Embracing new business models that encourage customer generation like roof-top solar PV and selling additional services to these customers such as storage can help utilities and municipalities to benefit from the juggernaut of distributed energy resources disrupting the electricity market.
Net metering or embedded generation schemes typically allow a customer to be both a consumer and prosumer by selling/storing electricity from on-site generation through the utility. While net metering regulations often require utilities to buy electricity from customers at the same rate they sell, there is a global trend to adapt these regulations and tariffs in a way that enables utilities to also recover their operational costs from customers.
In addition, some utilities have introduced time-of-use tariffs to incentivise customers to use and sell energy back to the utility at times of day where it adds the most value to the grid. The utility is still the cheapest storage option for most customers, so it makes sense to offer this service now to avoid losing customers entirely to self-generation with storage as storage costs continue to drop.
Learning from existing net metering and embedded generation regulations
A number of African utilities and municipalities already offer some form of compensation for customer generation. In 2015, Mauritius successfully rolled out ~5MW of solar PV installations through phase 1 of its net metering scheme, which included equipment tax incentives.
The success of phase 1 led to phase 2 to encourage another 2MW from <5kW roof-top solar PV installations. Government caps on the market, however, have restricted the growth of local companies subject to a stop/start market design.
Likewise, many municipalities in South Africa also offer residential embedded generation tariffs that allow customers to sell excess energy at a reduced rate than they pay the municipality. To opt in to an embedded generation tariff, customers typically have to apply to the municipality for approval before installation and are required to pay (at least partially) for a new electricity smart meter.
Even without these embedded generation tariffs and municipal support, many customers are still installing rooftop solar to save money and often under-sizing their systems to avoid generating excess electricity to be fed back into the grid. This is a missed opportunity for utilities and customers who would both benefit if utilities provided an affordable storage service for customers through tariffs.
Well-designed regulations can help overcome challenges
The main challenge identified by most customers and installers remains the lack of clear and enforceable regulations that require utilities to encourage a market for distributed generation. Even with the right tariff incentives in place, utilities are slow to change, necessitating the need for regulators to also require that utilities pursue least-cost infrastructure investments. For example, soliciting bids to install distributed energy resources like storage or generation in certain locations can defer investment in grid infrastructure and save costs for the customer.
Namibia is also in the process of revising its net metering rules and distributed generation market structure, but has had to overcome some implementation challenges in the past. While net metering regulations were first introduced back in 2015, the regulator found it difficult to enforce these rules as some distribution utilities waited over two years before offering this service to its customers as they saw it as a threat to their traditional business model.
South Africa’s embedded generation rules in flux
South Africa’s Department of Energy, in consultation with the National Energy Regulator of South Africa (NERSA), is currently soliciting comments on revisions to its embedded generation licensing and registration rules. The draft rules repeal the exemption notice from November 2017, and add more clarity on what type of generation facilities will be required to apply for a licence going forward. While licensing exemptions for generation facilities < 1MW help enable growth in the distributed generation market, the new draft rules still require registration of the facility with NERSA and allow government through the Integrated Resource Plan to potentially cap the size of this embedded generation market. The industry acknowledges the need to track growth of this market for planning purposes; however, government should consider the holistic value add of the distributed generation market to the economy in terms of jobs and deferred utility investments before restricting its growth.
While some utilities still see customer generation as competition to their business model, others are embracing it as an opportunity to provide a new service to their customers and secure new revenue streams. If government regulations and utilities don’t adapt to the customers’ needs quickly then they run the risk of losing customers completely as costs continue to drop for off-grid alternatives.