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Renewable distributed energy generation (RDEG) installations today represent less than 1% of total worldwide electricity generating capacity, but according to a new report from Pike Research, they are poised to expand rapidly over the next five years.

The report says that worldwide RDEG installations, such as distributed solar photovoltaics (PV), small wind and stationary fuel cells, will nearly triple between this year and 2017, reaching 63.5 GW annually in 2017. According to Pike Research, nearly 232 GW of distributed renewables will be added over that five-year period.

Despite their smaller scale, RDEG installations are more cost-effective than centralized installations, which require transmission to population centers. In many ways, the overall momentum is shifting to RDEG sources that inherently provide consumers more control over the electricity they use and generate. But in order to reach its full potential, the report adds, RDEG will require new business models, technology development, utility participation and investment in an uncertain economic climate.

Recent growth

Last year saw tremendous growth for RDEG, with 20.6 GW installed, representing $66.5 billion in revenues worldwide. Measured by capacity, distributed solar PV is, by far, the largest RDEG industry, representing 99% of the total RDEG market, the report says. This is followed by stationary fuel cells and small-wind applications, which represented less than 1% combined in 2011.

Regionally, more RDEG installations occurred in Europe than in the rest of the world combined. Pike Research cites the impending reduction of feed-in tariffs (FITs) scheduled for 2012 in Italy and Germany, combined with record-low solar PV installed costs, for 2011’s record number of installed RDEG capacity in Europe. Together, Italy and Germany accounted for 58% of global RDEG installed capacity in 2011.

Last year marked the first boom for domestic distributed solar PV installations in China, which accounted for 49% of all RDEG installations in the Asia Pacific region. The region was also home to an estimated 94 MW of fuel cell installations, and Japan and South Korea are expected to lead growth during the forecast period.

The North American market was driven by the growth in popularity of solar lease models in the U.S., Ontario’s FIT, and historically low solar PV installed costs for commercial-scale installations, which resulted in the region’s strongest showing yet. Despite the import duties on Chinese solar modules brought into its borders, the U.S. is expected to continue growing this year.

Although the Rest of World (ROW) category is meager compared to the three other regions, with only 4% of global RDEG installed capacity in 2011, Pike Research expects considerable activity in these previously untapped markets, including in Africa and the Middle East, that will increasingly make the region an indispensable part of companies’ strategies to deploy their technologies amid tight competition and rapidly falling prices during the forecast period.

Looking ahead

The report predicts that Europe will continue to be the largest market for RDEG during this forecast period, with most countries expected to hit their renewable energy targets. However, Asia Pacific, led by China, will grow the fastest as untapped domestic markets for RDEG installations emerge.

North America, led by the U.S., will see significant growth as the cost of renewable energy approaches that of conventional energy in many parts of the country and the solar lease and power purchase agreement (PPA) business models gain momentum.

Meanwhile, with large percentages of their populations currently without access to electricity, developing countries are increasingly looking to RDEG technologies as a critical piece to their short- and long-term growth.

The global electric power industry is evolving from a financial and engineering model that relies on large centralized power plants owned by the utilities to one that is more diverse - both in sources of generation and ownership of the generation assets, Pike Research says.

According to the firm, the following emerging trends will shape the trajectory of RDEG technologies:

Awareness: A worldwide awareness of alternative sources of power is growing. Because investment in an RDEG technology is typically a personal choice made by the home or property owner, awareness is particularly important to the RDEG market’s growth.

Price drops:
Solar module costs dropped from roughly $4/W in 2006 to $1/W in 2011. Lower prices are opening up new markets for distributed PV, while helping the technology reach grid parity more quickly in retail electricity markets. In addition, the small-wind industry should start to see turbine prices drop over the analysis period of this report, as manufacturing shifts toward the Asia Pacific region.

Leasing programs:
Innovative financing options are emerging in RDEG markets that will make the technology available to more homeowners. Solar leasing companies, such as SolarCity and SunRun, are offering homeowners the option to have solar PV installed on their rooftops with little to no up-front investment.

Utility ownership:
Utility-driven distributed solar PV installations are an emerging dynamic in the RDEG industry. The scale and ownership structure is different from the traditional rooftop market, and it has the potential to create significant additional market expansion.

Third-party ownership: PPAs are similar to leasing programs, but operate on a much larger scale. This type of business model represents a growing portion of the PV and RDEG markets and has the advantage of lower costs associated with larger-scale installations.

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