Utility-scale may make all the news, but DG solar is incredibly important
The United States reached a milestone in its energy journey last year when, for the first time, solar power accounted for more than half of all new electricity-generating capacity added to the grid. It’s no surprise that the utility-scale segment contributed a majority of the solar capacity with a record 22.5 GW. Nor is it shocking that residential projects maintained their popularity with 6.8 GW of installed capacity — a fifth consecutive annual record.
But the distributed generation (DG) segment also had a remarkable year. With supply chain constraints easing and system costs decreasing, the commercial solar segment increased by 19% over the prior year and installed 1.9 GW of new capacity in 2023, while the community solar segment installed 1.1 GW.
While the utility-scale segment is the primary driver of the United States’ solar growth in terms of total capacity, DG is an indispensable component in our clean energy transition because it provides a more flexible and efficient approach to solar adoption.
Utility-scale brings the gigawatts
While societal and market forces and regulatory policies such as the Inflation Reduction Act contribute to the acceleration of renewable energy deployment broadly, the growth of each type of renewable energy installation is constrained by its unique set of challenges.
Utility-scale projects represent the majority of solar deployment and will for the foreseeable future. Each utility-scale project is typically larger than 100 MW – compared to DG projects, like a commercial rooftop project at a big box retail store or a parking canopy at a high school, which are generally around 1 MW. Because of the larger system sizes, utility-scale solar’s cost of development, engineering, procurement and construction is as low as it can be for a solar project on a dollar-per-watt basis, allowing it to generate electricity at a lower cost per kilowatt-hour compared to DG or residential installations.
DG is also much more constrained by the availability of suitable sites. For a commercial project, a developer must navigate challenges with the energy usage of the facility, the facility’s utility rate tariff, the local regulatory regime, landlord-tenant relationships, the age of a building’s roof or whether it’s structurally sound, and numerous other factors. Utility-scale projects, by contrast, don’t normally face this level of complexity. If a developer can obtain site control, develop the project and secure interconnection approval, there is more than adequate demand amongst potential investors to finance the project and potential power purchasers to buy utility-scale energy.
There is no doubt that when we one day have a 100% clean grid, we will see that most gigawatts of solar are from utility-scale projects. But utility scale projects can only take us so far. Utility-scale solar faces its own constraints, including lengthy interconnection queues and a shortage of transmission capacity relative to what will be required to transition our grid. Because of the sheer size of utility-scale projects, the required infrastructure, and the robust supply of such projects in development, these projects face extensive approval timelines and overpopulated interconnection queues that, in some areas, are currently up to five years or longer. In fact, the amount of utility-scale solar and wind projects currently waiting in interconnection queues exceeds the total amount of existing power plants in the United States. While utility-scale projects are being deployed as fast as the interconnection process allows, we shouldn’t assume we will build enough capacity quickly enough to transition the current grid’s needs – the pace of deployment is governed first by the speed of the interconnection queues.
Distributed generation achieves climate goals faster
In contrast, DG projects can be permitted and deployed much faster than utility-scale projects. Being connected to the distribution grid, DG projects allow for a more rapid deployment of solar energy capacity and are typically developed in one to two years. While it may take multiple decades to transition utility-scale generation and the transmission grid to 100% carbon-free, DG projects can be built swiftly, generate carbon-free energy 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 transition the overall grid faster and help reduce carbon emissions in the interim while we wait for utility-scale projects to be deployed.
Additionally, by utilizing the existing distribution grid, DG projects require lower upfront interconnection costs, with most projects interconnecting with minimal or no upgrades to the grid. This provides increased reliability to the local grid while maximizing the deployment of clean electricity generation within the constraints of existing infrastructure – an inherently sustainable approach to development 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 developed in sensitive environmental areas. In contrast, DG projects are often deployed to take advantage of underutilized sites. Most projects are developed on rooftops, parking lots, landfills or brownfields, where solar is not only the best use but often the only potential use of a site. This blends DG projects into existing architecture and makes use of otherwise unusable spaces. Some ground-mounted DG projects are developed on farmland, open space or previously undeveloped land, particularly community solar projects, which are increasingly favored by policymakers and regulators. But even these sites create less environmental impact and require less new infrastructure than utility-scale projects.
For customers, DG projects provide a mechanism to take some control over their escalating utility costs. In many states, such as California, electric 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 buy some or all their energy from an onsite solar project, paired with energy storage where feasible.
When it comes to overall value, DG projects also provide economic benefits to the grid and ratepayers by offsetting the electricity consumption of the host facility and other energy users in the area. Across the distribution system, these DG projects are responsible for a meaningful 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 growth from electrification. This means energy from a distributed solar system is worth more than energy from a utility-scale system. As transmission and distribution components of ratepayers’ energy bills continue to escalate, this benefit of DG projects needs to be considered by policymakers and regulators. However, like any technology, DG projects have costs in addition to benefits. In recent years, a hyperfocus on these costs has hampered efforts to bolster or maintain policies supporting the deployment of distributed solar.
A concerning policy trend derailing distributed solar deployment
An unfortunate trend in policy advocacy is demonizing DG policies because the direct economic benefits of DG projects often go to generally wealthier homeowners or large corporations, while the remaining non-solar customers are left paying the fixed costs that are passed through to all ratepayers. It is true that large corporations are often the most able commercial entities to afford (and thus benefit from) rooftop or other onsite solar projects. But it’s important to note that these are far from the only customers pursuing DG projects, with public schools, universities, municipalities, hospitals, religious institutions and non-profits also leading in DG adoption. More importantly, we should not forget the obvious fact that energy generated on the rooftop of a large corporation’s warehouse provides the same societal benefits as it does generated elsewhere on the same grid, offering a net positive impact to the community at large.
So how do we support the deployment of more DG? Net-metering programs need to be designed to accurately capture the costs and benefits of exported solar energy in the compensation rate. Community solar programs should be designed to provide savings, especially for low-income ratepayers, compensate projects based on economic and societal benefits, and encourage development in the built environment rather than open land. States should create incentive programs to support the deployment of distributed generation projects and increase available financing methods, like power purchase agreements, to expand the addressable market.
Complementary approaches in the clean energy transition
As we progress on the path to a 100% clean electric grid, DG projects can and must play a critical role. DG projects will continue adding renewable energy capacity and transitioning communities to clean energy, while the prolonged deployments of utility-scale projects slowly but steadily replace fossil fuel power plants.
Fortunately, although policy interventions have been uneven in recent years, we seem to be on the right path as an industry. According to SEIA, the commercial solar sector is expected to grow by 19% in 2024, with community solar installations projected to increase by 15%. Customers continue to demand onsite solutions to mitigate escalating utility costs and to achieve sustainability goals. Developers continue to identify new opportunities, whether with new customers in established markets or new markets entirely. The path to a sustainable future requires a collaborative effort that leverages the strengths of all types of solar projects, including DG.
Dan Smith has nine years of experience in solar development for commercial and industrial and municipal customers. Dan joined the solar industry to be part of a dynamic, fast-paced industry which plays a critical role in the energy transition. As DSD’s Vice President of Markets, Dan leads the teams focused on RFP origination, community solar, and interconnection and incentives. Dan has originated 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 market customers.
