THE FEASIBILITY OF APPLICATION OF NET METERING

Report
Presentation at 8th Annual Conference of
the Organisation of Caribbean Utility
Regulators (OOCUR)
Ocho Rios, Jamaica
THE FEASIBILITY OF THE USE OF
FEED-IN TARIFFS (FITs) AS AN
INCENTIVE MECHANISM TO
PROMOTE THE USE OF RENEWABLE
ENERGY IN THE CARIBBEAN
Garvin Alexander
Assistant Executive Director
Technical Operations
REGULATED INDUSTRIES COMMISSION
1
OUTLINE OF PRESENTATION



Introduction
What are Feed-in Tariffs (FITs)?
Examples of Application of FIT
• UK FIT Scheme – some details

Characteristics of Feed-in Tariff
Policies
• Advantages/ Disadvantages
• Some FIT policy design/ implementation issues



Comparison Calculations
Other Incentives
Conclusion and Recommendations
2
INTRODUCTION


Throughout the world, countries are
attempting to increase their usage of
renewable energy.
The main reasons for this thrust are
environmental concerns and energy
security issues.
3
Good reasons to be
concerned!



Average temperature of the earth
has risen 0.6 Celsius since the late
1800s, and is expected to increase
by another 2.4 - 6.4 Celsius by
2100.
This global warming –heating the
oceans, thus fueling more hurricanes
of greater intensity.
Coastal erosion effects are greater
than before.
4
Good reasons to be concerned!

Destruction of diving and coral reefs, and
ocean habitat, affecting tourism related
income.
• In Tobago, heating caused major bleaching of
the coral reef in 2005.

Hotter than usual dry seasons, causing
• Increase in air quality respiratory illnesses due
to travelling Sahara dust as a result of
stronger shears in atmospheric winds;
• Increases in infectious diseases;
• Increased use of energy – A/C units, water
pumps, etc.
5
The Existing T&T Environment
In Trinidad & Tobago, there has been
limited development in the use of RE
generation, primarily because of:
the availability of fossil fuels as a
natural resource (oil, natural gas)
» contributes to low electricity tariffs
» consequently serves as a huge
economic barrier.
6
The Existing T&T Environment



Finite reserves of natural gas –
recent Ryder-Scott report (July
2009) indicated that there are about
12 years of proven natural Gas
reserves.
Cost of RE technology still relatively
high.
Government buy-in and support
needed to increase use of RE
technology as a mitigation strategy
against climate change.
7
Reasons for Caribbean countries to
pursue RE implementation






Concern for the environment: climate
change, GHG emissions;
Reducing costs of RE generation systems;
Promotion of energy security in the
Caribbean region;
Rapidly developing carbon credits market;
High insolation levels in the Caribbean for
solar technology;
In keeping with CARICOM Energy Policy.
8
Good reasons for T&T to pursue
RE implementation

Competitive advantages for T&T in
manufacturing
• Assets- land space, cheap energy;
• Disadvantage – relatively high labour
costs;


Business opportunities can be
created through the manufacture
and export of RE technology.
Concerns about proven levels of
natural gas reserves.
9
What is a Feed-In Tariff?



A Feed-in tariff (FIT) is a policy
mechanism designed to encourage
the adoption of renewable energy
generation.
FITs are the most widely used policy
in the world for accelerating
renewable energy (RE) deployment.
Criteria for judging the success of
FITs depend on the policy goals of
the jurisdiction.
10
Examples of Implemented Net
Metering / FIT schemes




Germany is considered as the pioneer
country in the development and
application of FIT policies, though the
concept originated in California, USA.
Many Members of the European Union
including Spain, the Netherlands, Portugal.
Japan, South Africa, Canada and many
states in the USA have also successfully
implemented FIT policies.
UK has recently introduced FIT policy in
April 2010 for small-scale, low carbon
electricity generation.
11
UK FIT Scheme


FIT scheme was introduced by the
UK government as an environmental
programme to promote widespread
development/ installation of smallscale renewable and low carbon
electricity generation technologies.
The scheme is administrated by
OFGEM on behalf of the UK
Government.
12
UK FIT Scheme
The scheme is funded as follows:
All electricity suppliers licensed by OFGEM,
regardless of whether they participate in
the FIT scheme, are required to make
payments into a levelization fund
established by OFGEM.
The fund is then redistributed to electricity
suppliers that participate in the
programme, that have made more
payments to the RE generators than they
would be required to by their market
share contribution.
13
Successes of UK FIT Scheme


2771 installations were registered
between April and June 2010.
As at September 2010, a total of
9,350 RE generation systems have
been registered to participate in the
scheme since its start date on 1st
April this year.
14
Characteristics of Feed-In Tariff
Policies
FIT policies typically include three key
provisions:
(1) guaranteed access to the grid;
(2) stable, long-term purchase
agreements (typically, about 15-20
years); and
(3) payment levels based on the costs
of RE generation
15
Advantages of FIT Policies



have a measurable impact on RE
generation and capacity;
encourage technologies at different
stages of maturity, including
emerging ones;
can provide a purchase price to
renewable energy generators that is
not linked to avoided costs;
16
Advantages of FIT Policies



distribute costs and development
benefits equitably across geographic
areas;
settle uncertainties related to grid
access and interconnection for large
systems;
offer a secure and stable market for
investors.
17
Disadvantages




FITs may exclude lower-income
individuals from participating;
It can be challenging to incorporate
FITs within existing policy
frameworks and regulatory
environments;
FITs are not “market-oriented”
FITs may distort wholesale electricity
market prices.
18
FIT Policy Design – Payment
Differentiation

