Abstract

Net metering is a program which is designed to enhance the economic attractiveness of renewable energy technology solutions employed by private individuals or small companies by reducing the net cost of electrical energy consumed from the power distribution network. This article describes pertinent details pertaining to the current methodology and financial considerations with respect to the integration of net metering with renewable energy technology solutions (RETS) design considerations and deployment. The analysis indicates that although there are benefits derived from the incorporation of net metering, the anticipated economic benefit must be carefully assessed and evaluated for each RETS deployment.

Overview

Net Metering is a program whereby eligible customers with specific renewable energy generation facilities (wind, solar, drop in water elevation, biomass) or combination thereof, [2] can reduce their net energy costs by exporting surplus generated energy back onto the utility distribution system (grid) for credit against the energy the customer consumes from the distribution system (grid).

Interestingly, it is evident that both the federal and provinicial governments recognize the importance of renewable energy technologies from a consumer's perspective and continue to develop and deploy incentive programs, while concurrently expanding the potential renewable energy technologies one can employ, such as in the case of Nova Scotia which expanded the sources of renewable energy generation to include tidal and geothermal based solutions.

The two principle benefits of net metering, suggests that net metering maximizes the benefits of the RETS investment by: a) the grid offers a back-up power source should the RETS not be generating enough power to recharge the battery array, and b) as a virtual storage bank that stores retrievable excess energy generated by the RETS. These claims are in fact, true, however, when considering net metering from the perspective of an economic benefit to the RETS user, the current cost of the implementation of net metering given the existing government and utility schemes combined with the availability of potential surplus energy generated in most RETS deployments must be carefully assessed. This assessment can be eased with the assistance of tools such as accurate cost models representing a solution considered, given the analysis below.

Financial implications

In order to apply for net metering with the RETS user's regional utility, a number of technical requirements specified in the application for net metering must be satisfied by the applicant. These costs are currently incurred by the RETS user (the applicant). These are summarized below, along with their cost implications to the RETS user.

1. metering upgrade: In order implement net metering, the RETS user must install a bi-directional meter or dual-register meter or the recommended meter defined by the local utility for those renewable energy generating systems producing less than 10kW. For those systems producing more than 10kW but less than 500kW (100kW in NS), an interval meter must be installed. This is the only way that the utility can accurately measure the amount of surplus energy generated by the RETS that is exported back to the grid for credit against the energy consumed from the grid. There are some variations as to the cost of such metering, however, the cost of the bi-directional meter is typically incurred by the consumer. These meters will cost from $450 - $850 which is currently incurred by the RETS user for systems less than 10kW. The RETS user is also responsible for the cost of its installation by an approved electrician which may add up to an additional $200 for what is referred to as an "upgrade" by the utility. For systems greater than 10kW, the entire upgrade may cost in the order of $3,000 - $5,000. Pricing of the equipment and installation will vary from utility to utility (periodically, from person to person within the same utility!), given the variation in Net Metering policies execution and unfamiliarity with Net Metering per utility.
    
2. KWh value: The value of the surplus KWh exported by the RETS user to the power distribution network is determined by each regional utility based on its current administered rate schedule. The administered rate determined may not reflect the current market value of electrical cost of each KWh just as the current rate charged to the consumer does not reflect the actual cost of the energy generated by the utilities.
    
3. isolation switch: The RETS user must install an automated isolation switch which will automatically isolate the RETS surplus energy from being exported to the utility's power distribution network (grid) while it experiences a power failure. This is an understandable safety precaution which ensures the safety of the utility's crews while working on their power distribution network during a power failure. There are a number of very specific technical requirements for the isolation switch that must be satisfied before the application will be approved. These isolation switches will cost from $300 - $550 and which is currently incurred by RETS user.
    
4. resistive diversion load: In the event of a power failure in the power distribution network and the RETS user continues to generate surplus energy, this surplus energy must be diverted elsewhere due to the RETS now being automatically isolated from the power distribution network or grid. This resistive diversion load (RDL) can take a number of forms including diverting energy to heating coils to heat water, or to utilize this energy in the form of heated air, or to simply divert the surplus energy to "heat sinks" which dissipates excess energy in the form of heat. Regardless of its form, it is critical that some form of correctly sized capacity load diversion for surplus energy be incorporated into the RETS design to accomodate such incidences as power failures.
    
5. net energy billing: In general, the formula employed by the utility is:

   net energy bill = EPG - (REG + BEC)

   where:
   EPG = energy purchased from the grid
   REG = RETS generated surplus energy exported to the grid
   BEC = "banked" energy credits.

   The current methodology employed by the utilities takes the "banked" energy credit and applies it to the RETS user's utility bill in the form of energy credits to a maximum of the energy consumed from the grid during the same billing period. Any accumulated credits not utilized by the RETS user will be carried forward for a maximum of 12 months to be utilized in a later billing period or until the net metering agreement's anniversary date arrives. At the anniversary date of the net metering agreement, any available accumulated credit that remains will be reset to "0". In no case will any energy credit balance on the RETS user's (utility customer's) account have any cash value nor be convertible into cash.

