Paradigm Shift In The Energy Industry Bodes Well For Distributed Generation
The rise of solar has enabled the distributed generation [DG] industry to thrive. The monopoly of centralized energy generation is starting to crumble as technologies like photovoltaics have and will likely continue to advance at rapid rates. As energy generation is no longer wholly dependent upon large centralized plants, a myriad of new energy generation business models have emerged. Naturally, electric utilities have devoted an increasing amount of time/resources on stifling DG’s growth. These efforts have largely been limited in their effectiveness, evident in California’s recent net metering ruling.
Companies like SolarCity (NASDAQ:SCTY), SunPower (NASDAQ:SPWR), SolarEdge (NASDAQ:SEDG) and Sunrun (NASDAQ:RUN) have seized upon the emerging DG opportunity. While DG still accounts for far less than 1% of total global energy generation, the growth potential of the industry is immense. At the current rate of solar’s technological progress, the growth momentum for the DG industry will likely not slow down anytime soon. The benefits of decentralized generation are becoming increasingly apparent, making the aforementioned companies great investment choices.
Inherent Advantages of DG Are Showing
There are many natural advantages that DG holds over centralized electricity generation, which largely explains DG’s massive growth in recent years. As forms of DG like rooftop solar generates electricity in close proximity to place of use, transmission and distribution costs are dramatically lessened. This is perhaps the biggest advantage that DG holds as transmission and distribution costs are enormous.
In fact, transmission and distribution costs oftentimes account for the majority of electric utility costs. For instance, approximately two thirds of what a PG&E (NYSE:PCG) customer pays on his/her electricity bill goes towards cost related to transmission and distribution. Given that DG technologies like rooftop solar can almost entirely sidestep these costs (electricity travels from the roof into the house), it is clear why the economics of DG are rapidly becoming superior to those of local utilities throughout the US.
Utility-scale-centric solar companies like First Solar (NASDAQ:FSLR) have repeatedly demonstrated that solar in utility-scale form is superior to solar in DG form in terms of at-source generation costs. While these companies are implying that centralized forms of solar are more economical, it is clearly nonsensical to compare utility-scale solar to distributed solar without factoring in the added costs of transmission, distribution, etc. What’s more, DG technologies like rooftop solar are far less affected by extreme weather events and other such scenarios, which only makes DG more cost-effective when factoring in these other variables.