Implementing Net Metering in the Developing World

Implementing Net Metering in Country ‘X’
Prepared by: Distributed Energy

Confidential - Distributed Energy Pte Ltd
Investment and Enabling Environment
Biggest Issues and Bottlenecks Progressive Way Forward
Misalignment of power supply & demand
Technical assistance and capacity building
for energy sector
Limited financing for off-grid companies
Limited affordability of electricity solutions
for rural households
Transaction advisory services and financial
mobilization
Support in on-and off-grid energy policy
development and implementation

Understanding Net Metering
 Net Metering is a billing mechanism in which a self-generating customer can inject the surplus into the grid and receives a
compensation on his/her electricity bill
 Net Metering, in essence, allows small scale renewable energy power producers to “bank” or “store” their electricity in
times of over-production (e.g. for solar energy during peak production in the day) in the national grid

Net Metering is a Net benefit
Macro-Level Micro-Level
 Stimulate country-wide economic growth
 Protecting the electric grid
 Encourage substantial private investment into RE
 Reduce demand for electricity during peak
periods
 Help stabilize energy supply infrastructure
 Diversification of Country X’s energy resource mix
 Reduce interconnection and administrative costs
 Giving customers control over their electricity
bills
 Financial credit for extra solar power
produced
 Encourages consumers to play an active role
in alternative energy production
 Encourage conservation and efficiency
 Reduce carbon footprint

Why is Net Metering particularly suitable for so-called
emerging countries?
Unable to meet the
energy demand
because of insufficient
generation capacities in
particular during peak
hours
High grid electricity
prices, declining solar
PV costs improves cost
competitiveness –
providing the rationale
for net-metering
Increased
Government led
policies facilitating
renewable energy
generation and
sustainable
development
In countries with large
solar potential & ambitious
renewable energy targets,
rooftop solar is being
looked at as a major
means to achieve a
significant portion of the
RE targets

How will Net Metering fit within a traditional grid model?
 Net Metering Programs - encourage
renewable growth, clean energy
investments. Net Metering schemes
have proved to be effective to jump-
start distributed generation markets.
 Implementation of a well designed
decoupling mechanism that will
encourage utilities to promote
energy efficiency, competitive pricing
and distributed generation
technologies.
 Increasing RE portion in the
electricity mix

Relevance of Net Metering in Country X
SWOT Analysis
 Increased generation capacity
 Improved access to energy ( clean and modern source)
 Diversification of the energy mix; on the long term: more
decentralized generation with less dependence on a few big power
plants ( increase of network stability), requires less transmission
capacity
 Promotion of small-scale private investment
 Increase in building value
 Strengthening the solar sector / job creation
Strengths Weaknesses
 Reduced profit for the distribution company (but: depends on their
own generation cost and tariff level)
 Associated administrative costs (adaptation of customer
management)
 Possible technical constraints
 Urban growth
 String sunshine
 Dependency on Imports / Supply instability
 Inability to invest in new large-scale power plants
 Service improvement objectives (e.g. Electricity access / Electrical
losses / Load shedding)
 Political objectives (Renewable energy development and Sustainable
City)
 Decrease of PV equipment cost
 More and more experience feedback
Opportunities Threats
 Political instability
 Inappropriate regulation
 Lobbying of distribution companies
 Inefficient data management system
 Poor coordination / Lack of skills of actors
 Inability of client to invest (limited access to investment funds)
 Availability of new low-cost fossil energy source
Source : IED analysis from various sources, and discussions with experts

The Economic Case to be made for Net Metering
The economic case is primarily
built on the fact that certain
renewable energy generation
costs have reached, or will
shortly reach, grid parity in many
emerging countries.