FIT payments can be differentiated
by
•
•
•
•
technology type;
the project size;
the resource quality; or
the specific location of the project.
19
FIT Policy Design –
Implementation Issues
Some of the key issues to be
considered are:
• Eligibility of the project;
• Role of the Utility;
• Contract duration;
• Whether Caps are needed in the
scheme;
• in the case of larger systems –
Load Forecasting
 Grid access protocols

20
FIT Policy Design –
Implementation Issues

Because large-scale commercial RE
generation systems may not be
feasible in the Caribbean, the
scheme should be designed so as to
encourage small-scale RE
generation.
21
Comparison with other
Caribbean countries


Calculations were done to determine
what would be the initial level of
feed-in tariff to encourage
investment in solar PV generation;
Countries compared include Belize,
Barbados, Dominica, Grenada,
Jamaica, Suriname and Trinidad &
Tobago
22
Assumptions



Domestic installation using 400 kWh
monthly;
Cost of solar PV panel – US$4.00/Wp
installed;
Initial level of feed-in tariff set to
encourage investment;
23
BELIZE
DOMINICA
GRENADA
T&T
TOTAL COST ESTIMATE FOR PV
SYSTEM (US$)
12,000.00
12,000.00
12,000.00
12,000.00
DAILY AVERAGE CONSUMPTION OF
RESIDENTIAL HOUSEHOLD (kWh)
13.33
13.33
13.33
13.33
AVERAGE MONTHLY BILL
91.25
168.07
139.63
16.78
1095.00
2016.84
1675.56
201.36
438.00
806.74
670.22
80.55
27.40
14.87
17.90
148.98
AMOUNT OF ENERGY PER DAY
SUPPLIED TO GRID (kWh)
10
10
10
10
Feed-in Tariff - US$ per kWh
0.110
0.110
0.110
0.110
Annual Payment to customer
401.50
401.50
401.50
401.50
839.50
1208.24
1071.72
482.05
14.29
9.93
11.20
24
24.89
AVERAGE ANNUAL BILL
ASSUMPTION OF 40% OF ENERGY
SUPPLIED FROM SOLAR PV, TOTAL
ANNUAL BILL BECOMES
PAYBACK PERIOD BASED ON COST OF PV
SYSTEM (WITHOUT FEED-IN TARIFF)
(YEARS)
TOTAL ANNUAL PAYBACK/SAVING
PAYBACK PERIOD BASED ON COST OF PV
SYSTEM & FEED-IN TARIFF (YEARS)
The results indicate…


In T&T and Suriname, an initially high
Feed-in tariff level needs to be set in order
to reduce the payback period to
encourage investors
This FIT level would need to be subsidized,
since it is much higher than the cost of
generation by the respective country’s
utility (certainly in T&T)
25
The results indicate…



If such a scheme is introduced in the
other countries, the payback period
is significantly shorter, and favours
investment. In this case, the avoided
cost of generation may be used to
fund the scheme.
As the FIT level is raised, the project
viability improves.
Some improvement in viability will
also occur as electricity tariffs
traditionally increase.
26
In T&T



From data collected, T&TEC’s cost of
purchasing generation is calculated as
approximately US$0.038/kWh
If 500 10kWp solar PV panels were
installed in T&T, and 50% of the output
reached the grid, this would result in 25
MWh/day of avoided generation at an
annual cost to T&TEC of US$346,750.00,
or TT$2,210,531.35.
The avoided cost of new generation to the
utility could also be factored in here.
27
In T&T


These “savings” could be utilized to
fund a portion of the FIT in the
agreement between the utility and
the RE generator.
The remainder could be subsidized
by the Government in its effort to
promote the increased use of RE
technology
28
How can Governments be
encouraged?



The implementation of RE generation
technology provides an opportunity for
Caribbean countries to play their part in
mitigating the effects of climate change
and global warming.
RE provides a means of gaining tradable
carbon credits through avoided generation
using fossil fuels.
Comparative costing needs to be done
with respect to carbon capture and
sequestration in the electricity generation
sector as opposed to RE generation.
29
Adaptation of the UK Scheme


In the UK, there are a number of
utilities which are used to fund the
FIT scheme.
In the Caribbean, however, each
country has a single utility
responsible for transmission and
distribution – the customer interface.
30
Adaptation of the UK Scheme


An adaptation of the UK scheme for
the Caribbean could involve CARILEC
utilities coming together to create an
environment similar to the UK.
While all utilities may not participate,
they could contribute to a collective
fund, (administrated by OOCUR?),
which could be used to fund an FIT
scheme in the Caribbean.
31
Other Forms of Incentives




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Rebates on the purchase of RE
equipment;
Accelerated depreciation on RE
equipment;
Funding for specific projects;
RE Clean Bonds;
Establishment of a Sustainable
energy trust fund.
32
Conclusion and Recommendations


FITs can serve to encourage the use
of RE generation here in the
Caribbean by improving the
conditions for investment in the
technology.
For T&T, FIT payments should be
initially set at a higher level (than
current avoided costs of generation),
partially funded by the utility, with
subsidies provided by Government.
33
Conclusion and
Recommendations



External agency/corporation funding
can be realized for RE projects.
Rebates on the cost of PV systems may
be offered.
An income tax allowance for persons
who have installed PV generation
systems may be introduced.
34
Conclusion and Recommendations

Remember…. we should be doing
this, not purely for economic
reasons, but to make our
contribution towards saving the
environment and the world!!
35
THANK YOU
Any Questions?
36

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