CIE42 Proceedings, July 2012, Cape Town, South Africa 2012 CIE & SAIIE REQUIREMENTS FOR THE FEASIBILITY OF PV NET METERING IN SOUTH AFRICA

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1 REQUIREMENTS FOR THE FEASIBILITY OF PV NET METERING IN SOUTH AFRICA G.T. Ndanga 1* and Dr. M. Gorn 2 1 Afrika-kommt programme SCHOTT Solar AG, Germany gtndanga@gmail.com / graham.ndanga@guest.schott.com 2 Director Sales Middle East and Africa SCHOTT Solar AG, Germany martin.gorn@schott.com ABSTRACT Many incentives have been considered in the birth of the solar Photovoltaic (PV) market in South Africa including Renewable Energy Feed-In Tariff (REFIT). But a conducted Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis for South Africa showed that another scheme such as net metering may be more viable particularly for the small to midsize residential and commercial PV segments. This article, based on a similar proposal by the German parastatal for international cooperation (GIZ) for Kenya, seeks to outline the requirements and necessary conditions for the viability of a net metering scheme in South Africa. The basics of net metering are described, where pros and cons of certain aspects such as dual metering versus single metering are compared. The two main classes of requirements are: 1.) Economical 2.) Technical. Within economics, there are the operators concerns about irradiation and yield, conventional electricity price, levelized cost of electricity (LCoE) and return on investment. In economics there is however also the utility s considerations of which the main would be loss of profit and administrative costs. Through mathematical modelling we have shown how in most situations the benefits for the utility (Eskom) outweigh the losses. For the technical aspect, the usual concerns are dealt with and the ways how particularly PV can even improve the grid quality. * Corresponding Author 117-1

2 1 INTRODUCTION Many incentives have been considered in the birth of the solar Photovoltaic (PV) market in South Africa including Renewable Energy Feed-In Tariff (REFIT). But a conducted SWOT analysis for South Africa showed that net metering may be more viable particularly for the small to mid-size residential and commercial PV segments. This article, based on a similar proposal by the GIZ (the German government international cooperation agency) for Kenya [1], seeks to outline the requirements and necessary conditions for the viability of a net metering scheme in South Africa. Through a case study of the United States (US) small scale renewable market [2], it was possible to establish a benchmark. It is the intention of this paper to show that it is indeed feasible to implement net metering, and to tackle some of the hurdles on the road to successful implementation. The basics of net metering are described [3], where the differences of dual metering versus single metering are outlined. This is followed by the SWOT analysis, and the US case study. From this the economic arguments and the related technical specifications are discussed, before concluding with some final recommendations. 2 THE BASICS OF NET METERING Consider a residential customer with a rooftop PV installation; his name is Thabo Mulilo. His rooftop generator generates 6kWh during a specified 3 hour period. In this time he also consumes 6kWh, albeit not as his rooftop generator does. With net metering the utility looks at this whole billing period (with the aid of a bidirectional meter), and charges Thabo for any excess energy consumed, or credits Thabo for any net excess generation (NEG). It looks as follows: Table 1: Basics of net-metering Hour #1 Hour #2 Hour #3 Total Generated Energy/ kwh Gross Consumption/ kwh NEG/ kwh Resultant charge/ R +R1.50 -R1.50 R0.00 R0.00 In this model the resultant units are simply converted into a charge that goes onto Thabo s electricity bill (positive implies credit owed to Thabo and negative an amount owed by Thabo), hence giving him credit for his rooftop generator, and the offset consumption of his generated energy. 2.1 DUAL METERING In this situation, very similar to net metering, Thabo is charged the retail rate for his consumption from the grid, but compensated at an avoided rate. This means that he would be remunerated about R0.60 (the current Eskom cost of generation) [4]. This would also require the installations of two unidirectional meters, as well as a more involved accounting procedure to produce Thabo s bill. For the same 3 hour period it would look as follows: 117-2

3 Table 2: Dual metering CIE42 Proceedings, July 2012, Cape Town, South Africa 2012 CIE & SAIIE Hour #1 Hour #2 Hour #3 Total Generated Energy/ Kwh Gross Consumption/ kwh NEG/ kwh Resultant charge/ R +R0.60 -R1.50 R0.00 -R0.90 This method, still produces savings for Thabo, but produces considerably more costs for both the utility, and Thabo. This comes from the need for two meters instead of one, and the utility s more involved accounting procedure for the calculation of Thabo s bill. It may indeed be the case, that the extra accounting may not be fiscally justifiable. This is the basic model for both Net Purchase and Sale AND Time of Use (TOU) metering. 3 SWOT ANALYSIS The attractiveness of implementing this particular REFIT method to give an incentive to the residential and commercial customers interested in installing a PV installation (or other renewable technology) was conducted. The results are below. Table 3: SWOT analysis of attractiveness of small scale PV in South Africa Strengths Weaknesses Lowering component purchase prices Competitive Levelised Cost of Electricity(LCoE) compared to Eskom s retail price (approx R1.30) Clean technology zero emissions Low O & M costs Shortest commissioning time of renewable technologies South Africas s high direct normal irradiance high potential yield High capital investment Inability of PV to provide electricity during nightime Lack of formal incentives for small scale generators i.e. net metering Lack of awareness of benefits Low state of small scale market development in South Africa Widespread poverty Opportunities Eskom incentives e.g. 49M and Integrated Demand Management(IDM) Low reserve capacity in national grid Independent Power Producer (IPP) programme Carbon trading Energy efficiency and carbon emission drive Stable economic and growth indicators Development of net metered markets in the rest of the world to establish best practices What resulted from this analysis was the following: Threats City council and municipal bureaucracy and resistance No formal and well defined net metering policy No interconnection procedure Shrinking worldwide PV market No funding mechanisms for small scale renewables 117-3

