Distributed Generation, Battery Storage, and Combined Heat and Power System Characteristics and Costs in the Buildings and Industrial Sectors

Release date: March 28, 2024

Distributed generation (DG) in the residential and commercial buildings sectors and in the industrial sector refers to onsite, behind-the-meter energy generation. DG often includes electricity from renewable energy systems such as solar photovoltaics (PV) and small wind turbines, as well as battery energy storage systems that enable delayed electricity use. DG can also include electricity and captured waste heat from combined heat and power (CHP) systems. Many factors influence the market for DG, including government policies at the local, state, and federal levels, and project costs, which vary significantly depending on location, size, and application.

Current and future DG equipment costs are subject to uncertainty. As part of our Annual Energy Outlook (AEO), we update projections to reflect the most current, publicly available historical cost data, and we use a number of third-party estimates of future costs in the near and long terms. DG system characteristics and performance data are likewise based on currently available technology and expert projections of future technologies.

Before the AEO2025 reporting cycle, we hired an external consultant to develop a cost and performance characterization report of PV, small wind, and CHP installations in residential and commercial buildings and the industrial sector.¹ The consultant provided cost and performance data for systems of various sizes in select historical years, 2012 through 2022.

From this report, we use national-level average annual costs for a typical system size in each sector. The consultant adapted the additional information in the report—including equipment degradation rate, system life, annual maintenance cost, inverter cost, and conversion efficiency—for the Distributed Generation Submodules of the Residential and Commercial Demand Modules of the National Energy Modeling System. Abbreviated tables of these system sizes and costs are available in the residential and commercial chapters of the Assumptions to the AEO.

As described in the assumptions reports and in our report on Modeling Distributed Generation in the Buildings Sectors, other information not included in the report—such as resource availability, avoided electricity cost, interconnection limitations, incentive amounts, installed capacity-based cost reductions, and other factors—ultimately affect the amount of DG and CHP capacity added within a given sector and year.

The report, Analyze Distributed Generation, Battery Storage, and Combined Heat and Power Technology Data and Develop Performance and Cost Estimates and Analytic Assumptions for the National Energy Modeling System: Final Report, is available in Appendix A. When referencing the report, cite it as a report by Z Federal and DNV, prepared for the U.S. Energy Information Administration.

see full report

Footnotes

¹ Distributed generation systems often cost more per unit of capacity than utility-scale systems. A separate analysis involves assumptions for electric power generation plant costs for various technologies, including utility-scale photovoltaics and both onshore and offshore wind turbines used in the Electricity Market Module.