The phrase "distributed generation" comes up a lot in discussions of renewable energy, but its meaning isn't particularly easy to guess at. Most often you'll hear it in arguments over whether rooftop solar is preferable to remote, utility scale (read: large) solar projects. Some people even define distributed generation as "rooftop solar."
But there's more to distributed generation than rooftop solar. Distributed generation doesn't even need to be renewable-energy based: there are small natural-gas-fired turbines that qualify, in some parts of the country.
What distributed generation does mean is a breaking away from the old paradigm of electricity generation, transmission, and consumption.
As we note in our explainer on The Grid, the traditional electricity transmission model involves large power generators sited at a considerable distance from the majority of the power's end consumers. The electricity generated is transmitted at a very high voltage over hundreds of miles to distribution grids in cities and other "load centers." In other words, all the generation is at one end of the chain, and all the consumption at the other end.
In distributed generation, that arrangement is broken up. Hundreds or thousands of smaller-capacity generators, from solar to small wind installations to landfill gas or natural gas turbines, generate power near where it will be used. These generators may be hooked up to a distribution grid, or to a local "microgrid" that can be connected to and disconnected from the larger power grid. The sources may also be entirely off the grid.
A system of distributed generation differs in several important respects from the old-schoolpower generation system. As more of the power consumed in an area is generated nearby, the need for expensive (and often environmentally damaging) transmission lines is reduced. Distributed generation systems tend to be more robust: with more redundancy, a single point of failure in the grid is far less likely to cause a catastrophic failure such as the one we saw in Southern California in 2011. Long-distance transmission brings with it inefficiencies known as "line losses": this loss averages around 7% of the power generated but can be as high as 20% if the transmission line is long, and the temperature high. Generating power closer to its point of use reduces transmission line loss.
Probably the biggest difference between the system as we have it now and a greater reliance on distributed generation involves the business plans of electrical utilities. For a long time utilities were more or less "vertically integrated": they generated the power and ran it over transmission lines they owned so that they could sell it to you. That's been broken up somewhat as the grid has gotten more complex. As photovoltaic cells drop in price and more PV installations bloom in urban areas, the resulting increased emphasis on distributed generation promises to undo that business model still further.
Eventually, if we keep heading in the direction of distributed generation, utilities will have to become more like brokers than retailers: you may generate power that your neighbor consumes, and the utility takes care of the paperwork and the grid maintenance. It's not far from the truth to compare utilities in 2012 to record companies in 1992, before Napster. Companies that can adapt to technological changes and a decentralizing industry may well do just fine. Companies that try to enforce the previous status quo will have an uphill battle on their hands.