Distributed Energy: A Disruptive Force

Distributed Energy: A Disruptive Force

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Distributed Energy: A Disruptive Force

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    The Cost of DE Has Dropped

    Technology improvements, benefits of scale, and increased efficiency from manufacturing to installation have reduced the cost of DE. In the past five years, PV module prices have declined by about 80 percent, and the costs of lithium-ion batteries for storage have fallen by about half. The prices of energy efficiency applications—from controls for heating, ventilation, and air-conditioning systems to lighting, such as LED bulbs—have fallen dramatically as well. Further reductions are likely to come from costs related to installation, such as labor, racking materials, and permitting expenses.

    As the technology for energy improves, so will the performance of the equipment, which indirectly reduces costs even further because fewer materials are needed to deliver the same value or levels of production. Advances in other forms of technology are creating new opportunities and applications for DE as well. For example, improvements in communications networks and in the miniaturization of computing are enabling greater control of consumer devices, such as lighting, in ways that improve their energy efficiency or allow them to respond to pricing signals during times of peak electricity usage.

    Several national policies have also encouraged the growth of DE in the U.S. The investment tax credit (ITC) provides a 30 percent credit for up-front capital costs related to a wide range of DE technologies, including solar cells and fuel cells.

    Incentives and policies at the state level are equally important, and though they vary widely from state to state, they can be vital for improving the economics of DE. These policies include renewable portfolio standards supported by a market for renewable energy certificates, energy-efficiency resource targets, state-specific tax credits and rebates, and net energy metering (NEM). While some states have begun to scale back incentives such as technology-specific rebates, these cutbacks are typically offset by cost reductions. More generally, most legislative initiatives to reduce programs such as renewable portfolio standards and NEM have been unsuccessful so far.

    Rising retail electricity prices across the country in recent years have improved the economics and payback periods for DE. On average, the residential price of electricity rose 16.5 percent from 2006 to 2013, slightly outpacing inflation. In addition, some states, including California, have instituted tiered pricing based on consumption. Others are introducing time-of-use rates. Both of these pricing structures can further enhance the economics of rooftop PV solar installations and other forms of DE for the consumers who are most likely to adopt these technologies.

    Photovoltaic (PV) Pricing Trends: Historical, Recent, and Near-Term Projections, National Renewable Energy Laboratory and Lawrence Berkeley National Laboratory, November 2012.