A Global Study of Existing Net-­‐Metering Practices for Renewable Energy Sources

Globally, 63 Countries or States offer a Feed in Tariff for those customers who ‘feed the grid’ with electricity they have generated themselves from renewable sources. The amount these customers are paid exceeds the amount they are charged for electricity, setting a precedent for policy in other jurisdictions.

Currently, net metering is offered in more than 42 states in the U.S. It is expected that Bermuda will look to U.S legislation to help determine the rate paid for renewable energy. There are no longer any U.S states offering a rate below the retail rate for electricity. Bills have further been introduced in eight states to move from net-­‐metering to a feed in tariff.

Bermuda, as a monetized island state, can be compared with Hawaii, where such a policy was recently enacted after the formation of an Energy Commission. Hawaii currently offers standard net metering.

Net metering allows your electricity meter to spin forward when electricity flows from the utility into your building, and backward when your system produces surplus electricity that is not immediately used. Your excess electricity is “banked” on the utility grid. Hawaii has announced an intention to move to a feed in tariff in two years (a).

Net metering simplifies the metering process in two ways: it eliminates the need for a second meter, and it streamlines the accounting process by eliminating the need for payments from your electricity provider.

Note: Numbers indicate individual system capacity limit in Kwh, some limits vary by customer type and technology.

Moves towards Feed-In Tariffs in the United States

The success of European and global feed in policies has encouraged American policy makers to consider feed-in tariffs at the federal, state, and local level. Bills have been introduced in at least eight states to establish feed-in tariffs, a step further than net metering. Two municipal utilities have proceeded without legislation. Rep. Jay Inslee (D-WA) introduced a bill to encourage nationwide feed-in tariffs in the U.S. House during the summer of 2008.Figure 5 illustrates the breadth of the feed-in tariff fervor.

Since the map was drawn, at least two other states (Iowa and Indiana) have been added to the list.

We have seen that 63 countries offer feed in tariffs, and 42 of the U.S states offer net metering. In what Countries or states does the utility pay an “avoided cost”, or wholesale rate to the producer of small-scale renewables?

At this time only Texas, listed as “Worst Practices :In focus: Texas” (a).

Texas

In Texas’ deregulated electricity market, credit for electricity exported to the grid is awarded at the discretion of the Retail Electric Provider (REP), the company responsible for the retail sale of electricity to end-use customers. Green Mountain Energy offers to purchase up to 500kwh per month at full retail rate with additional outflow compensated at 50%.

In other Countries and states, such as West Virginia and Hawaii, attempts by the utility to pay ‘avoided cost’ have all been changed. If Bermuda were to accept paying ‘avoided cost’+ 2 cents, as Belco have proposed, we would be the only jurisdiction in the world to do so, making us the worst jurisdiction in the world in net-metering policy. A clear precedent has been set, and a clear trend towards Feed in tariffs is indicated globally.

Policy Implications of Net Metering

As long as market penetration of small customer-generators remains small, utilities are likely to face few direct costs from allowing net energy metering. When the system’s peak output is less than or comparable to peak building demand, no modifications to the local feeder or distribution facilities are likely to be needed. Interconnection with the utility will be conditioned on meeting reasonable safety and power quality requirements, but these costs are the obligation of the customer-generator.

However, if market penetration of solar electric buildings becomes substantial, Belco is likely to be concerned about the revenue losses associated with increased self-generation or bypass by their customers. When customers install energy generating or conserving equipment on their premises, the utility loses revenue needed to cover the fixed costs of its investment in capital expenditures on plant and equipment, called its “rate base.” (In Bermuda, the Price Commission approved rate hikes to help Belco cover the cost of meeting these needs.) Belco would, in turn, be compelled to seek higher rates from its remaining customers to recover the fixed costs. This creates an undesirable spiral as higher rates encourage additional self-generation and bypass, leading once again to higher rates for remaining customers . Today, however, very few utilities are at levels even beginning to approach 10% of peak capacity; for 10% in Bermuda this equates to 14MW. That is 2,800 5KW residential installations. If Bermuda had 20 installers (currently there are about 5) and they worked flat out full time doing 20 installations/month it would take 11.6 years to get to 14MW. This situation might be expected to be of concern in Bermuda in twenty years from now, but should be reviewed at regular intervals. Despite Belco fears domestic net metering is unlikely to have any impact at all on profitability.

Foremost among the direct benefits of net metering is eliminating the need to account separately for electricity produced by customer-generators.

The cost and installation of the second meter is significant. Belco have quoted solar installers a fee of $1000 dollars to install a second meter. The subsequent accounting includes reading the second meter, calculating the payment due, and processing and mailing the payment to customer-generators.

Under most circumstances, net-metering customers will not produce any excess generation over the billing period. Therefore, no payment from the utility to the customer will be necessary; the customer simply receives and pays a bill for a reduced amount. A 1995 economic analysis of the California net metering law concluded that a utility’s cost savings from avoided meter reading and billing costs will be comparable to the revenue losses associated with net metering. (1)

Among the indirect benefits of net metering is the value of eliminating the customer-generators’ incentive to instantaneously consume all the electricity being generated. As discussed earlier, the customer-generator is allowed to use renewable generation to offset simultaneous electricity consumption. In the absence of net metering, the rational customer-generator will try to maximize simultaneous use of her own generation. If the power is being generated during a period of peak demand for the utility (as is often the case with PV systems), this incentive can lead to a perverse result: the customer-generator, who might otherwise prefer to consume power during an off-peak period, may feel compelled to turn on major electricity-consuming appliances during the peak period in order to capture the higher value associated with offsetting retail purchases. This is unfortunate, as both the utility and the customer are likely to prefer having the customer-generator feeding the excess power to the grid during the peak period and deferring the additional demand until an off-peak period.

