By Martin Scherfler |
Executive Summary |
In December 2020, the Ministry of Power has prepared and notified the Electricity (Rights of Consumers) Rules 2020. This is an excellent initiative, which puts the electricity consumer in the centre of the electricity sector thereby recognising that the consumer is the key stake holder. After Government of India successfully electrified each and every household in the country this initiative is indeed the next logical step in the mission of creating a consumer-centric electricity sector.
The Electricity (Rights of Consumers) Rules 2020 includes clause 11(4) which deals with prosumer metering. This clause stipulates that for solar PV systems of prosumers with a load in excess of 10kW only gross-metering can be provided while for loads of 10kW and below net-metering can be given.
This note outlines how there will be an (unintended) significant negative impact on the growth of consumer category solar energy with this new provision. The note makes a case for the introduction of a net feed-in mechanism as an alternative to net-metering rather than gross-metering. The note also states that the proposed introduction of gross metering will eventually also have negative consequences for Discoms (Distribution Company).
Consumer as Prosumer
The Rules include section 11 Consumer as Prosumer. It is appreciated that the Ministry has included a dedicated section on this important subject matter.
Section 11 includes a sub-section (4), which reads as follows:
“The regulations on Grid Interactive Rooftop Solar PV system and its related matters shall provide for net metering for loads up to ten kW and for gross metering for loads above ten kW”.
It is proposed that this clause is amended for the reasons outlined in this note.
In the case of net-metering the exported energy is deducted from the imported energy in energy units (kWh) to arrive at the net imported (or exported) energy. Effectively this means that the consumer is compensated for the exported energy at the same rate as the consumer’s consumption tariff.
In the case of consumer tariffs that are significantly higher than the actual cost of small scale (rooftop) solar energy, net metering becomes an unfair proposition for the Discom.
It is submitted that gross metering comes with its own challenges and becomes an unfair proposition for the consumer / prosumer:
- The main objective of solar PV systems installed by electricity consumers is self-consumption. Consumers do not install these systems to sell energy to the distribution licensee as is the case with utility category solar energy producers.
- In the case of net metering, the AC output of the solar grid inverter is connected to the nearest distribution board of the building. There is no need of a separate cable from the solar grid inverter to the service connection point and only a single service connection meter is required.
Gross feed-in systems require a separate cable from the solar grid inverter to the service connection point of the distribution licensee where a second service connection meter is to be installed to record the energy feed-in. In larger buildings or in the case of (educational) campuses this will become a very expensive or even impossible proposition.
Take the example of a university campus, hospital campus or government building complex with a single Discom service connection where a solar PV system is installed on one of the roofs of one of the buildings. With the gross metering mechanism, a cable will have to installed between the solar grid inverter AC output and the gross meter at the service connection point, which will in most cases be somewhere near the entrance of the campus. The same issue will arise with multi-storied buildings. The cost of this cabling will in many cases be higher than the cost of the solar PV system itself.
- With gross feed-in the solar PV system investment becomes unviable if the feed-in tariff is lower than the cost of the solar energy production since all energy is to be exported to the grid.
- Solar energy can be consumed at the location of generation. This is a unique feature of solar energy since it is available everywhere. This major advantage of solar energy is not (fully) made use of when gross metering is introduced.
- If gross-metering is introduced (for systems above 10kW as proposed), the growth of consumer category solar energy systems, which is already very slow, will reduce even further. There will be very few takers and targets may not be achievable.
- In the case of gross feed-in the distribution licensee has to maintain and read two energy meters instead of one meter as in the case of net feed-in. As explained above, for campuses or multi-storied buildings this would make solar PV systems with gross metering technically and financially unviable.
Solution: The net feed-in mechanism
It is submitted that the proposed solution to these issues is the net feed-in mechanism, (also known as “net-billing”) which would work as follows:
The solar energy is consumed by the loads of the consumer with the surplus, if any, being exported just as is done with solar net-metering. But instead of deducting the exported energy from the imported energy to arrive at the net imported energy to be billed, the exported energy is paid for at a tariff to be determined by the Commission (regulator). This payment can take the form of a monetary credit adjustment in the electricity bill. With the net feed-in mechanism only a single bidirectional service connection meter is needed as is done for net-metering.
Consumption tariff assumed: INR 8.00 per kWh
Net feed-in tariff assumed: INR 5.00 per kWh
Imported energy assumed: 500 kWh
Exported energy assumed: 300 kWh
Electricity bill in the case of net-metering:
(500-300) x INR 8.00 = INR 1,600
Electricity bill in the case of net feed-in:
500 x INR 8.00 = INR 4,000
300 x INR 5.00 = INR 1,500
To pay: INR 4,000 – INR 1,500 = INR 2,500
Net feed in – a balanced approach
The proposed net feed-in mechanism takes care of the concerns of both the prosumer and the Discom as follows:
- The prosumer can use the solar energy for self-consumption and can export surplus energy, if any, to the grid;
- The Discom gets paid for the energy imported by the consumer as per the applicable consumption tariff while the consumer / prosumer is compensated for the exported solar energy on the basis of a feed-in tariff fixed by the Commission (regulator). By doing so, the feed-in compensation gets delinked from the consumer tariff.
