Economies of scale: Why small solar is better than big solar

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While utilities in US continue to imply that large-scale solar projects are more economical than small ones, the data is telling another story.

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While utilities continue to imply that large-scale solar projects are more economical than small ones, the data is telling another story. In fact, costs for transmission and distribution of utility-scale solar energy may largely undermine the modestly better economics at the point of generation.

In other words (as I wrote a month ago), Utility Solar May Cost Less, But It’s Also Worth Less.

But let’s skip any further word chopping and get to the charts. This first one shows the median installed prices for solar in the US as reported in 2014 for distributed solar, and the adjusted modeled prices for utility-scale solar from Q4 2013.

As noted by National Renewable Energy Laboratory and SunShot, the modeled costs for solar are typically much lower than the actual reported cost. As noted in the chart, the costs here do not reflect the cost to deliver energy to customers. Distributed solar is on-site and has near-zero delivery costs. Utility-scale solar may have significant costs.



The following chart illustrates the advantage of large-scale solar at point of generation relative to residential solar.


But looking at installed costs doesn’t tell the whole story, because (as noted) it doesn’t reflect the cost to deliver energy to users. The following chart converts the installed cost into the cost of energy, and adds in Clean Coalition calculations for the delivery cost of energy from large-scale solar arrays. These costs are reflected in “value of solar” calculations for distributed solar (like in Minnesota), because distributed solar doesn’t require long-distance transport over transmission and distribution wires.


As the chart indicates, the cost of power delivery can outweigh economies of scale of large-scale power generation.

So what’s with conventional wisdom about economies of scale?

The studies touting the superior economies of utility-scale solar are utility-funded, meant to defend utility efforts to push back against the  distributed solar as a competitive threat to their monopoly business. Evidence suggests they have reason to, since distributed solar won’t be particularly costly to ratepayers, but without a regulatory change, it can be much more costly to shareholders. But wishing that centralized, utility-controlled solar is cheaper doesn’t make it so, and distributed solar clearly competes on cost when transmission and distribution are accounted for.

So the next time your electric company tells you that bigger solar is better, ask them this: for whom?

This article originally posted at For timely updates, follow John Farrell on Twitter or get the Democratic Energy weekly update.

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  1. David Osmond 4 years ago

    Small scale solar also has a few more advantages:
    – a passing cloud will cause dramatic changes to the output of a large-scale PV plant, whereas the change will be much more gradual with widely distributed residential
    – residential solar is usually located on roof-tops and therefore doesn’t occupy any extra land, in contrast to large-scale which is usually ground mounted.
    – large scale solar will generally be aligned due north (in Sthn hemisphere) and at optimal tilt – designed for for maximum production. This is generally a positive. In contrast, residential will have a large variety of alignments and tilts. While this will be less productive, it is likely to result in a more uniform production throughout the day.

    • Peter Campbell 4 years ago

      Small scale
      -does not alienate land from any other purpose.
      -does not need extra staff to manage or maintain.
      -does not need a perimeter fence and security.
      -Incorporated into building insurance.
      -Minimum transmission losses.
      -Agreed re above – spread out over a range of not quite optimal tilts and orientations gives more uniform output.

      Actually I’d like to see much more medium scale across the big unshaded roofs of the light industrial areas of the cities where there would be a good match of consumption and production.

      • Peter Campbell 4 years ago

        PS. I don’t have a problem with more large scale solar either. We need more of everything (except coal obviously).

    • Jonathan Prendergast 4 years ago

      There are many reasons that rooftop solar beats solar farms,
      as you guys have listed.

      But there are many reasons why solar farms can beat rooftop
      – Sales – to get rooftop solar, you have to
      convince the property owner to sign up. Solar farms can just generate
      electricity and sell into the national market
      – Deployment – it is much easier to quickly deploy
      MWs of solar in a field than get thousands of property owners to sign up
      – Split Incentive – Many properties have tenants
      rather than owner occupier. There is little incentive for the owner to install
      solar if they are not using the electricity.
      – Roof Leakage – Some owners are fearful of
      installing solar on rooftops with valuable assets/equipment underneath
      – Asset Valuation for finance – There is not a
      developed second market for rooftop assets, but if you own land and a solar
      farm, you can claim that it could be resold

      As you suggest, we need both. Particularly if we want to
      deploy a lot of solar quickly to address the risk of climate change

      • Andreas 4 years ago

        I would disagree that it is necessarily faster to install large-scale. The sale-to-interconnect time is about 3 months, and SolarCity in the second quarter 2015 installed 107 MW and will deploy up to 150 MW in Q3. Is any one utility-scale developer putting capacity in at that rate?

        The idea of convincing homeowners I don’t think is valid either unless you could show that person-hours spent “per MW” on permits, approvals, environmental assessments is higher for distributed MWs than centralized MWs.

        • Jonathan Prendergast 4 years ago

          I agree it depends.

          If you have the sales and implementation infrastructure plus momentum of Solar City set up and operating well, and a large market like the US, rooftop solar could be quicker.

          From a capital deployment perspective, I think in most cases large scale would be easier, just less profitable.

  2. Stan Hlegeris 4 years ago

    Australians be aware that the costs shown, especially in the first chart, reflect the far-higher cost of installing solar in the US.

    The up-front, fully-installed cost of residential solar here in Oz is about half the cost faced by US buyers. This is the result of bizarrely high “soft costs” which afflict US installations.

    All of the arguments in this article are even stronger in the Australian context, where the cost of installing solar gear is low and the cost of transmission is sky-high.

  3. Jacob 4 years ago

    Large scale solar is needed for factories. Small scale solar is good for houses and remote huts.

    Large 1000kWh batteries are certainly cheaper to run than small 7kWh ones.

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