Does Distributed Energy Generation Raise the Price of Your Electricity?

My friend is thrilled. He just had a solar panel installed on his roof and he couldn’t be happier about it. He knows I work in energy, so he didn’t even wait a week before inviting me over to his house. We sat around his backyard fire pit as he grilled steaks from a local rancher and vegetables from the farmer’s market. As he cooked, he expounded on the virtues of his new solar system. Energy independence! Environmental friendliness! A sleek, modern aesthetic!

“We’re really just going right to the source,” he told me. “All energy comes from the sun anyway. Think about that steak—the sun fed the grass, which fed the cow, which is feeding you! Pretty good, right?”

“Absolutely,” I replied.

“Do you think this is the way of the future?” he asked. “It seems like it makes sense. Do you think everyone will be producing their own power soon?”

“Well,” I said. “It’s complicated.”

As my friend from the suburbs illustrates, distributed energy generation isn’t just for survivalists anymore. In recent years, small-scale solar panels, windmills, water turbines, fuel cells, and batteries have grown less expensive. As the price has gone down, these systems have become more commonplace, and as people see more and more of their neighbors installing solar panels, they start wondering if it makes sense to generate some or all of their own power.

While it may seem like installing a solar panel on your roof can only be a good thing, as I told my friend, it’s a little more complicated. The distributed energy trend can actually have wide-ranging effects on U.S. power distribution. The existing grid system was built assuming that everyone in the U.S. would be using it; as less people use it, it becomes less efficient. Decreased grid efficiency may seem like somebody else’s problem, but most people who generate their own power still depend to some extent on the grid system. So even if you have your own solar panel, decreased grid efficiency affects you.

Distributed Energy Generation Implementation in the U.S.

In a distributed energy system, everybody has their own miniature power plant, like a solar panel or a windmill, at their own home. This is also sometimes called locally sourced or “off grid” energy. The distributed energy paradigm ostensibly improves on the established grid based system by eliminating the need for hundreds of miles of transmission lines. It also reduces emissions, as solar and wind energy do not off-gas carbon or methane. On a personal level, it gives people control over their own power production, freeing them from needing to pay their energy supplier for all of their electricity. That sense of autonomy, I think, is why my friend installed his own power plant.

But while owning your own solar panel allows you to produce some electricity on your own, it doesn’t necessarily mean that you are cut off from the existing grid. If you choose, your personal power plant can be used to supplement your grid-based power usage or even just as a back-up during emergencies. In some areas, when you’re generating more power than you can use at the moment, you can even sell your excess power back into the grid.

Benefits of Distributed Energy Generation

As previously noted, there are a couple benefits to installing your own personal power plant. Let’s go into them in a little more detail. First up: self-reliance. When you generate your own electricity, you don’t need to depend on a company to generate it for you. For you farmer’s market lovers, that means your energy, like your vegetables, is locally sourced. If you disconnect from the grid entirely, it’s also a 100% reduction in your electricity bill. Of course, you need to pay for the solar panel, so it’ll take a while before that reduction becomes a profit—maybe a few years, maybe a decade.

Installing your own source of power generation also insulates you from power outages. A lot can happen to hundreds of miles of transmission and distribution lines. If a tree falls, a pole rots, or a wildfire burns over some lines, it can knock out power for thousands of homes, yours included. Of course, you knew that already because you’ve probably experienced a power outage at some point. Your own power plant can certainly break too, but if that happens at least the repairs are in your own hands.

Lastly: efficiency. As electricity travels through transmission lines hundreds of miles from large power plants to your home, some of it gets lost or dissipates. Not all energy produced is delivered or consumed. Also, as hinted at above, the transmission and distribution systems require large amounts of time, labor, and capital to build and maintain, costs which are passed along to the consumer. When the windmill is in your backyard, you don’t have to worry about energy dissipation or ongoing maintenance costs.

Effect of Distributed Energy Generation on the Existing Power Grid

While distributed energy is rising in popularity, the power grid isn’t going away anytime soon. That’s because the overwhelming majority of the U.S. is already relying on it. It’s enormous, the capital is sunk, and it’s effective. However, if the trend of distributed energy generation continues, it will have a damaging effect on the rest of the grid.

For one, distributed energy generation reduces demand; fewer people will be depending on the grid system. In cases where excess energy is sold back into the grid, it can increase supply as well. To compensate for this surplus, the rest of the grid will have to reduce production or risk losing money on the electricity they produce. This makes the grid less economically efficient, as less revenue must account for the same amount of infrastructure. To compensate, the price per unit of electricity will rise.

Diminished grid demand could also create a chilling effect on new utility investment. If it’s not going to be profitable, they’re not going to build it. This includes new investment in large-scale renewable technologies. At the point where new utility-scale investment becomes less viable, we enter a rocky transition phase. While many people will be supplying some percentage of their own power, a large portion of the country will still depend on a less and less efficient power generation and distribution system. That will drive up prices for everyone. Power companies will be hesitant to invest in new large-scale power plants, but small power plants will remain too expensive for much of the population. Until distributed energy can replace the current grid entirely, it creates more problems on a national scale than it solves on a personal one.

A Better Way to Promote Renewable Energy

Distributed energy generation is enticing and provides some clear benefits. But it’s not necessary. For many Americans, the power grid supplies a reliable and economical solution. Many of the benefits of local power generation, such as renewable energy production, can even be duplicated by the grid as it already exists.

For example, consumers don’t need their own solar panel to use renewable energy. My friend’s eyebrows went up when I told him that. “Ever hear of renewable energy credits?” I asked him. He shook his head. “Check this out,” I said.

Renewable Energy Credits, or RECs, are an innovative way for consumers to buy electricity from renewable sources. Consumers purchase RECs from utilities and third-party energy suppliers, who buy electricity from power plants. When a consumer buys a REC, the energy supplier buys the same amount of energy from a renewable source, such as large-scale wind or solar plants. This promotes the development and use of clean, renewable energy. The effect is the same as having a solar panel on the roof, except that using a renewable energy credit system maintains the efficiency of the utility grid.

At Liberty Power, we’re committed to providing consumers the freedom to choose how they want their electricity delivered. That’s why we sell RECs—so our customers can get their electricity from the sources they prefer. Contact us to learn more about our renewable energy credits and let us help you take the next steps toward cleaner, more ethical energy.


Photo Credit: rightee via /  CC BY

Liberty Power Editorial Team
The Editorial Team at Liberty Power is a swashbuckling group of passionate and creative Energy experts bringing you the hottest topics on exciting market trends, booming products and services, and the latest news in the industry.
July 20, 2017