaluate new Balance of System (BOS) technologies and to gather performance data necessary to support third party investors and other stakeholders. More recently, we formed a Corporate Development group within our US subsidiary with the goal of generating new revenue streams by addressing these challenges through investments and partnerships.
I have this mental image of DG becoming akin to a light bulb, and that one day (albeit 20+ years down the road), my wife will call me on the way home from work and ask me to pick-up two additional solar panels at the local hardware store because we just purchased a new electric car. Perhaps it is still way too early to know exactly where this transformation will take us, but nonetheless it is interesting to dream of the possibilities. What do you think the future of distributed generation will look like? Leave us a comment or send your ideas to firstname.lastname@example.org.
Mathew Sachs is Vice President of Corporate Development for Yingli Solar in the Americas.