The Regulatory / Policy Case to be made for Net Metering
For the energy authorities in Country X, the regulatory/policy case is based on the following reasons
Complimentary to
feed-in tariffs, RPS
and a wider array of
key energy incentives
that will promote RE
growth
Increased renewable
energy generation =
savings on fuel
imports, job creation
and carbon financing
options
Decentralized
generation and
modern inverters
can assist in
stabilizing the grid
Unable to meet the
energy demand
because of
insufficient generation
capacities in
particular during peak
hours

Scaling Renewable Electricity Capacity and Achieving Energy
Independence in Country X
The Government of Country X is targeting 100% electricity access by 2024 - 52% on-grid connections and 48% off-grid.
Incentive for RE in energy mix via net
metering
Diversify energy supply, reducing
dependence on imported fuels and greater
energy security
Catalyst for Country X’s Rural
Electrification Strategy and other RE
targets
Source: International Renewable Energy Agency

Economic opportunities resulting from Net Metering in Country X
Potential economic impacts
 Training
 Technical / legal expertise / support for the
 Implementation of policies
 Provision of hardware and IT solution
 Financial schemes
 Economic stimulation via renewable energy
investments
RE and energy efficiency programs
Stimulating deployment of distributed solar energy
systems at the residential and commercial scale
Potential economic impacts New business models
Cash payment < Lease - to own >
Sale / Purchase
agreement
 Purchase at one
time
 The customer
owns the system
 Payment at or
directly after
installation
 None / Low initial
contribution from
the client
 The customer
becomes the
owner of his
system after a
rental period
 Regular payments
usually for 3 to 7
years
 None / Low initial
contribution from
the client
 The installer owns
the system. The
property can be
transferred to the
client (prosumer)
after a certain
period (typically 5
years)
 Regular payments
(from client to the
installer) for
generated energy

Environmental Benefits of Net Metering
By facilitating distributed renewable energy development on-site, net-metering accesses the greatest benefits of
renewable energy without one of its most significant environmental costs – the space requirement for utility-scale
renewable projects
Land and Water use
Reduction in GHG emissions
Local and regional air pollution decline.

Improved Country Image - Become a Leader
Robust Demand via
Policy Support
Increasing
Investments
Competitive
Advantage
Continued implementation of
policies catered towards
incentivizing RE deployment
and green marketing will
attract a broader range of
investors and businesses
Position yourself to investors,
consumers and the global
economy as a forward-thinking
country that is keen on
achieving its economic growth
targets without compromising
sustainability targets
Leapfrog the environmental
challenges developed countries
faced in pursuit of economic
stability and showcase Country
X’s economy as one where
businesses are able to align
sustainable practices with
profitability

Net Metering in USA
 As of July 2016, 41 states have mandatory NEM policies.
 By 2018, renewable energy accounted for 18% of the country’s electricity generation.
 Solar generation (including distributed) is projected to climb from 11 percent of total U.S. renewable generation in 2017 to
48 percent by 2050, making it the fastest-growing electricity source

NEM Lessons Learned - Case Study - Arizona
Initial NEM Policy Current NEM Policy Future
*Rooftop solar customers can choose from four rate design options that include a time–of-use rate plan with a grid access charge or a demand-based rate plan
without a grid access charge. The settlement does not include a mandatory demand charge
 Under previous NEM policy,
customers were credited full retail
rate ($0. 13-$0. 14/kWh).
 Utilities and other rate payers
argued that a full NEM retail rate
resulted in a cost shift.
 In march 2017, Arizona Public
Service Co. and a Group of solar
interests filed a settlement on rate
design and rooftop solar
compensation with the Arizona
corporation commission, following
years of contentions debate
 Under the new agreement, the
rooftop solar customer will be paid
$0.129/kWh for excess energy
exported to the grid. * Export rate
will fall 10% annually, but
customers will lock in rates for 10
years at sign up.
 Solar energy consumed by end
users valued at ~$0.105/kWh, with
a lower rate for demand charge rate
options, likely in the $0. 096-
$0.078/kWh range.
 New settlement includes a 20-years
grandfathering period for customers
who file for interconnection before
rate case decision.
 This deal being passed has given
distributed generators, especially
the solar industry, economic clarity
when building new projects.
 After years of disagreement,
Arizona utilities and solar backers
seem to agree on this settlement

Net Metering in Europe
 Practiced in 4 countries – Belgium, Denmark, Greece, and Italy
 In 2018, European countries gave their endorsement to a binding EU-wide renewable energy target of a minimum of 32%
of gross final consumption by 2030

