The other side of net-metering
Solar rooftop projects, be it implemented at residential, commercial or industrial premises, would leave a negative impact on the revenue earnings of the utilities
Policy instruments matter, don't they? They are the government tools, be it regulations or economic tax/incentive, to spearhead successful implementation of different policies. Much of the success of any policy hinges on the policy instrument or the mix of policy instruments, designed by a government, and their ability to stimulate necessary transformation on the ground. To this end, over the last decades, several policy instruments have significantly influenced the global pursuit for clean energy transition, supporting innovation to take place in the broader spectrum of renewable energy technologies while systematically eliminating different barriers accompanied with the said transition.
Once renewable energies, for instance, solar and wind, were plagued with high upfront costs compared to the fossil fuels like coal, oil and gas, and transition to clean energy was something beyond many countries' capacities. The tide has, however, changed, thanks to conducive policy instruments, to the extent that around 30 percent of global electricity today is being harnessed from renewable energy sources.
And it all started with the incentive mechanism that helped spur diffusion of renewable energies in countries, achieve economies of scale as well as promote innovation. The goal was to reach the peak of the learning curve as soon as possible, pushed by policy instruments, and thereafter, driving down the high cost. In doing so, instruments such as feed-in-tariff, net-metering and carbon pricing have predominantly been used over the decades to give price signal to the markets. Among these instruments, feed-in-tariff is in the process of phasing out, to a varying degree, in some countries.
While under feed-in-tariff, renewable energy-based power producers get a premium price, higher than the retail price of power generated from fossil fuels, for a longer term, in net-metering electricity producers from renewable sources export additional power to the grid after self-consumption normally at a retail price. When gross metering concept is in place, producers transfer all of their electricity, produced from renewables, to the grid. On the other hand, carbon pricing tools, which are market-based instruments, are designed to internalise the external cost of pollutions, intended to make fossil-based power costlier. As such, feed-in-tariff and carbon pricing have been conducive to incentivise renewable energy and conversely, disincentivised fossil fuels.
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Germany, some European countries and several other countries have espoused both feed-in-tariff and carbon pricing and are evidently able to, appreciably, increase share of renewable energies to their national grids. Our neighbouring country, India has chosen preferential tariffs under both net and gross metering schemes along with market-based instrument, namely, renewable energy purchase obligation for utilities.
As market innovation and scales are attained, incentive under feed-in-tariff has gradually been reduced. This feed-in-tariff and other instruments are the measures, as many experts claim, which have led the price of renewables to sharply decline to the levels where nearly all renewable energy sources are now cost competitive with oil, coal and gas-fired power plants. Apart from these instruments, auction has influenced the price of renewable energies, particularly in recent years.
In Bangladesh context, renewable energies, other than the solar home systems programme of IDCOL, have not been incentivised against the global tide, which was in favour of policy instrument driven approach. However, what is interesting to note that, the renewable energy policy of Bangladesh, formulated in 2008, has the provision for incentives to deliver market signal for renewable energy diffusion. And almost after a decade of crafting the renewable energy policy, the government has prepared the net-metering guidelines in 2018, which has later on been revised, laying the foundation for rooftop solar projects. It's a move to potentially help increase share of renewable energy to the grid, enabling the government to meet future sustainable energy goal and contribute to climate change mitigation targets under nationally determined contributions (NDC).
As project owners, i.e., prosumers, now would transfer certain quantity of electricity, to be generated at their rooftops, to the national grid, supported by a bidirectional meter, they eventually would be benefited from overall reduction in their electricity bills.
All this is fine until to the point that the share of renewable energy would grow in our national electricity system. Nevertheless, there is much to be said about that the benefit of increasing renewable energy would be, to some extent, offset by accompanying challenges. As far as industries are concerned, they are the ones, like commercial sectors, pay higher tariffs against the electricity they purchase from grids. Once part of an industry's monthly business-as-usual (BAU) consumption is generated from rooftop solar project, it would, as a result, pay to the utility for the remaining consumption. Since the tariff for industries is over Tk 8 per KWh, the utility would lose a hefty amount of revenue in the circumstances when many industries would consider solar rooftop projects. The same goes with commercial buildings that are charged at a high rate. Residential buildings with three phase connections and having higher load normally spend more for electricity. As follows from this analysis, solar rooftop projects, be it implemented at residential, commercial of industrial premises, would have extraordinary impacts at revenue level for utilities.
We can't be oblivious of other deeper problems, for example, if demand for grid electricity doesn't rise in the foreseeable future, with each additional unit of solar rooftop project within the framework of net metering, utilities would be burdened with own surplus capacity on top of the structural surplus electricity that the sector is currently confronted with.
In addition, many industries, more often than not, take the advantage of own captive generations, both cheaper and reliable with respect to grid electricity. As they are the large energy consumers, aggregate fall in demand for electricity within industrial sectors would cause a huge slump in demand in overall electricity system in the country.
Be that as it may, the net metering paradox would entail bold steps being undertaken against the backdrop of present and anticipated surplus electricity and to support utilities to tackle revenue loss. One of the routes to help address the situation could be to raise price of fossil fuels, i.e., gas and liquid fuels, so as to make captive power generation costlier than now and thereby, encouraging industries to be more loyal to national grid. Minimising captive power generation means huge national savings on account of gas, which would have knock on effect on LNG import. If we really want to overcome revenue related vulnerability of utilities, the power distribution system should be improved gradually to enhance reliability. And the country would be better off in an ideal situation without the obligation to pay capacity charge.
Despite the flip sides, as I have dwelled upon, we have embarked on a policy instrument for solar when solar is highly competitive in global market.
However, to stimulate the implementation of solar rooftop projects and not to jeopardise interests of the utilities, our policy instrument "net-metering" should remain relevant for years to come. Appropriate policy traction is, therefore, necessary to contain surplus capacity by shifting focus, from both current power generating units of temporary structure and planned fossil power capacity, to clean energy while rationalising tariffs of fuels for industrial purpose.
Shafiqul Alam is an engineer and environmental economist. He is a Humboldt Scholar and senior advisor in an international agency. He is also a sustainable energy and climate change analyst. He can be reached at [email protected]
