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Analysis & Projections

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Distributed Generation System Characteristics and Costs in the Buildings Sector

Release Date: April 19, 2017

Distributed generation in the residential and commercial buildings sectors refers to the on-site generation of energy, often electricity from renewable energy systems such as solar photovoltaics (PV) and small wind turbines. Many factors influence the market for distributed generation, including government policies at the local, state, and federal levels, and project costs, which vary significantly depending on time, location, size, and application.

As relatively new technologies on the globalized production market, PV and small wind are experiencing significant cost changes through technological progress and economies of scale. The current and future equipment costs of renewable distributed generation are subject to uncertainty. As part of its Annual Energy Outlook (AEO), the U.S. Energy Information Administration (EIA) updates projections to reflect the most current publicly available historical cost data and utilizes multiple third-party estimates of future costs in the near and long terms. Performance data are likewise based on currently available technology and expert projections of future technologies.

Prior to the AEO2017 reportingcycle, EIA contracted with an external consultant to develop cost and performance characterizations of PV, small wind, fuel cells, and combined heat and power (CHP) installations in the building sector.1 Rather than develop two separate paths for residential and commercial, the contract provided cost and performance data for systems of various sizes at five-year increments beginning in 2015 and ending in 2040. Two levels of future technology optimism were offered: a Reference case and an Advanced case, with the Advanced case including lower equipment costs, higher efficiency, or both.

From this information, EIA used national-level average annual costs for a typical system size in each sector. Abbreviated tables of these system sizes and costs are presented in the residential and commercial chapters of the Assumptions to the Annual Energy Outlook. Additional information in the contracted report, such as equipment degradation rates, system life, annual maintenance costs, inverter costs, and conversion efficiency, were adapted for input in the Distributed Generation Submodules of the residential and commercial building sector modules of the National Energy Modeling System.

As described in the assumptions reports, 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 capacity of distributed generation and CHP added within a given sector, year, and Census division.

For AEO2017, certain assumptions (mainly system costs) have been updated based on reports from Lawrence Berkeley National Laboratory and the National Renewable Energy Laboratory. Table 1 shows the cost and efficiency assumptions for residential and commercial solar photovoltaic and small wind systems used in AEO2013 and AEO2017 with updated data from this report.


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1Distributed 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.