4 1. There exists a great opportunity for net metering to be implemented. 2. Policy introduction, interconnection procedure and local authority participation are the greatest hurdles to the success of this market development. For this reason, it was necessary to find a case study to establish best practices and a benchmark for the drafting of a possible road map. This was found in the USA, which has had net metering in practice for almost 20 years, and has evolved to a great extent. 4 NET METERING IN THE USA Net metering in the USA was first introduced in the state of California (which is still the largest per capita installed renewable state) in It has now been introduced in 43 states, with a total of approximately 800MW installed across all the whole country by the end of 2008, and continues to evolve as time goes on. The success of the renewable energy has progressed on 4 main features 1. Net metering 2. Interconnection procedures 3. Financial Incentives 4. Utility Rates, Tax and Fiscal policies The organization Interstate Renewable Energy Council (IREC) has been one of the most active advocates and scribes of this progress. They have annually published Freeing the grid, a yearly examination of the progress of the Net-metered renewable market, and the developments therein. Of note in these publications is the comparative ranking of the individual states via a matrix evaluation to determine the states with best net metering policies and interconnection procedures. An excerpt of one from Freeing the grid 2011 is given below showing the best 10 states according to these two criteria. Table 4 & 5: Best 10 Interconnection procedure and Net metering policy states in USA 2011 Interconnection Net metering State Grade Score State Grade Score Delaware A 18,5 Colorado A 22 Maine A 18 Arizona A 20,5 Massachusetts A 17 Delaware A 19,5 Virginia A 16,5 California A 18,5 Utah A 16 New Jersey A 18,5 New Jersey B 14 Oregon A 18,5 Oregon B 14 Pennsylvania A 18,5 DC B 13,5 Utah A 18,5 Illinois B 13,5 Connecticut A 17 Iowa B 13,5 Maryland A 17 What has also come out of these reports is the fact that there is no need to reinvent the wheel in implementing net metering for example in new states or countries like South 117-4

5 Africa. The best and worst practices have been distilled to create an IREC model net metering policy [5] as well as interconnection standard [6]. This has been benchmarked against the best practices, and is frequently reviewed, and upgraded to reflect prevailing best practices. Some of the best practices to have come out of the USA s long standing experience are as follows 4.1 BEST PRACTICES IN NET METERING 1. All customer classes should be allowed to net meter, not only residential 2. Surplus monthly generation should be allowed to be carried over 3. Municipalities and local utilities must be required by law to allow distributed generation from customers 4. The process must be streamlined, to make it quick and easy 5. Enrolment limits based on the utility s peak demand are not necessary, as energy demand is increasing fast 4.2 BEST PRACTICES IN INTERCONNECTION PROCEDURES 1. Fees must be proportional to system size 2. Employ a tiered evaluation system, that utilizes an express processing rule for small system sizes, and an expedited approach for the larger, more complex system 3. Apply relevant technical standards, that must be uniformly applied nationwide e.g. IEEE Prohibit the requirements for redundant devices such as external disconnect switches 5. Employ a standardized and simplified form, and process applications quickly The USA has served as a gleaming beacon to all those that intend to follow the route of net metering. The policies and procedures are always evolving, as more and more is known about the upstream and downstream advantages of net metering but two things have already been established that should be communicated in South Africa; net metering is NOT a burden on the utility, and it is not difficult and/or expensive to implement. 5 ECONOMIC REQUIREMENTS FOR THE FEASIBILITY OF NET METERING As has been seen the requirements for the viability of net metering go far beyond the policy, and interconnection procedures. Financial incentive is almost always the primary motivator for personal investments, especially considering real estate. As such, the primary financial motivation for most people to invest in a Solar Home System (SHS) or any other kind of renewable power source would be cost savings on their electricity bill. It is well known that for the last 3 years Eskom has raised prices by double digit percentages(for this year 16%), with more such price hikes to come. It is also well known that solar module prices went down by as much as 40% in This brings the aspect of grid parity in South Africa by 2015 firmly into scope. Given this background it makes sense to model a few simple scenarios. There are quite a few software s now on the market, which quite accurately simulate the performance of a PV installation in virtually any location in the world. For the purposes of this paper we have used PV Sol as well as Sunny Design from SMA. This we have used to model the following 117-5

