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While technology has helped change the economics of electricity production (in favor of renewables and distributed generation), this new dynamic can as easily be controlled by the incumbent utilities as the old paradigm of centralized fossil fuel power generation.


The Political and Technical Advantages of Distributed Renewable Power

While technology has helped change the economics of electricity production (in favor of renewables and distributed generation), this new dynamic can as easily be controlled by the incumbent utilities as the old paradigm of centralized fossil fuel power generation.

Backup & Storage


In the short run, the major challenge for distributed generation is the variability of renewable energy. This problem can be mitigated in part by using more distributed generation. Using solar as an example, a single solar PV power plant has backup costs for the utility of around 4 cents per kWh (to have other power plants available to cover variations in output). However, if 25 solar power plants are dispersed across a broad region (e.g. a metropolitan area), these backup costs fall by 93 percent, to far less than a penny per kWh.

Dispersing Solar Cuts Backup Costs Dramatically:

Dispersing wind power generation has similar impacts, albeit requiring a larger geographic area.

The good news is that, as more and more technical research is completed, the findings are consistently showing that the amount of backup power (e.g. spinning reserve) decreases as more distributed renewables are put in place and as the grid is made “smarter.” The bad news is that we don’t yet have a lot of experience from which to draw conclusions. Most of the research has focused on the impacts of bringing in dispersed wind energy and there has been less study of integrating large amounts of distributed solar projects into the grid. That dynamic is starting to change as more states are poised to bring substantial quantities of distributed solar energy projects onto the grid in the coming years.

Once again, the Europeans are leaders. Their experiments with “virtual power plants” – essentially, using information technology to coordinate decentralized renewable energy generators on a smart grid – are reducing the need for traditional fossil fuel backup power and increasing the efficiency of networked renewable energy generators.

In the long run, distributed and variable renewable energy generation will become a more significant portion of the electricity grid, and the existing system will not be able to smoothly accommodate this new generation without changes.

A Future with Natural Gas?

Many renewable energy advocates are convinced that the grid will adapt largely by introducing more natural gas generators, able to cycle quickly to accommodate fluctuating production from wind and solar power plants. General Electric has even developed a new natural gas turbine with the purpose of more effective backup to variable renewable energy sources.

There’s also a surprisingly substantial amount of emergency and on-site backup available that may be more useful to a distributed grid. In 2003, distributed power systems comprised 200 gigawatts of capacity and generated 6 percent of total U.S. electricity. Most were used for emergency backup, and only 10-15% of these systems were connected to the grid. But there may be an opportunity to tap these systems to integrate more variable, renewable distributed generation.

As the quantity of renewable energy generators rises further, energy storage may play as much or more of a role than backup generation. Today in the United States about 2.5% of total electricity is provided through energy storage technologies. The vast majority comes from pumped hydroelectric projects. Along with pumped hydro, compressed air energy storage and advanced lead-acid battery storage are the most widely pursued by utilities.

Estimated Worldwide Installed Advanced Energy Storage (CA Energy Storage Alliance):

Until variable renewable energy sources become a bigger portion of grid energy, storage will serve many other applications than just being a tool to store kilowatt-hours for another time (“time-shift”). A 2010 report for Sandia National Laboratory provides a categorization of major energy storage applications, ranging from “voltage support” to “transmission congestion relief.”

This variety of applications for energy storage is also relevant to the cost of storage. While the cost of advanced batteries and other storage technologies is relatively high, the California Energy Storage Association notes that storing electricity like a battery is only a fraction of the full potential value of an energy storage system.

If an energy storage system (e.g. a big battery) were used to replace a natural gas “peaker” plant (used when electricity demand peaks), the adjacent chart illustrates the many other valuable benefits the battery system would provide.

Energy Storage is More Than Big Batteries (CA Energy Storage Alliance / Greentechmedia):

The high value of energy storage in a variety of applications means that it can be worthwhile even at relatively high cost per kW compared to new fossil fuel or renewable energy generation. Costs (and benefits) can vary quite a bit even for a given technology (e.g. batteries, compressed air energy storage, flywheels) as well as for a given application (e.g. voltage support, energy time shifting, firming renewable energy).