Possible concerns / objections
Discoms will appreciate that with the net feed-in mechanism exported energy is no longer compensated for on the basis of the consumption tariff but may raise objections stating that self- consumption by consumers / prosumers results in a revenue reduction. But if this argument would be accepted, then even energy conservation or efficiency measures or the conversion of a power-intensive enterprise to a less power intensive enterprise could be objected to as these also results in lower energy consumption. Also, if this argument would be accepted, there can be no stand-alone solar PV systems or solar PV systems that run in paralleling mode.
Discoms must only be concerned with the energy transactions that take place at the point of supply: import from the grid and export to the grid. With the proposed net feed-in mechanism import from the grid is paid for by the consumer at the applicable consumer tariff while for export to the grid there is a feed-in tariff determined by the Commission.
Prosumer metering in other countries
In most west-European countries net-metering is still the standard practice. In the USA 38 states have mandatory net-metering rules. Australia and Canada also provide net-metering to its prosumers and is considered a foundation for the promotion of renewable energy systems.
Net-metering in these countries makes more sense as there are typically only two consumer tariff rates, one rate for HT consumers and one rate for LT consumers. (Typically, the HT tariff is lower than the LT tariff as the HT consumers are bearing the downstream LT distribution losses).
Sometimes net-metering is combined with net feed-in whereby export that does not exceed import on an annual basis is adjusted with import (net-metering) while export in excess of import is paid for (net feed-in); always with a single bidirectional energy meter (with vector summation in the case of three phase meters).
Prosumer level energy storage
It may please be noted that if gross metering becomes the only available prosumer metering option for solar PV systems above 10kW, prosumers / consumers will install energy storage systems and will eventually use the Discom grid only as a stand-by source.
With the declining costs of batteries this is a realistic near-term scenario. It is therefore in the best interest of Discoms to welcome grid injection of solar energy rather than incentivising consumers to store the surplus energy in their own batteries for later use and become increasingly independent from the grid. The sustainable grid of the future will have distributed and connected renewable energy generation and storage systems. The grid becomes the balancing system that facilitates instantaneous energy flow from clusters that are in surplus to clusters that are in deficit.
Since Discoms increasingly become distribution-only (or “distribution-mainly”) enterprises, their only, or main, source of revenue will be the transport and delivery of energy. Discoms have one asset that nobody else has: the electricity distribution network. This asset needs to be used to the maximum extent possible for revenue generation. Creating barriers for solar energy injection will work against the interests of the Discoms themselves.
It may also be noted that the energy exported by consumers / prosumers is delivered at the point of supply and typically travels to the nearest load / other consumers over a very short distance with no transmission losses and very low distribution losses.
It is therefore suggested that for all solar PV systems of prosumers the net-metering or net feed-in mechanism shall apply (as may be decided by the Commissions) and that gross feed-in is used only for systems where the primary objective is sales of solar energy to the Discom or to a third party through open-access or wheeling. This will create a fair and balanced prosumer metering system that addresses the concerns of both the Discoms and the consumers / prosumers while promoting a sustainable energy future for all.
It may therefore be kindly considered to amend clause 11(4) of the Electricity Rights of Consumer Rules as follows:
“11 (4) The Regulations on grid interactive consumer category solar PV system and related matters shall provide for net-metering or net feed-in for all consumer / prosumer categories at all service connection voltage levels (LT and HT).
Commissions may decide for which consumer categories net-metering or net feed-in shall apply and may determine the feed-in tariff in the case of the net feed-in mechanism.
In the case of net feed-in, Commissions may introduce time-of-the-day (ToD) feed-in tariffs whereby prosumers are incentivised to install energy storage so that stored solar energy can be fed into the grid during peak hours. Energy storage is an important flexibility resource that will help unlock the benefits of distributed renewable energy generation for the Discoms.
The energy import and export shall be measured with a single bidirectional energy meter at the point of supply.
Installation of a solar energy generation meter (which measures the gross energy generation) at the point of supply shall not be required.
Existing solar PV systems with net-metering shall be permitted to continue with the net-metering facility. There shall be no retroactive cancellation of existing net-metering facilities by Discoms”.
Also, the following definitions may be added to the Rules:
“Net-metering” means a mechanism whereby exported energy is deducted from imported energy in energy units (kWh) to arrive at the net imported / exported energy. The net energy import (or export) is billed (or credited / carried-over) on the basis of the consumer tariff. A single bidirectional energy meter shall be used for net-metering at the point of supply.
“Net feed-in” means a mechanism whereby imported and exported energy are valued at two different tariffs. The monetary value of the imported energy is based on the applicable consumer tariff. The monetary value of the exported energy is based on a feed-in tariff. The monetary value of the exported energy is deducted from the monetary value of the imported energy to arrive at the net amount to be billed (or credited / carried-over). A single bidirectional energy meter shall be used for net feed-in at the point of supply.