Since Edison’s day, we have been generating electricity in basically the same way: by using massive, centralized power plants.

Along the way, utilities have become enormous entities with thousands of employees and billions of dollars in revenue. Many of them are public companies that pay generous and reliable dividends, making them a favorite investment for grandmothers everywhere.

But the model now faces two distinct challenges. First, a majority of scientists, policy leaders, the public and business executives and others have come to the conclusion that greenhouse gases need to be reduced.

Second, power plants aren’t cheap and can take years to build.

Besides producing clean energy and a fairly reliable rate, solar panels sport another unique attribute, say advocates: modularity. Solar power plants range in size from the 250-megawatt California Solar Valley Ranch slated for Central California to a 3-kilowatt system installed on a 1,500 square foot house.

A solar charger for a cell phone is a power plant too, if you think about it. The size of your solar plant depends on your budget and the real estate on hand.

This modularity has allowed solar to grow rapidly. The U.S. installed 1.3 gigawatts of solar panels in 2009 and 2010 and will install 1.4 gigawatts of solar in 2011, according to Shyam Mehta, Senior Analyst at GTM Research. And as volumes steadily increase, prices drop.

But where does solar make the most sense -- on homes, or commercial rooftops, or in big fields in the desert?

Utilities can now build desert solar power plants for $4,000 a kilowatt and the price will decline. That’s far less than what consumers will pay for home systems or what businesses might pay for a large array on a roof. Utilities can also obtain loans and capital and cheaper rates. Construction costs on big projects come out lower on a per-kilowatt basis.

To top it off, companies like SunPower and Solon have come up with 1 megawatt-sized “power plants in a box” that further cut the cost of utility-scale solar.

Game over? Not quite. Utilities and renewable power providers have to compete against the wholesale cost of natural gas. Natural gas plants cost only around $1,000 per kilowatt to build, making solar a still-expensive option.

Consumers and businesses, meanwhile, weigh the cost of a solar system against the retail rate of power, which is generally higher. Depending on the available federal and state incentives, a consumer or business can get a solar system that will pay for itself in eight years and that lasts for more than 25 years.



Planning and approval is far easier, too: homeowners won’t likely have to worry about getting a grid connection. Some urban solar plants are built on top of wastewater treatment plants, so forget the painful environmental review process.

Then again, thousands of solar panels of varying size distributed throughout a region increases the risk of grid destabilization, which in turn detracts from one of the touted benefits of distributed power -- namely, the ability to withstand breakdowns on the grid.

Which works best? We might not know for years, and each approach has its partisans. This may be a case where, to quote Voltaire, “the best is the enemy of the good.” But it may turn out that we find it possible to say that distributed solar is “the best” and centralized solar is good, too.

Read more on this topic in a joint effort by General Electric Ecomagination and Greentech Media, and join the conversation here.