Under the current scenario, it is evident that to include a net metering interface in a RETS deployment, the initial investment incurred by the RETS user will increase between $850 - $1,700.

To put the current net metering scheme into perspective, consider that the average Canadian home consumes 12,000 KWh annually. If the RETS is able to supply approximately 80% of the household's energy needs with renewable energy, the balance of 2,400 KWh must be drawn from the power distribution network (grid).

12,000 KWh/annually * 80% = 9,600 KWh/annually (generated by the RETS) results in

2,400 KWh/annually being sourced from the grid. (This would also be the maximum surplus energy exported that can derive economic benefit for the RETS user under the current scheme.)

As an example, depending upon a number of variables such as RETS configuration and climatic conditions (wind energy and solar energy availability and consistency), the RETS generates 10% more energy than is needed, resulting in approximately 1,200 KWh of surplus energy exported to the grid over the course of the billing year. An example defined value of this surplus energy is set at a rate of $0.10 per KWh [3]. The resulting economic value of this surplus energy is approximately $120, which is returned to the RETS user in the form of energy credits as described earlier.

1,200 KWh renewable excess energy produced and diverted to the grid

Value of surplus energy exported ==> 1,200 KWh * $0.10/KWh = $120 (value returned as credit applied to energy consumed)

Given the the estimated draw of energy from the grid will be approximately 2,400 KWh/annually as calculated earlier, under the current scenario, the most that the RETS user can export to the grid in order to derive economic benefit is a maximum of 2,400 KWh/annually, which is roughly equivalent to $240 @ $0.10/KWh. Depending upon the configuration of the RETS deployment and the amount of surplus energy generated annually, it is conceiveable that the cost incurred due to the implementation of the net metering interface may be covered within two to three years of its installation. However, this expectation must be tempered with the price of the kWh "purchased" by the utility, which is often 50% or less of the cost of the kWh consumed by the consumer (taxes, transmissions fees, etc.). Therefore, the RETS user must understand that a Net "0" utility bill, does not indicate $0, but rather "0" kWh, and therefore, the most one can expect economically is approximately a 50% reduction in their utility bill.

Maximum surplus energy exported to the grid ==> 2,400 KWh/year * $0.10/KWh = $240 (realized as a credit towards energy consumed)

In Conclusion

The current net metering policies offers the private individual (RETS user) a benefit with respect to the "virtual" storage of surplus energy which could be retrieveable at a later period should the RETS deployment periodically generate more energy than is required.

The RETS user may also derive some economic benefit from net metering provided a number of conditions as decribed earlier are met. However, the challenge faced by the potential RETS user is that the initial investment of a RETS will need to increase in order to accomodate net metering under the current scheme. The RETS user may find ecomonic opportunities to offset the initial investment of a RETS deployment in installations such as summer homes or cottages which utilize much less energy during the off-seasons, resulting in higher than normal surplus energy and therefore, a possible attractive net metering scenario which may enhance energy cost savings later when these residences are in use. For other applications, the RETS user may derive economic benefit from net metering by achieving a "0" balance utility bill.

Under the current scheme, if the configuration of the RETS deployed is sized intelligently to service the renewable energy needs of the RETS user and its performance is generating renewable energy approaches a significant portion of the total energy requirement of the RETS user, the economic attractiveness of net metering is reduced.

The administrative burden imposed by such a program, in particular, if the number of individual renewable energy generating facilities grows to the thousands, will ultimately impact the price of the commercial kWh due to the increased number of personnel and size of departments necessary to handle such requests and to administer these requests. It would be prudent to "flatten" the requirements for Net Metering across the board, and remove the distinctions between renewable energy production less than 10kW, and those producing more than 10kW and less than 500kW. As renewable energy technologies evolve, individual systems production capacities will grow, forming essentially, a distributed energy production network that could offer the utilities, a new source of relatively cheap energy, without the need to expand their own production facilities.

SOLAR WIND Canada Inc.
March 20, 2006

Footnotes

1. "Just the facts, ma'am, just the facts" - a famous line immortalized by a morally rigid cop by the name of Joe Friday (Jack Webb), on a long playing TV series called "Dragnet" which originally aired on the radio in 1949 and moved to television between 1951 and 1959.
    
2. A customer of a utility who is generating renewable energy through a RETS deployment, can engage in net metering provided the RETS energy generating rate does not exceed 500KW in Ontario, and 100KW in Nova Scotia. For most current residential or small business RETS deployments, this capacity limit would not be an issue.
    
3. The value of the exported surplus KWh is arbitrary, and was defined as $0.10 only as an example to offer some value to calculate the potential value of the credit in dollars.

References

1. Hydro One Networks. Renewable technologies. 2004.
2. Toronto Hydro-Electric System Limited. Net Metering. 2006.
3. Ontario Ministry of Energy. Renewable Energy - Net Metering
4. Ecology Action Centre, Nova Scotia. Net Metering Fact Sheet: Ecology Action Centre. March 4, 2005.
5. Nova Scotia Power. Net Metering.