- While recent reports suggests that utility-scale solar will be far more cost-effective than distributed solar in the future, this does not look to be true when considering all factors.
- Cost comparison's between utility-scale solar and distributed solar only make sense when looking at final consumer costs, in which case distributed solar looks to be increasingly attractive.
- With the current energy storage cost-reduction roadmap, distributed solar will likely hold the definitive edge in the long-run.
- Given that a fully financed rooftop solar system is already cheaper than grid electricity in the vast majority of states, reality seems to support the view of distributed solar's cost-advantage.
Solar PV industry analysts are increasingly becoming divided on the issue of centralized verses decentralized solar PV. On the one hand, centralized solar supporters point to how much cheaper(supposedly) utility-scale solar is compared to distributed solar. In fact, a recent Brattle Group study claims that utility-scale solar will continue to be around two times more cost-effective than rooftop solar. On the other hand, decentralized solar supporters point to the superior energy stability and independence associated with distributed solar.
While both these forms of solar will likely play a role in the future energy landscape, a decentralized solar PV model will likely dominate for many reasons. Despite the fact that utility-scale solar is still dominant by far, distributed solar has been making huge progress. In fact, distributed solar is expected to overtake utility-scale solar post-2016(solar ITC step down). This is especially great news for U.S.-based pure play distributed solar companies like SolarCity (NASDAQ:SCTY), Vivint Solar (NYSE:VSLR), SunRun (Pending:RUN). While the long-term dynamic between utility-scale solar and distributed solar is somewhat more murky, distributed solar should ultimately prevail.
Flawed Cost Comparisons
There are many utility-scale solar supporters claiming that utility-scale solar is approximately two-times less expensive than rooftop solar. These claims, which have been made by the likes of Brattle Group or Edison Electric Institute, are somewhat misleading. With rooftop solar being cheaper in more than 40 states, the claim that distributed solar is around two-times more expensive is patently inaccurate. While the at-site cost of utility-scale solar is indeed twice as cheap as distributed solar in many cases, this leaves out all the costs associated with the grid infrastructure, i.e. transmission, distributed, maintenance, etc.
As such, an at-site comparison between utility-scale solar and distributed is meaningless, as this is an apples to oranges comparison. The better way to compare these two solar generation methods would be to use final consumer costs, in which case rooftop is increasingly becoming more cost-competitive. With grid costs accounting for the majority of retail electricity costs in a huge number of cases, an at-site cost comparison between utility-scale solar and distributed solar makes absolutely no sense. This comparison method entirely leaves out the grid costs associated with utility-scale solar.
The only thing that matters in cost comparisons of this sort are final retail costs, in which case rooftop solar looks to be increasingly attractive. The huge costs associated with the grid makes at-site cost comparisons between utility-scale solar and residential solar irrelevant.
Real Potential Lies In Distributed Solar
There are many near-term issues associated with distributed solar that are obscuring many to its true long-term potential. The major bear argument used against distributed solar companies like Vivint Solar have been centered around solar PV's intermittently issues. Whereas utility-scale solar does not need to worry about this due to the presence of base load power generation sources, distributed solar has no such base load mechanisms. While energy storage technology is a solution to this problem, such storage devices are not yet cost-effective in the vast majority of cases.
While it is certainly true that energy storage technologies are still not cost-effective for most homeowners, the view that energy storage technologies will not progress significantly is somewhat nearsighted. This is even more true with the enormous growing demand for such technologies, which will only accelerate energy storage innovation. With Tesla's (NASDAQ:TSLA) batteries serving as a benchmark for the cutting edge of energy storage technologies, one would be hard-pressed to think of a scenario in which such technologies would not be cost-competitive even a decade down the road.
As the continued rapid progress of energy storage technology is nearly guaranteed at this point, barring any sort of abnormal/catastrophic event, there is little standing in the way of distributed solar's dominance. Given that cost-effective energy storage technology is the only true barrier to distributed solar's long-term success, it seems rather clear that a decentralized energy generation would be optimal for most homeowners. While this scenario may currently be hard to envision given how widespread utility-scale generation is and how niche distributed generation is, it increasingly seems likely to come true.
Current Economics Already Support This View
Considering that a fully financed rooftop solar PV system is less expensive than buying electricity from the utilities in the vast majority of states, the economics are clearly starting to favor distributed solar. While distributed solar companies like SolarCity currently benefit from solar subsidies, utility-scale solar plants usually benefits from the same types of subsidies. Whereas utility-scale solar is currently only cost-effective against energy sources like coal or natural gas in a small minority of cases, distributed solar entirely beats grid prices in the majority of cases.
This would imply that distributed solar indeed cheaper than utility-scale solar when comparing the final customer electricity costs in most cases. It is clear that when grid-associated costs are factored in, distributed solar looks to be the more attractive option. The current low levels of distributed solar penetration are not a result of high costs, but rather a result of low consumer awareness. Distributed solar companies like SolarCity and Vivint Solar are successfully tackling the consumer awareness problem, as is evident by their enormous growth rates. On the growth front, distributed solar is also beating utility-scale solar, which is not surprising in light of the aforementioned information.
Comparisons between utility-scale solar and distributed solar can only be taken seriously when considering all costs. By factoring in all costs, utility-scale solar's supposed cost advantage disappears completely, and may in fact reverse in distributed solar's favor. This is clearly not good news for utility-scale solar companies like First Solar (NASDAQ:FSLR), and great for distributed solar companies like SolarCity and Vivint Solar. Talks about utility-scale solar's long-term dominance over distributed solar must be taken with a grain of salt, as this seems highly unlikely given the enormous costs associated with the grid.