Report: Large-scale renewable energy projects more cost efficient than DG

A new report by Norway’s DNV GL certification agency details a cost benefit analysis between large-scale centralized and and small-scale decentralized generation (DG) using renewable energy sources (RES) under different conditions, including established power systems and electrification of remote areas.

The report, Cost Comparison Between Centralised and Micro-Distributed Renewable Generation, concluded that centralized solar and wind generation was between 33% and 50% more cost-efficient than the evaluated decentralized alternatives in all the conditions defined in the report in established power systems.

DNV GL found that in established power systems, DG was more costly than the evaluated CG alternatives under the conditions defined in this study. When comparing between the cheapest CG and DG technologies, the report came to a range of between €46 and €112 per megawatt hour, which means that in the best case, DG is still at least 50% more expensive than CG, but 100% more expensive in the worst case.

“The cost comparison between CG and DG shows an important impact of the regional wind and especially solar conditions in the results, considering that PV is present in all the DG selected technologies as well as some of the CG ones,” the report said.

As a result, DNV GL concluded that small PV and also to a limited extent small PV/ battery were likely the most competitive DG alternatives to CG, assuming favorable solar conditions and an established power system. The report added that small PV/ micro combined heat and power were the best DG options in moderate solar conditions.

The study pointed out that with regard to CG, it could be concluded “that the relative advantage of PV over wind or vice versa is mainly driven by the resource availability of wind and solar power.”

DNV GL’s analysis further revealed the following insights when comparing DG with CG under different stylized power systems and networks:

  • Some conventional generation is still required where the marginal increase of consumption shall be compensated by renewable sources only. "This is because of the variability of RES and its limited contribution to firm capacity," the report found, adding, "It requires an additional amount of back-up capacity to serve load at times when RES … do not produce sufficient electricity to meet the total demand in specific hours."
  • In an established power system, additional system integration costs … are rather low for new DG and renewable CG compared to the CAPEX and OPEX of such a power system. Specifically for DG, the share of the costs of network integration in total costs is very small compared to the total costs, although it may vary by DG option and network structure. Nevertheless, for some distribution companies, such as those operating in Europe, these costs are considerable. In DNV GL’s experience, the costs obtained for integrating DG in distribution during this study are at least 50% of overall annual investment in the network.

DNV GL’s results also suggest that distributed PV, combined with small diesel as back-up and probably batteries as well, may be a good alternative to CG in off-grid areas, i.e. for electrification of remote areas, as has been demonstrated in Morocco.

In addition, DG may be overall less costly than centralized supply, especially in less densely populated areas that are farther from the main power grid, because the advantage of CG over DG in terms of LCOE of generation may be overcompensated by the costs of new high and medium-voltage network infrastructure required to connect remote settlements to the main power grid.

The full report is available here.