For decades, we’ve lived in a world where energy has been generated at a central location and then distributed over the grid. There was a reason for this. Energy was expensive to make, and it could only be made efficiently on a grand scale. If you’ve ever driven past a power station, you’ll know what I mean. They’re huge structures, employing hundreds of people. And they keep running, 24 hours a day, 365 days a year.

But is all that about to change? Are we going to see the rise of on-site energy generation? Almost certainly. Right now big forces are driving this kind of disaggregated energy production. Businesses are suspicious of the ability of utilities to provide uninterrupted power. And as a result, they’re looking for cheap and reliable energy solutions. Every time the power grid goes down, they lose money. In the US alone, businesses lose up to $33 billion dollars per year, just in power outages. And so it’s a risk that’s worth mitigating.

But there are longer term trends at work here too. Cast your mind back to the 1970s when we first saw the introduction of photovoltaic solar cells. These cells were expensive – hundreds of times more expensive than coal per megawatt produced. And because the price was so high, everybody called solar a fringe player. It would never replace the energy provided by fossil fuels because it could never compete on price. But, of course, prices didn’t stay high. In fact, the price of solar cells has been decreasing on an exponential trajectory for more than forty years. And today, the price has declined by so much that it now competes with natural gas.

But what happens if the price continues to fall. Well, we won’t need any subsidies or green taxes from the government. People will opt to buy solar cells and put them on their rooftops themselves. Low prices will be incentive enough to foster the shift away from fossil fuels. With falling prices, it’s easy to imagine everybody switching to local electricity production.

This all sounds very good indeed. Local power generation gives people energy independence and security, along with lower prices. But what about the traditional energy sector? This is where things get interesting.

Many people think that the transition to local power generation will take decades. But theory suggests that this will not be the case. As people move away from utility companies, they will have fewer customers over which to spread their costs. Prices for existing customers will go up relative to the cost of local energy production. The price will rise slowly at first as early adopters move to onsite power generation. But then, as grid electricity gets more expensive, the rate of people switching to local production will increase. Eventually, there will be a runaway effect, thanks to sky-high prices in the traditional sector.

It’s for this reason that local energy production is both in our future and near at hand. If renewable prices and storage costs continue to fall, it’s only a matter of time before we can all enjoy energy security.