For nearly a century, it has been considered conventional wisdom that larger-scale power generation means lower-cost electricity. It’s a myth that has spread into the solar industry, but solar’s unique ability to deliver power where we use energy has debunked the idea that bigger is better.
The myth of supersizing has some basis in economies of scale. A larger solar project can get a bulk discount on panels or a lower labor cost per unit to produce electricity less expensively than a smaller array. This is where many analyses end.
But there’s a crucial element often left out of the equation. Utility-scale solar may cost less, but it’s also worth less to the electric grid. Huge solar projects do produce electricity for less, but unlike your Amazon Prime membership, there’s no free delivery – they have to compete with other large power plants that inject power into the transmission system. Rooftop solar, on the other hand, competes at the retail level, with retail prices. Big solar and small solar don’t directly compete.
There’s also little evidence that building bigger makes any difference in how fast we deploy solar. In a similar five-year period in Germany and the U.S., both countries installed around 22 GW of solar power, but three-quarters of German projects were under 500 kW, whereas only 42% of U.S. projects were smaller than 1,000 kW.
Given the evidence, why the big-versus-small debate? It’s a question of who wins.
At stake is $364 billion a year in electricity sales, which individuals and communities have an opportunity to retain rather than send to utility companies. According to the National Renewable Energy Laboratory, every megawatt of solar installed in Minnesota, for example, adds $2.5 million and 20 construction jobs to the local economy. In its 25-year lifetime, a locally owned solar project will redirect an additional $5.4 million of electricity spending back into local pockets instead of to utility shareholders.
Utilities are profoundly aware of the cost shift and its threat to their market power.
For example, The Brattle Group’s 2015 study exhorting the benefits of utility-scale solar was financed by the Edison Electric Institute, the trade organization representing investor-owned utility companies. A 2013 study from Edison warned that distributed solar was an existential threat to the utility business model, and a 2014 report from Berkeley Lab confirmed the fear, suggesting rooftop solar costs little to other customers but can be costly for utility shareholders.
The relative costs of distributed solar to the customer versus the shareholder explain the political landscape, where utilities mount rearguard actions against net metering or try to change the language of renewable energy to favor their continued control and ownership. In their Orwellian newspeak, rooftop solar becomes “private solar,” in contrast to “universal solar” that utilities own and control.
The economic arguments between big and small can’t be taken at face value because the largest players have a vested interest in the outcome. Can scale economies generate cheaper electricity? Sometimes. But smaller renewable energy systems can also compete at the retail level, where their relative benefit and the costs they offset are higher. The choice between big and small is more than a spreadsheet analysis. Instead, it’s an argument about whether the economic windfall of the renewable energy transition will accrue to the incumbent players, or whether tapping the wind and sun in communities across the U.S. will result in benefits everyone can share.
John Farrell is the director of the Energy Democracy initiative at the Institute for Local Self-Reliance.