Solar net metering paradox?

At the macro level this government is trying to promote solar power generation by planning to install 10,000MW – mainly in IPP mode. And on the other hand, at the micro level, this government is disincentivizing net metering of the solar connection (mainly) at homes. The government is running a top-bottom approach in an industry which is best operated using bottom-up approach.

In bigger solar projects, the connectivity to the grid is complex and expensive. It has intermittent supply which varies with sunshine. Sudden drop of load could have cascading impact on the grid and to mitigate the risk grids need to be upgraded and spinning reserves (mainly on oil, gas, and coal) have to be in pipeline to replace solar within seconds of drop. All these add to the cost and reduce the viability of big solar projects.

Solar is best operated at distributed levels. Losses are minimum. And the risk is to be assumed by smaller consumers. This was well supported in Pakistan. SBP had offered a subsidized financing scheme for solar plants at home. Then the regulator (NEPRA) allowed the net metering at a lucrative rate (Rs13/unit). The pay-back period was short. And many had moved towards solar net-metering.

Now with recent increase in the base tariff and growing fuel cost, the electricity bills have increased substantially. And increasingly people are thinking towards moving to solar with net-metering option. The government, rightly so, fears that the load from the grid shall reduce while the grid has to cater to the peak load in non-solar generation hours without any compensation. This shall increase the stranded cost for discos and will have to be passed on to the non-solar consumers.

Since solar option is mostly used by upper middleclass and rich households while the cost of capacity and other assets that are being also deployed for solar clients are to be paid by middle and lower classes. According to a tweet thread by the secretary power division, almost all the three phase meter consumers to move towards net metering with 3.600 MW while annual additional cost of Rs100 billion (by 2027) has to be paid by the rest (mostly by single phase consumers).

The power secretary is right on the stranded cost and on passing on the impact to poorer consumers, but has conveniently ignored that these supposedly rich three phase consumers are already cross subsidizing the one-phased consumers. The government official just demonized the net-metered consumer without giving weight to the cost of inefficiency that consumer is paying.

There are higher AT&C losses that these three-phase meter consumers are paying. On every 100 units of electricity produced, discos are recovering mere 72. 18 units are transmission and distribution losses, while 10 units being billed are not recovered. On the logic of not giving undue benefit to net-metered consumers, they should not also bear the cost of discos inefficiencies, thefts by non-complaint consumers and subsidy for poorer consumers. The one-way logic doesn’t add up.

Anyhow, NEPRA is proposing to reduce the payment of net-metering to Rs9/unit from existing Rs13/unit. The Rs13/unit calculation was done when the base-tariff was around Rs18, and now it has increased to around Rs24, and the solar net-metering rate was supposed to increase to Rs19/unit. However, now NEPRA is proposing to reduce to Rs9/unit. There is double impact on net-metering. Then SBP is no more offering concessionary finance. It’s a double jeopardy and would discourage conversion to solar and it’s net-metering.

Discos never liked net-metering. They always resisted it. People had to wait for months to get net-meter. Similarly, discos never liked the idea of direct wheeling by bulk consumers. They ask for higher wheeling charges to compensate for other factors. In case of net-metered consumers, the rationale for lowering net metering rates is to implicitly charge higher wheeling charges.

The net-metered person is called prosumer. He is effectively a consumer who is producing. The idea is to lower its cost of electricity. The investment is made to reduce cost. This is not for profit taking. In that case he should come in IPP mode where the structure is totally different. There are two models to work. One is net-metering – where the prosumer gets credit for net energy. The other is net-billing, where based on timing of loads being supplied and consumed different rates are applied and bill is netted. NEPRA is also mulling the option to shift from net-metering to net-billing.

That is the story of NEPRA, discos and government and their rationale. There is a different side to the consumer. The cost of electricity on grid is growing. The reliability of grid is questionable. There is no political will to privatize or corporatize discos to lower the inefficiencies. The consumer who can afford solar and has space to install panels may think to move more out of the grid i.e., defect.

Right now, most consumers are not investing in batteries for storage, as they supply the excess to the grid. And in case of no net-metering (or consumer is waiting for approval), precious excess energy is just being wasted. Some would now think of investing in batteries and store the energy for hours in which solar is not producing. The payback today is around 6-7 years. The pay-back for net-metering is increasing and rationale for battery storage is increasing.

The cost of solar panels has reduced significantly in the past 5-7 years and that is why more and more people are shifting. The battery technology is growing at a lag of 5-7 years from solar and in years to come battery cost is expected to reduce and the pay-back shall lower as well. And without bringing efficiencies to the grid, more and more consumers would go out of the grid with higher reliance on self-generation and consumption. In case of businesses, they would work on a combination of captive plant on hydrocarbon complemented by solar. Once the exclusivity is over, the government (discos) bargaining power will diminish.

The concept of micro grids will grow. National grid and discos would largely be supplying to subsidized consumer and bad (non-paying) consumer. And then the government would have to live with the stranded cost and nothing can be charged from good consumers who would be completely (or substantially) divorced from the grid. That is why NEPRA and government should think of a midway solution. One option is to keep net-metering unchanged at Rs13/unit.