What is distributed generation?

Conventional, centralized power plants require electric power to travel long distances over complex transmission lines. Distributed generation systems are decentralized and require little to no long-distance energy transport. DG systems can power individual households and businesses. They can also connect into a microgrid, which is a small-scale grid that powers a localized area, such as a university, hospital or military base.

Distributed generation helps strengthen grid resiliency, decrease the environmental impact of electricity generation and increase energy efficiency. It is also known as dispersed generation or onsite generation.

Distributed energy resources encompass a range of energy generation technologies and storage systems. They can run on both renewable energy sources or fossil fuels. Common examples include:

Microturbines are small combustion engines that run on biogas, natural gas, propane and other fuel sources. Most produce between 15 and 300 kilowatts of electricity.

Fuel cells generate electricity through a thermochemical process commonly using hydrogen. Hydrogen fuel cells can be used in electric vehicles and found in power plants.

Solar PV uses the photovoltaic effect, the generation of voltage upon exposure to solar energy, to create electricity. A solar panel is a common example of a photovoltaic system.

DER wind turbines are also known as distributed wind. Distributed wind installations vary in size and electricity generation capacity. They can range from less than 1 kilowatt to 100 kilowatts.

Also known as cogeneration, CHP is the concurrent production of electricity and heat from a single energy source. CHP technologies can run on both fossil fuels, such as natural gas, or renewable energy-based fuels, such as biomass.

While not as common as other distributed energy resources, distributed hydropower is gaining traction. Most conventional hydropower plants are large and centralized, but new technology is taking advantage of the Earth’s plentiful waterways to make hydropower scalable and easier to deploy where energy is needed.

Battery energy storage systems (BESS) receive and store energy from DERs for later use. They are key to preventing outages when relying on intermittent renewable energy sources.

EVs can function as distributed energy resources when they are plugged into charging stations. Through vehicle-to-grid (V2G) technology, unused energy stored in the EV’s battery can be fed into a power grid.

Energy compensation mechanisms reward energy producers for generating self-consumed energy or sending their energy back to the electric grid. They are among several incentives to help offset the high upfront investment of distributed generation power systems. Mechanisms that compensate producers with renewable energy systems at a high value can also support for further clean energy generation and decarbonization.¹

There are three main energy compensation mechanisms for distributed generation:

This mechanism credits DG system owners for the excess energy they export to the grid. Owners can then use these credits to consume their electricity at any time, not just as it is generated. This makes net metering especially attractive to owners of intermittent power generation systems—such as solar panels or wind turbines—that rely on the right weather conditions.

FiTs are performance-based incentives that guarantee energy producers above-market prices for the energy they generate and supply to the grid. These are long-term contracts generally designed to encourage the deployment of renewable energy technologies. They gained popularity as support for solar PV systems in the United States and wind farms in Germany and Denmark.²

A PPA is a long-term contract between energy producers and energy buyers. This contract defines the price that suppliers receive for every megawatt-hour (MWh) of energy generated from an energy asset—most commonly, a renewable energy asset. PPAs provide long-term cash flow certainty for energy generation projects and allow distributed generation system owners to take advantage of tax credits.

While distributed generation energy systems can be off grid, they can also be linked to local energy grids through interconnection. Interconnection requires support technology such as inverters, which convert direct current (DC) electricity into alternating current (AC) electricity. DERs such as solar PV and wind turbines generate DC electricity, while most energy transmission and distribution occur through AC electricity.

However, there are challenges associated with interconnection. Most electricity distribution systems were not designed for bidirectional flow. This is the flow of electricity from centrally located power plants to consumers and the flow of electricity from consumer-owned DERs into a grid. As such, interconnection can create grid congestion and increase the risk for blackouts. Smart grid technologies, advanced metering infrastructure (AMI), load forecasting and coordination between regulators, grid operators and consumers can help address these challenges.

Distributed generation offers several benefits to energy consumers, producers and the environment: