COP27 – Conference of the Parties of the UNFCCC (The United Nations Framework Convention on Climate Change), Egypt, November 2022 sought renewed solidarity between countries to deliver on the landmark Paris Agreement, both for the people and the planet. India is a signatory to the international environmental treaty for “stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic [i.e., human-caused] interference with the climate system”  Article 2 of the convention says this “should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner”.
In 1992, in India, the CO2 emissions per capita was 0.74 metric tonnes (MT). In the following decade, the CO2 emissions have increased linearly (to 0.96 MT in 2002). However, thereafter, in the next two decades, the CO2 emissions in India have increased exponentially. In 2022, it is around 1.9 MT per capita. India’s population has increased from 0.9093 billion in 1992 to 1.093 billion in 2002 to 1.417 billion in 2022. India is ranked right at the bottom (ranked 180) amongst 180 countries in the Environmental Performance Index (EPI), 2022 that is based on performance across parameters related to mitigating climate change, improving environmental health and protecting ecosystem vitality. India has rejected the EPI saying that it uses ‘biased metrics and weights’. However, it is a fact that India ranks fourth in terms of fossil fuel based CO2 emissions (2.7 billion tonnes).
Unless all the countries adhere to their individual commitments to reduce CO2 emissions, the Mitigation Work Programme (MWP) will be unable to achieve collective reduction by 50% in 2030 from the 2010 levels – considered necessary if the climate goal of keeping global warming within 1.50C by the end of the century.
The Energy industry tops the list for the most polluting sector. Oil, gas and especially coal emit exorbitant amounts of CO2. Processing, refining and combusting them also cause water, soil and noise pollution.
The Transportation industry – road, rail and sea travel make up almost a quarter of the CO2 emissions around the world. Roads are the most polluting. Each private vehicle spits out some 4.6 metric tonnes of CO2 annually.
The signatory states have been unable to adhere to their individual commitments in reducing the emission of carbon dioxide since its adoption at the UNFCCC. This comes as no surprise since the countries find it difficult to curb economic development that is inextricably linked with energy consumption and hence CO2 emission.
GDP, life expectancy and energy consumption are directly linked through a positive linear correlation. Many economies are dependent on the exploitation of fossil fuel resources for their own consumption and for generating income for their societies. A transition to renewable energy sources will take decades, if at all possible. Yet the effects of climate change related to fossil fuel-based energy resources and their consumption are threatening life on earth as we know it. Researchers such as Prof. Volker Vahrenkamp have been trying to answer this question ‘The Conundrum of Fossil Fuel Exploitation, Climate Change & Energy Security – What Can We Do?’
Tariff as an Enabler for CO2 Mitigation
Tariffs can play a major role as an enabler to direct large populations to adopt measures that reduce CO2 emissions particularly in developing countries. All other measures, such as enacting laws, are seen to have had very little effect.
Apparent Energy Tariffs
Today, the role of Apparent Energy (kVAh) Tariffs, in eliminating low power factor loads (inductive & ‘harmonic’ loads) in the electrical distribution system and thereby line loss reduction, is well understood. Replacing a 0.5 PF load with that of unity PF would lower an electric utility’s line losses due to that load by 75%. When other measures such as imposing fines on consumers operating loads operating at poor PF failed to yield results, the kVAh tariff enabled a quiet transition by offering incentives to the consumers directly in their bills of the more efficient consumers operating high PF loads. The single meter reading based kVAh tariff was also easy to implement.
Center for Apparent Energy Research, an R&D unit of Baroda Electric Meters Ltd, made a significant contribution in the field of kVAh Metering and Tariffs, for loss reduction in all the major electric utilities of Gujarat for the Street Lighting (SL) tariff category by bagging landmark tariff orders from Gujarat Energy Regulatory Commission (GERC) in the years 2001 and 2010. The Street Lighting Project implemented at Nandesari GIDC, District Vadodara, Gujarat, yielded amazing line loss reduction and was well appreciated by the technical community. Currently many states in India have adopted kVAh tariff particularly for the industrial consumers to ensure that they operate high PF loads. More than `20,000 crores/annum in loss savings through improvement in PF have been achieved through a simple tariff implementation.
Tariffs for DER
Taking inspiration from the success of kVAh tariffs, here we once again design a tariff for DERs, particularly for solar PV, which can help us reduce CO2 emissions in India. Let us understand the problem and state the problem definition in the following section.
Misuse of Subsidies
Subsidies offered by central and local (state) governments have a major impact in shifting consumer behaviour and usage pattern to a direction away from the normal. Unless used wisely, subsidies could have a damaging effect and kill innovations that could yield better results than those achieved through changes driven by subsidies. The subsidies also open scope for exploitation in ways that was not originally intended.
