Here we show the fundamental tradeoffs that underpin the design of a distributed energy system with two objectives: the production and distribution of electric power driven by solar heating, and desalinated water produced by consuming solar power. We show analytically that larger solar power plants and desalination plants are more efficient than smaller plants. This phenomenon of economies of scale is countered by the greater losses associated with larger distribution networks. From this conflict emerges the proper allocation of nodes of production of power and water on a territory. We show that as the individual needs of power and water increase in time, the sizes of solar plants and desalination plants increase, and so does the size of the territory served by each power plant. At the same time, the territory served by each desalination plant decreases, and this means that the number of desalination plants allocated to one power plant increases. (C) 2012 Elsevier Ltd. All rights reserved.