Denmark - A Renewable Energy Leader in EU
 Since 2001, net-metering policies, along with other policies (RD&D and capital grants) have been applied to promote RE
growth.
 Denmark is expected to generate 69% of its energy from renewable sources by 2022, making it the world leader.
 The net-metering program helped diversify Denmark's energy generation infrastructure by stimulating development of
many smaller power sources using renewable fuel

Impact of Net Metering on State Utility Company
Distributed renewable power properly managed with net-metering, can enhance the stability of the state’s energy infrastructure
Benefits to the utility Cost to the Utility
Low implementation cost
Avoided energy purchases
Avoided T&D losses
Avoided capacity purchases
Avoided T&D investments and O&M
Avoided RES generation purchases
Reliability benefits
Poor implementation by private players
NEM bill credits
Program administration
Cross – subsidy impact
Tariffs not reflecting fixed costs
Connection/approval costs (meter, technical, inspection,
etc.)
Power planning /system reconfiguration

Policy
Regulation
Agreement
with utilities
Technical
expertise
Regulatory
capacity
Success Factors for Net-metering
Net-metering should form part of overall policy and planning, providing clear market signals
Energy regulations must make provision for net-metering, clearly setting out the energy sources
& technologies
Utilities that will be affected by net-metering should agree to accept and "buy" electricity
generated by net-metered systems
Technical capacity is needed, both at regulatory and utility level, to ensure the proper application
and management of net-metering standards
Regulatory authorities need to have the capacity to ensure that net-metering policies and
regulations are properly implemented

Roadmap – Framework for Implementation of Net Metering
 Start simple - start with studies followed
by a pilot phase
 Adapt regulatory framework as the
number of prosumers increases
 Be clear and precise - detail the
conditions of eligibility, the connection
procedure, the responsibilities of each
 Simplify administrative procedures as
much as possible
 Strengthen distribution companies’ skills
 Optimize the compensation scheme
 Only compensate the injected energy
 Ensure the payment of taxes on electricity
consumption
 Prevent customers from becoming IPP
 Monitor the implementation of laws

Proof of Concept - Where to start
 Priority on developing domestic power generation capacity by promoting development of renewable energy sources
that will facilitate increased availability of energy services
 Net-metering development can be split into two phases
 To those whose investment capacities are relatively high
 To every type of user
 Proof of concept to scale up – the capital of Country X inhabits about one-tenth of the country’s population, has the
largest concentration of economic activity and consumes almost 50% of total electricity in the country

Other considerations to accelerate renewable market -
Accelerated Depreciation
Case study - USA - modified accelerated cost
recovery system (MACRS)
Established in 1986, MACRS has assigned a five-year useful life to most
renewable energy property
IMPACT
 Reduction in tax liability
 Accelerates rate of return on RE projects - significant driver for solar industry
 Lower consumer electricity costs, create high-paying jobs, enhance energy
independence, reduction in GHG emission
 Encouraged and facilitated greater private investments into RE technology
CONCLUSIONS
 Replacing MACRS with linear depreciation reduces investor return by nearly 25%
 Reduces time period of capital expenditure recovery.
 Faster return on capital means lower risk premium and reduction in returns
requirement to make new RE projects attractive
 MACRS offer an important hedge against interest rate risk – leveraging the
federal financing advantage to facilitate private investment
 Encourage local companies to make new investments in RE technology

Other considerations to accelerate renewable market -
Guaranteed Low Cost Financing
Case Study - USA Department of Energy Loan
Programs Office (LPO)
Manages a portfolio comprising more than $30 billion of loans, loan guarantees,
and conditional commitments covering more than 30 large-scale
energy infrastructure projects
IMPACT
 Previous RE projects unable to obtain commercial financing due to perceived
risks now have full financial support.
 State-wide RE targets in terms of deployment and avoided GHG emissions on
track.
 Accelerated growth of distributed RE technology, particularly solar and wind
 LPO recently initiated the Renewable Energy and Efficient Energy Projects
Solicitation - $ 4.5 billion in loan guarantees to support smaller-scale RE and
energy efficient projects.
 Available for 5 catalytic technology areas:
 Advanced Grid Integration and Storage
 Drop-in Biofuels
 Waste-to-Energy
 Enhancement of Existing Energy Facilities
 Efficiency Improvements

Implementing Net Metering in the Developing World

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