6 example, configured as an installation with SCHOTT Solar AG Poly 240 modules, and using the Sunny Boy 1300TL-10 inverter. Let s take Thabo Mulilo, a married father of two who lives in Johannesburg. He has just installed a 1.2kWp system on his rooftop, which generates 2840kWh per annum. He and his family consume 5000kWh on average per year, of which 1580kWh of those come from Thabo s own PV installation. Given the advent of net metering, or net purchase and sale, the following scenarios are possible for Thabo s annual electricity bill. Scenario 1: Without the legal right to feed into the grid, Thabo can only generate saving from consuming as much of his own electricity. This is only 55.6% of it though. His electricity bill then calculates as follows: Net annual bill: (5000kWh-1580kWh) x R1.50/kWh = 3420kWh x R1.50/kWh = R5130/annum Scenario 2: With the advent of net purchase and sale two unidirectional meters would have to be installed, whereby the fed-in electricity is compensated at avoided costs, whereas the electricity from the grid would be sold to Thabo at retail prices. Taking from the previous example, and using an average avoided cost of R0,40, Thabo s bill would then be calculated as follows: Net annual bill: (3420kWhxR1.50/kWh) - (<2840kWh-1580kWh>xR0.40/kWh) = (3420kWhxR1.50/kWh) (1260xR0.40/kWh) = R5130 R504 = R4626/ annum Scenario 3: In the scenario with net metering only one bidirectional meter is needed which spins one way as electricity flows from the grid, and spins the opposite way as the electricity flows the opposite way. The annual bill would hence look as follows: Net annual bill: (3420kWh-1260kWh) x R1.50/kWh = 2160kWh x R1.50 = R3240/ annum The savings that Thabo would derive from each of these scenarios would then be his return on his investment, and hence his economic motivation. So in evaluating these 3 scenarios we would look at the savings Thabo generates versus the situation before installation of his rooftop generator. In this situation Thabo s annual bill would have been 5000kWh x R1.50 = R7500 (Scenario 0) Table 6: The economic impact of different billing scenarios Option 1 Option 2 Option 3 Original bill (Scenario 0) R7500 R7500 R7500 Revised bill R5130 R4626 R3240 Savings R2370 R2874 R

7 There are various conclusions that can be gleaned from this very simplistic analysis of the net metering 1. The level of cost savings (and conversely profit loss for the utility) really derives from accounting procedure, and not really from any essential difference in energy supply and demand. 2. The largest impact of the savings comes from the Thabo s decision to go for site based generation, and not from the metering policy. 3. Something not be so evident is that the utility has gained the fed-in generation from Thabo, to sell for profit, hence further alleviating afore mentioned profit loss. This electricity will have the normal distribution costs for electricity coming from the conventional grid, when this energy actually comes from the same area. 4. The billing method with net metering will be the cheapest and easiest to implement, as it only deals with the net energy demand, and one further ledger entry for carry-over, where and when that may happen. 6 TECHNOLOGICAL REQUIREMENTS OF NET METERING The best practices of interconnection have already been discussed in the Section 4.2. Needless to say, as a start an arbitrary cap may seem like a good starting practice. This is to ensure and monitor how well the distribution net can cope. As long as the cap isn t set too low, and is a live plan such as the Integrated Resource Plan, it should suffice. 7 CONCLUSION Net metering provides an easy-to-administer, cheap and fast method of encouraging small scale residential distributed generation. Eskom, municipal authorities and government stakeholders should seriously consider implementing this policy in the near future. At this point, even for an arbitrary limit of 5%, the market for small scale renewable would start out at a value of R41 million (on module sales only, at R2000 a kwp and 41GW the national capacity) with the potential to grow to double that in 20 years (and even more, considering the related service industries and components such as installers, maintenance and inverters). 8 REFERENCES [1] Georg Hille, Michael Franz, (2011). Grid Connection of Solar PV: Technical and Economical Assessment of Net Metering in Kenya. URL: Berlin, Germany. [2] Thomas J. Starrs, (1996). Net Metering: New Opportunities for Home Power. URL: Washington DC, USA. [3] The Vote Solar Initiative, Interstate Renewable Energy Commission (IREC), North Carolina Solar Centre, Network for New Energy Choices, (2011). Freeing the Grid: Best Practices in State Net Metering Policies and Interconnection Procedures. URL: San Francisco, USA. [4] Renewable Energy Design, (2011). Electricity Tariffs South Africa. Renewable Energy Design. Cape Town, South Africa. [5] Interstate Renewable Energy Council, (2009). Net Metering Model Rules, 2009 Edition. URL: USA [6] Interstate Renewable Energy Council, (2009). Model Interconnection Procedures, 2009 Edition. URL: USA [7] IEEE