Utility scale may be all over the news, but DG Solar is incredibly important

Last year, the United States reached a milestone in its electricity journey when, for the first time, solar power accounted for more than half of all new electricity generating capacity added to the grid. Not surprisingly, the utility-scale segment contributed the bulk of solar capacity with a record 22.5 GW of capacity. It’s also not shocking that residential projects remained popular with an installed capacity of 6.8 GW, a fifth consecutive annual record.

But the distributed generation (DG) segment also had a remarkable year. As supply chain constraints eased and system costs declined, the commercial solar segment grew 19% year-over-year and installed 1.9 GW of new capacity in 2023, while the public solar segment installed 1.1 GW.

While the utility-scale installation segment is the primary driver of U.S. solar growth in terms of total capacity, DG is an essential component of our clean energy transition because it provides a more flexible and efficient approach to harnessing solar energy.

Utility scale brings gigawatts

While social and market forces and regulatory policies such as the Mitigation of Inflation Act are helping to accelerate the broad adoption of renewable energy, the development of each type of renewable energy installation is limited by its unique set of challenges.

Utility-scale projects account for the majority of solar energy use and will continue to do so for the foreseeable future. Each utility-scale project typically has a capacity greater than 100 MW – compared to DG projects such as a commercial rooftop project at a large retail store or a high school parking lot cover, which are typically around 1 MW. Due to the larger system sizes, the development, engineering, procurement, and construction costs of utility-scale solar PV plants are as low as possible for a solar project on a dollar-per-watt basis, allowing electricity to be generated at a lower cost per kilowatt-hour. compared to DG installations or residential installations.

The DG is also much more limited by the availability of suitable locations. In a commercial project, the developer must address challenges related to the facility’s energy use, the facility’s utility rate, the local regulatory system, owner-tenant relationships, the age of the building’s roof or its structural soundness, and many other factors. . In contrast, utility-scale projects typically do not have this level of complexity. If the developer manages to gain control of the site, develop the design and obtain approval for interconnections, there is more than enough demand among potential investors to finance the project and among potential energy buyers to purchase power on an industrial scale.

There is no doubt that when we one day have a 100% clean grid, we will see the majority of gigawatts of solar energy coming from utility-scale projects. But utility-scale projects can only take us so far. Utility-scale solar faces its own limitations, including long interconnection queues and a shortfall in transmission capacity relative to what will be required to run our grid. Due to the sheer size of utility-scale projects, the infrastructure required, and the large supply of such projects under development, these projects face long approval timelines and congested interconnection queues that currently last up to five years or longer in some areas. In fact, the number of utility-scale solar and wind projects currently in interconnection queues exceeds the total number of existing power plants in the United States. While utility-scale projects are being deployed as quickly as the interconnection process allows, we should not assume that we will build enough capacity quickly enough to meet ongoing network needs – the pace of deployment depends primarily on the speed of interconnect queues.

Distributed generation allows us to achieve climate goals faster

In contrast, DG projects can be approved and implemented much faster than utility-scale projects. By connecting to the distribution grid, DG projects enable faster utilization of solar generation capacity and are typically developed within one to two years. While the transition to plant-scale generation and a fully carbon-free transmission network may take many decades, DG projects can be implemented quickly, generate carbon-free power for 35 years or longer, and reduce the total amount of utility-scale generation that will ultimately be necessary. In this way, DG projects enable communities and solar customers to reap the benefits of clean energy sooner, help accelerate the transformation of the entire grid, and help reduce carbon emissions in the meantime, while waiting for utility-scale projects to be implemented.

Additionally, by leveraging the existing distribution network, DG projects require lower upfront interconnection costs, with most projects interconnecting with minimal or no network upgrades. This provides greater local grid reliability while maximizing the use of clean electricity generation within the constraints of existing infrastructure – an inherently sustainable development approach that reduces the need for new equipment.

