Net metering: Balancing the scales—I

Potential promises of clean, sustainable, and long-term cost-saving alternatives have dominated the discussion about solar energy and net metering. While solar rooftops have undoubtedly benefitted many households, there is another side to the story—one that is often overlooked.

After the introduction of highly flawed Nepra’s net metering regulations, more households have invested in solar panels and are now relying less on the national grid; a new problem emerges in an already messed up sector. Maintaining the grid and covering its fixed costs is increasingly falling on those who cannot afford to invest upfront.

Electricity bills are rising for the many households that still depend entirely on the grid, not because they are using more power but because fewer people are sharing the system costs with each passing day. This story of net metering and its unintended consequences reveals a complex issue beyond simply “going green.”

Let us picture a small neighbourhood of 550 households, where everyone initially relied on the national grid for electricity. Daily, the neighbourhood consumed about 18,000 units (kWh) of electricity—7,200 units (40%) during the day and 10,800 units (60%) at night.

Of these, 50 affluent households used an average of 60 kWh per day (totalling 3,000 kWh/day), while the remaining 500 households used 30 kWh per day (totalling 15,000 kWh/day). To maintain the power supply, the utility company generated and delivered all 18,000 units from an IPP plant installed to serve this demand.

Now, let us talk about the cost. For simplicity, we must ignore all other components of consumer tariff and restrict ourselves to the national average power purchase price only. The utility company is required to pay two main components to the power plant:

1- The capacity charge of PKR 15.49 per unit covers the cost of maintaining power plants ready to provide electricity. This means that the utility company shall pay PKR 278,820 (18,000 x 15.49) to the IPP, regardless of the actual units generated by the IPP.

2- The energy charge of PKR 9.39 per unit covers the actual fuel cost and the variable charges associated with electricity generation. If all 18,000 units are generated, the utility company shall pay PKR 169,020 (18,000 x 9.39) to IPP. However, if the actual generation is lower than 18,000 units, this component shall reduce respectively.

When added together, the two components show that the utility company shall be liable to pay PKR 447,840 per day to the IPP if all units generated are sold. So, the total cost per unit of electricity is PKR 24.88/kWh, which shall be used to calculate the bill of each household. This unit rate shall be multiplied by the actual units consumed by any household; thus, every household has an equitable charge.

Then, 50 affluent consumers, taking advantage of net metering regulations, installed solar panels on their roofs. They invested in distributed generation, expecting to save money on their electricity bills in the future. These solar panels provide electricity during the day, reducing 50 families’ reliance on the grid.

To keep things simple, let us assume that these 50 solar units produce 3,000 units of electricity every day. But here is the thing: these 50 houses utilise only 1,200 units of electricity during the daytime. Net metering agreements connect the remaining 1,800 units to the grid, powering the homes of the remaining 500 non-solar consumers.

But the story does not stop there. The consumers with solar generation do not simply give away the additional 1,800 units they did not consume during the daytime but contribute to the grid. The net metering regulations oblige the utility company to serve as a “power bank” for these distributed generators.

During the day, the 50 solar households “deposit” their excess electricity into the grid, and the utility provider credits their accounts with the 1,800 units.

When the solar panels fail at night, these distributed generators, like everyone else’s, require grid power. Let us assume that they use 1,800 units of electricity at night, but instead of paying for it, the utility company “returns” the 1,800 units they generated during the day, essentially providing them with free nighttime electricity.

Let us step back and evaluate what this means for the utility company and the consumers. During the day, instead of providing 7,200 power units, the grid only needs 4,200 units because solar energy generates the remaining 3,000 kWh. However, the grid must continue to supply 10,800 units of electricity at night, as previously. The power plant now generates 15,000 kWh per day rather than 18,000.

Despite producing fewer units, the costs of operating the power plant and maintaining the system have not diminished. Whether the grid supplies 18,000 or 15,000 units, the capacity charge remains the same PKR 278,820 (18,000 x 15.49).

The energy price of PKR 9.39 per unit only applies to the actual electricity produced, which shall now be PKR 39,438 (15,000 x 9.39). This means that the total outflow for utility has decreased from PKR 447,840 to PKR 419,670, which is approximately 6.30% in fuel consumption savings.

From the consumers’ perspective, the 50 consumers who now also act as distributed generators have zero net consumption from the grid. They generated 3,000 kWh during the daytime and used 1,200 units while remaining 1,800 at nighttime.

Although there is always an imbalance between energy dispatched and consumed by these distributed generators; to keep things simple, we assumed this balance would be zero at the end of the day. As the balance is zero, these distributed generators shall not be charged for any consumption; therefore, their bill shall be zero.

From the perspective of non-solar consumers, there is a clear disadvantage due to solar rooftops and net metering. Previously, the grid supplied all 18,000 units, and the total cost was PKR 447,840, which meant a unit price of PKR 24.88. After this net metering arrangement, the total cost was reduced to PKR 419,670, and the total sold units were reduced to 15,000. This means that per unit cost has now increased to PKR 27.98 per kWh, approximately 12.50% higher than the previous rate.

While solar rooftops reduce expensive fuel-based generation during the day and contribute to sustainable energy generation, the net metering regulations have unintentionally become a burden for non-solar consumers. The per-unit costs for individuals who rely solely on the grid have risen because solar users can “bank” their extra electricity during the day and draw it back at night.

In layman’s words, non-solar homes are now paying more since they still rely only on the grid, whereas solar homes save money by generating their own electricity during the day and using the grid as a “power bank” at night. Non-solar households are stuck with the exact capacity costs previously split equitably but with fewer individuals contributing now. In this community, 50 solar homes gain from their investment in solar panels, while 500 non-solar homes bear the cost—literally.

What began as an approach to save money and promote green energy has resulted in an imbalance, with those who can afford solar panels paying less while those who cannot pay more.

To keep things simple, the preceding scenario did not consider any fuel savings during the day from solar rooftops, peak hours consumption and generation, taxes, tariffs, surcharges, fuel adjustments, quarterly adjustments, or the imbalance between solar rooftop generation and consumption. In the next part of this essay, we will look at how much worse the situation gets when these parameters are considered.

(To be continued)

Copyright Business Recorder, 2024