Here, we consider one such example of an ill designed combination of subsidy and tariff for Solar RoofTops that is being exploited and misused by the Electric Vehicle (EV) owners.
In Gujarat, subsidies are given at the time of (a) purchase of an EV (2 or 4 wheeler) and (b) installation of Solar RoofTop. A consumer who avails both these subsidies is further also entitled for the benefit of Net metering – a billing mechanism covered later below.
On the other hand, a recent innovation – solar bicycles – the only green vehicles that are truly sustainable are yet not offered subsidy in Gujarat. The EV subsidy is impeding the sales and growth of solar bicycles that we have launched recently.
In India, EVs are mostly charged after dusk when the power plants are burning precious and scarce fossil fuels – coal or gas. Net metering permits an EV owner to conveniently offset her night EV consumption from her daytime solar RoofTop generation.
Since the past decade, Distributed Energy Resource (DER) systems, particularly Photovoltaic Solar generation, have been playing an increasingly important role in modern electric power distribution systems. In sharp contrast to the conventional centralised coal-fired, hydro or nuclear power plants, DER are small grid connected decentralised energy generators, typically using renewable energy sources such as biomass, solar and wind power, located close to the load and using modular, flexible technologies. DERs exploits small size for lower cost (possible to mass produce small systems), reduced T&D losses (due to local generation), low pollution, lower maintenance, lesser complexity and cost of regulatory oversight, tariff administration, metering and billing.
Since 2010, DERs, particularly solar and wind, have reached grid parity – a point at which the DER can generate electricity at a Levelized Cost of Electricity (LCOE) that is less than or equal to the end consumer’s retail price. Reaching grid parity is essential for an energy source to be a contender for widespread development without subsidies or government support. Grid parity with drop in LCOE for solar photovoltaics have been a catalyst for growth of DER systems in a number of markets such as Europe, Australia, and U.S. We fail to understand why India is continuing to offer subsidies for solar today when grid parity was reached more than 10 years ago?
Compensation Mechanisms for DER
Next to grid parity, the success of DER systems may be attributed to the associated tariff policies, tariff mechanisms, compensation and purchase arrangements that play a vital role in sending clear signals to the public for their involvement. There are three primary compensation mechanisms designed to accelerate investments in DER systems:
Power Purchase Agreement (PPA), also known as the ‘Standard Offer Program’ offers compensation that is generally below retail. It could be above retail, particularly in case of solar where generation is close to peak demand.
Feed-in Tariff (FiT), which is usually set initially above retail and reduces down to retail as the percentage of DER adopters increase.
Net Energy Metering (NM), which is always at retail . Since the DER is mostly used for own consumption, technically, it cannot be termed as compensation, although it may be considered so if there is excess generation and if utility is allowed to make payments for the same.
Power Purchase Agreement (PPA)
PPA compensation mechanism allows agencies to fund onsite renewable DER projects with no up-front capital costs incurred. With the PPA, a developer installs a DER on agency property under an agreement that the agency will purchase the power generated by the system. The agency pays for the system through these power payments for the life of the contract, while the developer installs, owns, operates, and maintains the DER system over the same contract life.
Under the PPA mechanism, the energy generated by the DER and the energy consumed are separately metered using two meters – PPA meter and Standard (consumer) meter respectively (see Figure 1). Due to this independence, under the PPA, neither the agency who pays for the power generated by the DER system nor the developer who owns and operates the DER system need to be a consumer of electricity.
Recently there have been two other terminologies used for the PPA compensation mechanism – (a) ‘Buy All, Sell All’ popularly known in California as BASA, and (b) Gross Metering. Globally the terminology used is ‘PPA Meter’ instead of ‘Gross Meter’, hence the term, ‘Gross Metering’ is redundant and confusing. We prefer the name ‘BASA’ if change in terminology is at all required.
Feed-in Tariff (FiT) System
Feed-in Tariff (FiT) schemes are typically based on a 15-20 year long contract where prices are pre-defined above retail with a tariff degression, which effectively reduces the earnings over time. In the FiT, you get paid for every kWh you generate under an FiT contract.
The FiT system uses a separate ‘FiT’ meter (see Figure 2) in order to measure the outflow of electricity generated from renewable energy on the consumer’s premises independently.
The electricity consumption is measured by the Standard meter which is compulsorily a bi-directional meter. The separation of electricity generation and consumption using two meters enables each to be priced differently.
Unlike PPA, in the case of FiT, it is possible to identify the number of kWh units, (generated by his own DER), self-consumed. Since only the surplus energy generated by the DER at any instant of time gets exported through the Standard meter, it is possible to have a tariff rate applied to the surplus energy that is different from the rate applied to the total energy generated by the DER system.
