Net-metering is essential for India, but here is why it’s failing – [Part 1 of 2]

21 April 2015 |

Net-metering can potentially drive widespread implementation of distributed generation by incentivising end-users to adopt localized power generation through technologies such as solar. In theory, net-metering is the proverbial silver bullet designed to help India achieve greater energy security through generation at point of consumption (distributed generation). In addition to helping consumers reduce their energy bills, it is also supposed to help stabilise the national, regional and state grids, provide financial relief to the distribution companies (DISCOMs) through consumer default risk mitigation and reduction of AT&C losses, and help cut down the per-capita energy footprint. Unfortunately solar adoption through net-metering has not picked up, even in 12 states and union-territories where it has been implemented. Both DISCOMs and end-consumers are reluctant to adopt net-metering. This article is post 1 of 2 on this matter and discusses the consumer side of the issue. [Refer – part 2 – DISCOMs side of the story]

  • Net-metering is crucial for India if it wants to achieve energy security by 2022
  • Improvement in inverter technology and innovation in financial incentives is required for large scale adoption of net-metering
  • While technological improvements will enable market growth, financial innovations will drive the growth

There are two main reasons for the disappointing adoption of net-metering by the consumers: the tariff structure (a policy matter) and grid-reliability (a technical concern). Both issues are relevant for the residential, commercial and industrial segments. In this post, I have focused on the residential segments since it exemplifies the issues well.

Reason 1: Tariff structure (a policy issue)

Net-metering allows customers who generate their own electricity from solar to feed unused electricity back into the grid and be compensated for that. If the energy supplied by the consumer to the grid (selling) is at a special, usually higher, tariff rate than the one at which electricity is bought from the grid (buying), then it is called a “feed-in-tariff”. However, if the selling and buying are at the same tariff-rate (usually the buying rate), then it is called net-metering. And herein lies a problem.

Residential (and agricultural) tariffs are purposefully and artificially kept low (through subsidy) to influence the voters (e.g. Delhi elections). The actual average tariff rate varies widely in each state ranging from approximately Rs. 2.8/unit in Chhattisgarh to Rs. 6.15/unit in Maharashtra for MSEDCL consumers. In the highest consumption slab, they can even reach Rs. 11/unit in certain states. Residential rooftop solar PV systems today, on the other hand, produce electricity at a fairly constant cost across the country of approximately Rs. 10/unit – reducing yearly as system prices drop.

Thus a net-metering customer in Chhattisgarh will have to sell electricity at a loss of almost Rs 7/unit. Only residential customers in the highest consumption of some states benefit as they can sell at a profit and recover their investment within a few years.

DISCOMs recover the revenue lost due to subsidy for residential and agricultural users by levying extra charges on the commercial and industrial segments. If one removes this “cross subsidy” then the tariff rates will become more realistic and net-metering for all users will make more financial sense.

However, since there is no sign of change in vote gathering mechanisms and thus removal of cross subsidy in the near future, feed-in-tariff comes across as a possible solution. Unfortunately, feed-in-tariff is just not possible in India is because of the simple reason that the DISCOMs are in financial deficit – they have no money to pay the users. Lack of viable financial incentives is, thus, restricting end customer’s adoption of net-metering.

For net-metering to make financial sense, the solar industry, its financiers and the Indian government will have to introduce innovative financial incentives (may be such as tax-credits) to make choosing solar through net-metering easier for consumers.

Reason 2: Grid reliability (a technical issue)

One of the key requirements for any energy source to connect to the grid is the availability of “anti-islanding protection”. Anti-islanding protection is a way for the inverter to shut itself off and stop feeding power into the grid, when it senses a problem with the power grid, such as a power outage. This requirement is crucial because when problems arise with the power grid, it is assumed that workers will be sent to deal with it, and the power lines need to be completely safe – i.e. not have electricity flowing from all the nearby PV grid-tie systems – so that the workers can fix them without putting their lives in danger.

Most of the states in India, unfortunately, suffer from frequent power outages, mostly due to load shedding rather than problems in the grid’s infrastructure. Thus when the grid shuts off, the solar PV inverter will also turn off completely, preventing the owner from using the generated energy for themselves. With high unreliability of the grid, a lot of the electricity generated by the solar PV system will be wasted. This is a key reason for consumers to adopt solar with net-metering.

The anti-islanding protection is an essential safety feature that cannot be removed. Thus, the solution is technological innovation. Inverter manufacturers will have to make their inverters capable of cutting off the connection to the grid in case of grid failure, while still being able to operate (acquire reference voltage) and provide solar energy for use. If such a provision is available then net-metering customers can still use their grid-connected PV systems even during power outages.

Conclusion

In essence, consumers are seeking better incentives and a resolution of technical obstacles before they invest in residential solar PV systems. Policy makers, meanwhile, are coming up with multiple mechanisms to incentivize net-metering adoption from both sides to help DISCOMs improve their financial health and to enable a reliable energy supply. Unfortunately, this is just one side of the story. DISCOMs are wary of net-metering for various reasons. Policy makers are working hard to convince them to accept it as a viable solution. This convoluted state of affairs is, unfortunately, working against net-metering and India’s progress to achieve energy security. In the next post I will cover why DISCOMs view net-metering unfavourably. In the meantime, I hope that the solar industry will find solutions to the issues covered in this post.

Gayrajan Kohli is Senior Manager – Consulting at BRIDGE TO INDIA


Recent reports

India Solar Rooftop Map | December 2020

India Solar Rooftop Map is an infographic report providing a snapshot of rooftop solar market in India - capacity addition across states and consumer ...

Download

India Solar Map | December 2020

India Solar Map 2020 is an infographic report that provides a state-wise break-up of utility scale solar commissioned and pipeline capacity. It also s...

Download

India Solar Compass Q4 2020   

Coronavirus-induced hardships persisted in Q4 2020, pulling installation numbers down. Solar capacity addition in 2020 was at a five-year low. 1,298 M...

Buy Report Download Executive Summary

Smart meters: market update and growth outlook   

With a target to reduce AT&C losses to 15% and improve overall financial performance of DISCOMs, the Indian government is pushing for universal ro...

Buy Report Download Executive Summary

India Solar Compass Q3 2020   

India added just 351 MW of solar power generation capacity in Q2 2020 taking total installed capacity to 38,377 MW by 30 June 2020....

Buy Report Download Executive Summary

Solar Manufacturing Prospects   

Buoyed by government promises of customs duty on imports and financial incentives, solar manufacturing sector is witnessing renewed interest....

Buy Report Download Executive Summary
Award winnig research
We use cookies to offer you an optimal user experience and collect information on website usage.