The following table shows energy storage costs from the Electric Power Research Institute, comparing that to installed costs for renewable energy and natural gas combined cycle power plants.

Technology Cost per kW
Compressed air $810 to 1,045
Lead-acid battery $2,000 to 3,000
Lithium-ion battery $1,200 to 4,000
Solar PV $3,500
Onshore wind $2,000
Natural gas $1,000

Translated to a per kWh cost, the following chart illustrates the incremental cost of storage (added to the initial cost of generating a kWh of electricity) as estimated by Glenn Doty of Doty Energy.

Incremental Cost of Popular Utility-Scale Storage Technologies (Glenn Doty):

Pumped hydro, for example, adds about 5 cents to each kWh that is stored. Other technologies are more expensive.

Utilities are gaining practical experience managing variable generation with storage. Denmark relies heavily on pumped hydro storage in Norway to help them manage their wind power that can at times generate more than 100% of current demand. Alabama’s Electric Cooperative has been operating a 110 MW compressed air energy storage system since 1991.

Xcel Energy has been testing a 1-MW (7.2 MWh) sodium-sulfide battery that is integrated with a 11.5-MW wind energy project in Luverne, MN. The Long Island Power Authority in New York is considering a 400 MW battery storage facility to meet new demand by shifting excess night-time generation to daytime load.

In the near term, some storage technology costs will decrease significantly, according to the Electric Power Research Institute (EPRI). Their forecast is reinforced by the history of price reductions of lithium ion batteries in consumer electronics (below). The red line (with square markers) illustrates the falling cost of consumer lithium ion batteries per Watt-hour and the blue line (with diamond markers) shows the increasing energy density of the batteries, in Watt-hours (Wh) per kilogram (kg).

Historical Cost Reductions for Consumer Lithium Ion Batteries (David Anderson):

EPRI anticipates that larger-scale lithium ion battery costs will drop, too, as the electric vehicle industry ramps up. Other industry experts are also forecasting significant decreases in lithium ion prices. The following chart shows the price forecasts for lithium ion batteries for use in electric vehicles from Pike Research and Deutsche Bank.

Projected Cost Reductions for Lithium Ion Batteries:

Also in the near term, underground compressed air storage and pumped hydro systems should see lower costs on a per kW basis as additional projects come online. However, there is also uncertainty in compressed air cost projections with the primary constraint being identifying developable sites, environmental permitting, and available nearby transmission assets.

As costs fall and renewable energy grows, energy storage will play an increasingly important role in smoothing integration of distributed generation into the electricity grid.

Smart grids

Smart grid is a poorly defined term, but the basic concept is a grid that maximizes information and automation to operate at peak efficiency. The improvements range from the central and distributed generator through the high-voltage transmission network and the distribution system, to industrial users and building automation systems, to energy storage installations, and to end-use consumers and their thermostats, electric vehicles, appliances, and other household devices.

The technologies of smart grid are grid paradigm neutral. Tools like advanced meters, robust real-time price signals, and two-way power flow control could democratize the grid so that energy consumers could become more energy efficient and also be energy producers. The tools of the smart grid could also make a top-down grid operate more efficiently. For example, a citywide smart grid rollout by the Chattanooga, TN, public utility uses smart meters and automated switches and is forecast to reduce outage time by 40% and provide demand side reduction of 15%, as well as improve power quality.

Smart grid information flow could clearly be an advantage in integrating distributed generation, but so far few U.S. utilities are seeing this technology upgrade in that light.

<<– Page 3: The Grid Benefits of Distributed Generation

–>> Page 5: A Long-Term Paradigm Shift


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Written By

John directs the Democratic Energy program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His seminal paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development.   Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (, and articles are regularly syndicated on Grist and Renewable Energy World.   John Farrell can also be found on Twitter @johnffarrell, or at


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