Distributed generation: what it is, how it works and the types available
Distributed generation is an electricity production model in which energy is generated close to points of consumption and is normally connected to the distribution network, rather than relying exclusively on large power plants connected to the transmission network. Put simply: instead of producing all electricity hundreds of kilometres away and delivering it to the consumer, some of that energy is produced where it is actually used.
The Directive (EU) 2019/944 defines distributed generation as generating installations connected to the distribution network. This definition matters because it makes clear that distributed generation does not mean only self-consumption or exclusively solar energy: it can include different technologies, owners and operating models.
A photovoltaic installation on a factory roof is an obvious example, but a small hydropower plant connected to distribution, a biogas plant, a cogeneration installation or certain solar and wind projects connected to medium-voltage networks can also be considered distributed generation. When generation is combined with BESS, demand-side management and control systems, the concept expands to what are known as Distributed Energy Resources (DER).
Its growth is changing the traditional architecture of the power system. The network no longer operates only in one direction — from power plant to consumer — and begins to manage bidirectional flows of electricity, information and flexibility.
What does a distributed generation project need?
Installing generation close to consumption does not mean it can simply be connected. The design must coordinate electrical, administrative, economic and operational aspects. The exact requirements depend on the country, capacity, connection voltage, technology and project model.
One of the first steps is to assess the connection point. The network must be able to absorb the expected output without exceeding voltage, thermal capacity, power quality or protection limits. In small projects, this process may be relatively straightforward; higher-capacity installations may require specific network access and connection studies. Protection systems must also be correctly defined. A distributed installation must disconnect or respond appropriately under certain network conditions. Relay coordination, anti-islanding protection, voltage and frequency control, and disconnection capability are essential to prevent generation from interfering with safe network operation.
The metering system is another critical element. Depending on the model, generated, consumed, imported and exported energy may need to be recorded separately. The more complex the asset, the more important communications become, alongside SCADA and control systems. Permits, planning regulations, industrial safety, supply contracts, network charges, taxation, the electricity market and, where applicable, requirements for aggregation or participation in flexibility services must also be analysed.
Distributed generation vs self-consumption vs Utility Scale
These concepts overlap, but they are not synonymous. Self-consumption mainly describes a relationship between generation and associated consumption. Distributed generation describes where generation connects within the power system. And Utility Scale usually refers to large-scale assets primarily serving the power system.
| Concept | Key feature | Example |
|---|---|---|
| Self-consumption | Generation associated with own consumption | Photovoltaics on an industrial building roof |
| Distributed generation | Generation connected to the distribution network | A 5 MW solar plant connected at medium voltage |
| Utility Scale | A large-scale asset serving the power system | A 300 MW solar farm connected to a high-capacity network |
| DER | A portfolio of flexible distributed resources | Solar + BESS + controllable demand + EMS |
The same installation can belong to several categories. For example, a factory with photovoltaics can simultaneously represent self-consumption and distributed generation. If it incorporates storage and smart control, it can also form part of a DER strategy.
Benefits and challenges of distributed generation
The main benefit is bringing production closer to consumption and enabling new participants to take part in the power system. It can also reduce losses, make use of existing built surfaces, increase local resilience and facilitate electrification through renewable resources.
Distributed generation also introduces challenges. When thousands of installations generate simultaneously, the network must manage voltage changes, reverse flows, local congestion and greater forecasting complexity. A network originally designed to carry energy from a substation to consumers may now experience electricity flowing in the opposite direction at certain times.
This change drives more active, digitalised networks. Smart meters, automation, storage, Peak Shaving, aggregators and flexibility platforms enable better coordination of distributed resources. Distributed generation therefore is not simply about “putting panels nearby”. Technically, it means moving from a highly centralised power system to an architecture with many generation, consumption and storage points that must be coordinated in real time.
Practical examples of distributed generation
A supermarket with 300 kW of rooftop photovoltaics is a simple case: it consumes much of the output during the day and reduces the energy purchased from the grid. A factory with 5 MW of solar and a 2 MW / 4 MWh BESS represents a more advanced case, as it can combine self-consumption, peak control and surplus management.
Another example is an energy community sharing renewable production among several consumers in the same area. A biogas plant connected to a rural medium-voltage network or a small hydropower plant feeding directly into distribution could also be distributed generation.
In all these cases, the technology and economic model differ, but the logic is the same: production is integrated close to consumers and within the distribution network. As the number of these resources grows, coordinating them through digitalisation, storage and flexibility mechanisms becomes increasingly important.
How does distributed generation work?
In the traditional electricity model, large generating plants produce electricity that travels through the transmission network, passes into distribution networks and finally reaches homes, businesses and industry. Distributed generation introduces production directly into distribution networks or even within the consumer’s own installation. Imagine a factory with a 2 MW rooftop photovoltaic plant. During sunny hours, part of the industrial demand can be supplied directly by the panels. If the plant produces more electricity than the factory consumes and the installation is authorised to do so, the surplus can be exported to the grid. When solar production falls, the consumer imports electricity again.
Local generation → Local consumption → Surplus to grid / storage → Distribution network
This proximity between generation and consumption can reduce certain network flows and the losses associated with transporting electricity, although it does not mean the network is no longer needed. In fact, the greater the penetration of distributed resources, the more important connection capacity, monitoring, protection and active distribution management become.
Types of distributed generation
Behind-the-meter distributed generation
This is generation installed within the consumer’s internal network, usually to reduce the energy that must be purchased from the grid. The best-known example is photovoltaic self-consumption in homes, businesses or industry. It can operate with or without surplus exports and be combined with batteries. In Spain, Royal Decree 244/2019 regulates the administrative, technical and economic conditions for self-consumption and distinguishes, among other matters, arrangements with and without surplus exports.
Distributed generation connected directly to the grid
Not all distributed generation is associated with a specific consumer. There are also installations producing electricity to sell it or feed it directly into the distribution network. A solar plant of several MW connected to a distribution substation can be distributed generation even if there is no industrial consumer behind the same meter.
Dispatchable and non-dispatchable distributed generation
Photovoltaics and wind power depend on the available resource and are variable. By contrast, technologies such as biogas, biomass, cogeneration or certain hydropower plants can provide more controllable output. This distinction matters for network operation: a dispatchable resource can more readily adjust its output to a setpoint, whereas a variable resource needs forecasts, storage or complementary flexibility.
Hybrid distributed generation
Combining several technologies is increasingly common. One example is an industrial facility with photovoltaics, a BESS and an EMS that decides when to use self-generated energy, charge the battery, reduce demand peaks or export energy. In these cases, we are no longer talking only about generation: we are talking about a distributed energy resource capable of generating, storing and managing power.
Which technologies are used in distributed generation?
Solar photovoltaics is currently the most recognisable technology because it can be installed modularly, from a few kW to several MW. However, distributed generation is a much broader technological concept.
Typical examples include solar photovoltaics, small wind turbines, cogeneration, biomass, biogas, small hydropower plants and generating sets. Certain settings may also feature fuel cells or hybrid installations.
Storage is not generation in the strict sense, but BESS systems are commonly integrated into the DER ecosystem because they can shift energy over time, limit exports, provide flexibility and support the grid. The European Commission notes that Distributed Energy Resources can help meet flexibility needs both locally and across the power system as a whole. In modern projects, it is therefore often more useful to think in terms of a portfolio of distributed resources than a single isolated technology.