How does distributed generation typically affect electricity prices?

Distributed generation can lead to lower electricity prices by increasing the supply of electricity on the grid. When more generation sources, such as solar panels or wind turbines, are installed closer to the point of consumption, they can reduce the reliance on centralized generation sources. This can lead to a more competitive environment in the electricity market.

As distributed generation increases the supply of electricity, it can help meet demand more effectively. If supply exceeds demand, prices are often driven down. Moreover, distributed generation can reduce transmission losses since electricity produced locally does not need to travel as far to reach consumers. This added efficiency further supports a reduction in prices.

In contrast to this correct answer, there are scenarios that may lead some to think about the impact of distributed generation differently. For instance, while one might argue that increased generation could raise operational costs in the short term as infrastructure is built out and integrated, the long-term effects often show that increased local supply contributes to overall lower costs for consumers.

Additionally, simply put, if distributed generation only maintained existing supply without enhancing overall capacity, it might have little effect on prices. Similarly, while it could stabilize electricity prices by regulating demand, the primary mechanism through which distributed generation affects pricing is by increasing supply and fostering a more competitive electricity market