FiT systems are popular for solar generation in several European countries including Germany. In order to boost solar power, German utilities once paid several times the retail rate for solar, but have successfully reduced the rates drastically while actual installation of solar has grown exponentially at the same time due to installed cost reductions. Due to these measures, Germany was a leader in terms of PV installed capacity with over 70% in the rooftop segment.
Net Energy Metering
Net Energy Metering or Net Metering (NM) is a mechanism that allows consumers who export some or all of the energy generated by their DER to import back (use) that energy anytime, instead of when it is generated. NM allows consumers to use solar power generated during the day at night, or wind from a windy day later in the month.
Most NM laws involve monthly rollover of kWh credits, a small monthly connection fee, require a monthly payment of normal electricity bill (deficits), and annual settlement of any residual credit. Unlike FiT, net metering uses a single, bi-directional (standard) meter (see Figure 3). In many countries NM needs no licence, can be implemented solely as an accounting procedure, requiring no special metering, or even any prior arrangement or notification. Net metering is an enabling policy designed to foster private investment in renewable energy. The NM policies are far more popular than the FiT policies in the USA and Japan.
Drawbacks of Net Metering
We, too, agree that any consumer interested in generating energy using renewable means should be allowed and encouraged to do so. Electrical energy is a perishable commodity even when generated by renewable means, cannot be stored efficiently – and hence we also consider it appropriate to offer the excess generation to the local electrical distribution utility instead of wasting it. However, the intention to generate and ‘bank’ solar units only to get them exchanged later in the day or night with fossil fuel units is highly inappropriate.
EV Charging – Fossil Fuel Units exchanged against Solar Units
Net metering is always at retail and was introduced assuming that the DER generation is almost entirely used for own consumption when it gets generated. Hence, NM was technically not to be considered as a compensation mechanism. But the subsidy to EVs is fast changing the trend and consumers are increasingly observed to ‘bank’ or export the excess units generated during the day only to be imported back during the night to charge their EVs.
Why should the DER generated units be exported to the utility at retail price if they are to be imported later in the night? By doing so, are we not permitting exchange of, or equating, the intermittent cheaper solar based generation in the day with expensive fossil fuel based generation at night?
Grid Maintenance – Who pays?
Then there is the cost of service to use the grid. The prosumers (consumers with DERs who are also producers) do not pay the full cost of service to use the grid. Electric utilities own and maintain the grid and the major share of service cost of prosumers now gets shifted onto customers (typically low income families) without DERs.
Most owners of DERs still rely on the grid to receive electricity from utilities at night or when their systems cannot generate sufficient power. Should they not then pay the cost of grid service?
A 2014 report funded by the Institute for Electric Innovation claims that net metering in California offers excessively large subsidies for residential rooftop solar facilities. These subsidies must then be borne by other residential customers, most of whom are less affluent than the solar prosumers. Most of these large subsidies went to the solar leasing companies that accounted for about 75% of the solar PV facilities installed in 2013.
California’s Duck Curve
Excessively large subsidies to solar rooftop, clubbed with the freedom to exchange solar generated units with the units generated by burning fossil fuels through Net Metering mechanism has had a bad impact on the energy demand curve in California since 2015.
The excess solar generation at noon is responsible for the ‘belly’ of the duck, while the excess load after dusk due to EV charging is responsible for the ‘head’ of the duck (see Figure 4).
In the year 2014, Brad Bouillion, Director – Operations for California Independent System Operator Corporation (CISO) presented a statement before the US Federal Energy Regulatory Commission (FERC) with the ‘duck chart’ shown in Figure 5 to illustrate the difference between forecasted load and expected electricity production from variable generation resources (net load) during a typical March day. They predicted that, year 2014 onwards, a “belly” would appear in the mid-afternoon that quickly ramps up for the evening load pull when solar output ceases. The duck chart highlights over-generation during the middle of the day and not just during low load conditions. During overgeneration conditions, the generators and motors connected to the grid could get potentially damaged. This condition gets exacerbated by high levels of non-dispatchable generation.
CISO even predicted that the belly would get more pronounced over the five years till 2020. CISO estimated the levels of non-dispatchable generation after 5 years (2020), and identified a shortage of downward dispatchable capacity to balance supply and demand.
The duck curve scenario was predicted to drop below the minimum generation of 15,000 MW. CISO feared that they will be forced to implement curtailment, in which the DERs are scaled back to keep the net load above the minimum generation value, or implement negative energy prices to force net load upwards. As curtailment nullifies the zero-emission benefits of solar and wind power, it is an unfavourable option.
