The business model of the electric industry remained unchanged for more than a century, using centralised power stations to produce all the electricity, and delivering it to individual users with a transmission and distribution network. However, small-scale generation systems such as solar photovoltaic arrays now allow generation at the point of use, and this is bringing unprecedented changes to the power sector.
With residential and commercial solar systems, electricity consumers can also become producers. Any generation accomplished on site is subtracted from the power bill, and surplus kilowatt-hours can be exported in exchange for a feed-in tariff.
Another economic advantage of distributed generation is reducing the burden on transmission infrastructure. Consider that the power network has ownership costs: operation, maintenance, and capital expenditures in new infrastructure.
Power lines are the most effective energy transmission method known to mankind, in terms of both speed and efficiency. However, networks are not perfect and some energy is dissipated as heat during transmission and distribution. These losses represent generation that has a cost but is never sold to end users, and power companies compensate by adding network fees to electricity tariffs.
Power networks are expensive because their capacity must be enough for the highest demand expected in the entire year. Unfortunately, this forces utility companies to invest in capacity that is only used occasionally.
Infrastructure upgrades drive up the capital and maintenance costs of the network, without providing a benefit for end users, other than delivering power during periods of maximum demand.
When generation capacity is distributed among residential and commercial buildings, most of the electricity produced never travels through the network. Centralised power stations continue to have an important role in the electricity sector, but solar PV systems and other types of distributed generation bring many advantages:
Assuming a power system could rely 100% on distributed generation, the network would still be important, but its roles would change:
Solar power can adapt to almost any property, while having some of the lowest generation costs in the world. If photovoltaic technology is combined with energy storage, along with other generation systems that can be counted on at night or in cloudy days, distributed generation is viable as the primary source of electricity.