DG projects provide another key benefit: land conservation. Utility-scale installations require hundreds of acres of available land and are often located in environmentally sensitive areas. In turn, DG projects are often implemented to utilize unused land. Most projects are built on rooftops, parking lots, landfills or brownfield sites, where solar energy is not only the best, but often the only potential use of the land. This allows DG designs to blend into existing architecture and utilize spaces that would otherwise be unusable. Some ground-based DG projects are being built on farmland, open space, or previously undeveloped land, particularly community solar projects, which are increasingly favored by policymakers and regulators. However, even these facilities have lower environmental impacts and require less new infrastructure than utility-scale projects.

For customers, DG projects provide a mechanism to take control of rising utility costs. In many states, such as California, electricity rates are rising at a faster rate than overall inflation. The most concrete and effective way for a customer to respond to rate increases is to purchase some or all of the energy from a local solar project, combined with energy storage if possible.

In terms of overall value, DG projects also provide economic benefits to the grid and ratepayers by offsetting the electricity consumption of the receiving facility and other energy users in the area. Across the distribution system, these DG projects are responsible for a significant amount of electricity generation and help avoid some of the costly new transmission infrastructure needed for utility-scale generation and some of the new distribution infrastructure needed to address load increases from electrification. This means that energy from a distributed solar system is worth more than energy from a utility-scale system. As the transmission and distribution components of energy rates continue to increase, policymakers and regulators must consider the benefits of DG projects. However, like any technology, DG projects, in addition to benefits, come with costs. In recent years, excessive focus on these costs has hampered efforts to strengthen or maintain policies that support the deployment of distributed solar energy.

A disturbing political trend derailing the deployment of distributed solar energy

An unfortunate trend in policy advocacy is to demonize DG policies because the direct economic benefits from DG projects often go to generally wealthier homeowners or large corporations, while remaining non-solar customers pay fixed costs that are passed on to all ratepayers. It is true that large corporations are often commercial entities that can afford (and thus benefit from) rooftop or other on-site solar projects. However, it is important to note that these are not the only clients implementing DG projects – public schools, universities, municipalities, hospitals, religious institutions and non-profit organizations are also leading the way. More importantly, we should not forget the obvious fact that energy produced on the roof of a large corporation’s warehouse provides the same social benefits as produced elsewhere on the same grid, providing a net positive impact on the entire community.

So how can we support the deployment of more DGs? Net metering programs must be designed to accurately incorporate the costs and benefits of exported solar energy into the compensation rate. Community solar programs should be designed to provide savings, especially for low-income ratepayers, compensate projects based on economic and social benefits, and encourage development in the built environment rather than on open land. Countries should create incentive programs to support the implementation of distributed generation projects and increase available financing methods, such as power purchase agreements, to expand the target market.

Complementary approaches to the clean energy transition

As we progress towards a 100% clean electricity grid, DG projects can and must play a key role. DG projects will continue to expand renewable energy potential and transition communities to clean energy, as the prolonged deployment of utility-scale projects slowly but steadily replaces fossil fuel plants.

Fortunately, although policy interventions have been uneven in recent years, we as an industry appear to be on the right track. According to SEIA, the commercial solar sector is expected to grow by 19% in 2024, with community solar installations expected to grow by 15%. Customers continue to demand on-site solutions to mitigate rising utility costs and achieve sustainability goals. Developers continue to identify new opportunities, whether in the form of new customers in established markets or entirely new markets. The path to a sustainable future requires a collaborative effort that leverages the strengths of all types of solar projects, including DG.

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Dan Smith has nine years of experience developing solar solutions for commercial, industrial and municipal clients. Dan joined the solar industry to be part of a dynamic, rapidly growing industry that plays a key role in the energy transition. As Vice President of Markets at DSD, Dan leads teams focused on RFP development, community solar, and interconnections and incentives. Dan has initiated over 500 MW of solar and energy storage projects through RFPs, including projects for Lowe’s, The Home Depot, IKEA, Rutgers University, and many other corporate and MUSH clients.