In addition, many studies (including several sponsored by utilities) have concluded that there are direct, measurable economic benefits to the utility of having generation located close to the end user. (2) These studies have concluded that under some circumstances (usually where the utility’s distribution system is operating near capacity, as in Bermuda), distributed benefits are comparable in scale to traditional energy and capacity benefits. Net metering allows utilities to capture these distributed benefits by encouraging generation among end-use customers.

An American organization, The Interstate Renewable Energy Council (IREC) has been a participant in more than 30 state utility commission rulemakings regarding interconnection and net metering of distributed generation. The council concluded in a document entitled “Net Metering Model Rules for Renewables” )

Each Electricity Provider shall develop a net metering tariff that provides for Customer- generators to be credited in kilowatt-hours (kWh) at a ratio of 1:1 for any excess production of their generating facility that exceeds the Customer-generator consumption of kWh in the billing period.

Conclusion

There is a global precedent for both Feed-in Tariffs and Net Metering. The U.S itself is moving beyond net metering towards feed-in–tariffs.

For Bermuda to be in line with 42 U.S states and 63 other countries, Net Metering should be considered the minimum standard. For the Commission to set a rate below retail rate for the consumer would make Bermuda the worst practitioner of net metering in the world.

Net metering programs represent a simple, low-cost, and easily administered method for encouraging direct customer investment in small-scale renewables. Utilities, regulators, and renewable energy advocates should consider broader implementation of net metering as a mechanism for promoting the commercialization of clean, renewable and sustainable energy technologies.

Glossary of Terms

Avoided Cost is the cost an electric utility would otherwise incur to generate power if it did not purchase electricity from another source. Avoided cost provides the basis of the rate required to be paid to qualifying facilities for purchased power under the Public Utility Regulatory Policy Act of 1978 (PURPA).

Net metering is an electricity policy for consumers who own (generally small) renewable energy facilities, such as wind, solar power or home fuel cells. “Net”, in this context, is used in the sense of meaning “what remains after deductions” — in this case, the deduction of any energy outflows from metered energy inflows. Under net metering, a system owner receives retail credit for at least a portion of the electricity they generate. Most electricity meters accurately record in both directions, allowing a no-cost method of effectively banking excess electricity production for future credit.

A Feed-in Tariff (FiT, Feed-in Law, Advanced Renewable Tariff or renewable energy payments) is a policy mechanism designed to encourage the adoption of renewable energy sources. It typically includes three key provisions: 1) guaranteed grid access, 2) long-term contracts for the electricity produced, and 3) purchase prices that are methodologically based on the cost of renewable energy generation. Under a feed-in tariff, an obligation is imposed on regional or national electricity utilities to buy renewable electricity (electricity generated from renewable sources, such as solar thermal power, wind power, wave and tidal power, biomass, hydropower and geothermal power),

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Phillips, C.F. 1993. The Regulation of Public Utilities.

Arlington, VA: Public Utilities Reports, Inc.

Wikipedia

from all eligible participants..

The cost-based prices therefore enable a diversity of projects (wind, solar, etc.) to be developed, and for investors to obtain a reasonable return on renewable energy investments. This principle was first explained in Germany’s 2000 RES Act:

“The compensation rates…have been determined by means of scientific studies, subject to the proviso that the rates identified should make it possible for an installation – when managed efficiently – to be operated cost-effectively, based on the use of state-of-the-art technology and depending on the renewable energy sources naturally available in a given geographical environment.” (RES Act 2000, Explanatory Memorandum A)

As a result, the rate may differ among various forms of power generation, and for projects of different sizes.

In addition, FITs typically offer a guaranteed purchase for electricity generated from renewable energy sources within long-term (15-25 year) contracts. These contracts are typically offered in a non-discriminatory way to all interested producers of renewable electricity.

As of 2009, feed-in tariff policies have been enacted in 63 jurisdictions around the world, including in Australia, Austria, Brazil, Canada, China, Cyprus, the Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Iran, Ireland, Israel, Italy, the Republic of Korea, Lithuania, Luxembourg, the Netherlands, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland, and in some states in the United States.

In 2008, a detailed analysis by the European Commission concluded that “well-adapted feed-in tariff regimes are generally the most efficient and effective support schemes for promoting renewable electricity.”. This conclusion has been supported by a number of recent analyses, including by the International Energy Agency, the European Federation for Renewable Energy, as well as by Deutsche Bank.

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(1) H. Wenger, California Net Metering Program Impact: Net Present Value Economic Analysis,

(Unpublished paper) (January 8, 1995). Copy available from the Renewable Energy Policy Project.

(2) See D. Shugar, Photovoltaics in the Utility Distribution System: The Evaluation of System and

Distributed Benefits, Pacific Gas & Electric Company, Research & Development Report (July 1991); R. Lambeth &

T. Lepley, Distributed Photovoltaic Evaluation by Arizona Public Service Company, 23rd IEEE PV Specialists

Conference, Louisville, KY (May 1993). Copies available from the Renewable Energy Policy Project.

(3) http://irecusa.org/fileadmin/user_upload/ConnectDocs/IREC_NM_Model_October_2009-1.pdf

(a)

http://www.newenergychoices.org/uploads/FreeingTheGrid2009.pdf

This is a useful document covering in micro-detail every U.S state and best practices for those seeking to implement a net-metering policy.

For more specifics on state policies, check out this list from the Database of State Incentives for Renewables and Efficiency (DSIRE). Only eight states don’t have net metering laws: Alaska, South Dakota, Nebraska, Kansas, Tennessee, Mississippi, Alabama and South Carolina. Kansas