CISO suggested that, to help address grid reliability needs, over-generation conditions and maintaining system frequency, variable energy resources (DERs) having ability to limit production and good frequency response capability, should contribute to the stable and reliable operation of the bulk power system.
In 2015, a Stanford University student  suggested energy storage (see Figure 7) as a way to mitigate overgeneration. In the less ambitious Scenario 1 where only overgeneration mitigation is considered, he calculated that peak charge rate would be 2,290 MW (at 1:30 pm) and that the total energy storage would be roughly 13,720 MWh, and the maximum discharge rate would be 4,820 MW (at 8:30 pm). In a more ambitious/ unrealistic Scenario 2 of complete balancing, that aims to completely flatten the net load to the day’s average of 18,340 MW, the energy storage needed would be approx. 40 GWh. The total initial capital needed to set up sufficient energy storage for scenario 1 ranges from 5 to 20 billion USD, while scenario 2 entails 25 to 95 billion USD.
Three mechanical storage technologies – Aboveground Compressed Air Energy Storage, CAES (1.21 USD/MW), Zn-Br flow batteries (1.54 USD/MW), and Pump hydropower (1.91 USD/MW) – came out as cheapest, beating out electrochemical technologies (Lead-Acid 2.91 USD/MW) and others.
Post-Net Metering Successor Tariffs
Setting up 40 GWh of energy storage capacity at 25 billion USD, to mitigate overgeneration is not an easy task. A better strategy would be for the policy makers to divert attention to an appropriate tariff mechanism that can drive Demand Side Management concepts. When properly designed, the tariff enables the market forces to put DSM techniques in place. California understood the drawbacks of net metering and decided to implement a successor tariff. A few replicable models have emerged such as (a) Time of Use – ToU, (b) Net Billing and
(c ) Buy All – Sell All (BASA). As of 2018, sixteen states swapped successor tariffs for retail rate net metering programs. The duck’s belly flattened with ease. More on successor tariff implementation in Part 2 (to be published in the forthcoming issue of Electrical India)
Decarbonizing the power generation sector through renewable energy that is flexible, schedulable and dispatchable is an essential pivot on the path to limit global warming to 1.5 degrees. Flattening the duck curve is one of the greatest challenges facing renewable energy.
As of June 2021, in Gujarat alone, net metering has supported the adoption of solar by more than 2 lakh homes totaling nearly 1.27 GW of installed capacity. Continued growth in generation during day-time solar peak periods creates two challenges: (a) excess generation at the system-level and (b) grid constraints at the distribution-level. At their core, these challenges are the manifestations of misaligned power supply and demand.
Net metering had allowed non-simultaneous netting of vehicle load undermining a principal benefit of vehicle electrification. In the next few years, electric vehicle adoption is forecasted to surge, and a huge class of customers may come to expect low or zero cost service from the grid.
Conclusions in Part 2
In Part 2 of this article, Net Metering is, therefore, reexamined to understand how to build on its success, for further decarbonization, and also account for location value, fairly recover grid costs, and enable customer choice. Alternative policies are evaluated after applying consistent criteria reflective of State Electricity Regulatory Commission’s (SERC’s) principles. Our analysis identifies Net Billing as a clear successor to Net Metering. We recommend Gujarat policy-makers to move expeditiously to transition the state’s solar compensation framework toward a Net Billing structure with locationally differentiated prices paid for exports that would pave the way for grid friendly transportation electrification. Net Billing would encourage electric vehicle customers to charge while the sun shines, or store their solar-generated energy to charge their vehicles at other times.
- United Nations – Climate Change : Sharm el-Sheikh Climate Change Conference – November 2022, https://unfccc.int/cop27
- Kamat V. N. Metering Systems, Policies and Tariffs for Distributed Renewable Systems, Electrical India, published by Chary Publications, 311, Raikar Chambers, Govandi (E), Mumbai, 400 088, Vol. 54, No. 11, November 2014, pp. 34-49.
- Wikipedia, Feed-in tariff, http://en.wikipedia.org/wiki/Feed-in_tariff
- Wikipedia, Net Metering, https://en.wikipedia.org/wiki/Net_metering
- Michael Burnett, Energy Storage and the California Duck Curve, Coursework for PH240, Fall 2015, Stanford
Vithal Kamat has a Doctorate in Artificial Intelligence from the University of New Brunswick, Canada as a Commonwealth Scholar in 1996. He completed Masters in Control and Instrumentation from IIT Bombay. His current role – reviving a sick industry as a Managing Director of Baroda Electric Meters Ltd. Current interest lies in exploring ways to replace the Human centric Judiciary with an AI Judiciary, to replace the 24-hour clock with Ghati clock, and to replace ICE vehicles with solar vehicles.