Self-supplied Energy, war between renewable energy & conventional electric companies

Energy self-supply - Jorge Neri Bonilla

There are really controversial topics, and energy self-supply is one of them. It was regulated in Spain in late 2015 and it is still being discussed. It leads to intense discussions and is the new shim between renewable energy and conventional electric companies. If you are in favor of self-supply, you are labeled and if you criticize it you are labeled too. In a context where vague statements are invalid, it is necessary to document both figures and arguments, as well as to observe other countries to analyze regulations regarding this issue and their consequences.

As a context for the case of Spain, it should be noted that the country accumulated an electricity debt (electricity tariff deficit) of €30 billion ($32.76 billion) due to the fact that income received by the system via the electric bill is not enough to cover its costs, including incentives to renewable energy, compensation to transport and distribution, or very different variables like forest cleanup operations or the Renovation Plan for tractors.

It is also worth noting that these costs increased exaggeratedly during the past decade, when Spain led the promotion of renewable energy through premiums or incentives promising profitability during 25 years. The pull effect came immediately and incentives to these technologies amounted to €9 billion ($9.8 billion), reflected in the electric bill.

The most remarkable case was photovoltaic energy, which multiplied its installed capacity by more than five times in only twelve months (see figure 1).

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At that time, this technology was still developing its learning curve. “We paid for Research and Development (R&D) of the rest of Europe,” said sources from the Ministry of Industry to justify sharp cuts made especially on this technology and the rest of renewables, in general.

The high cost of premiums for renewables, apart from many other factors, has caused Spain to charge one of the most expensive electric bills in Europe, in a moment when the economic crisis has devastated the country with an unemployment rate above 20 percent.

It is also true that this strong commitment to clean technologies was driven by goals set by the European Commission by 2020. By that moment, 20 percent of energy generated should come from renewable sources, independently of the GDP of each member country.

But the economic recession changed everything and Brussels threatened Spain to include its electricity debt as a public debt, which would leave Spain in an even more difficult situation before the Troika. Mariano Rajoy’s administration then addressed the so-called energy reform, which included doubtfully constitutional cuts, finally supported by tribunals, as commitments established in the Official State Gazette (BOE in Spanish) were being wrecked.

After the shock caused by regulatory cuts, where profits of electric companies in Spain hit a 2005-low and some renewable energy companies like Acciona recorded losses for the first time and other companies went bankrupt, energy self-supply arises as one of the new paths for technology growth, also incentivized via the electric bill.

The first reaction of the government was to postpone its regulation, and its statements on this new consumption modality only showed a negative tone. From a regulatory point of view, they wanted to avoid the bad previous experience when legislating about incentives to clean technologies.

The core of the discussion is one of self-supply modalities. On the one hand, there are users wishing a solar panel on their roof to generate their own energy, but they also recognize that they will have no electricity during dark hours as they are not connected to the system.

On the other hand, there are self-suppliers that will continue to be connected to the system to receive electricity during dark hours. There are two options regarding this modality: those who can transfer their energy surplus to the system for free and those who do it for money but must be registered with the electricity producers’ registry, complying therefore with relevant obligations of the activity (VAT declaration, tax payment of 7 percent, etc.)

This second option is the controversial one. Arguments against self-suppliers who will remain connected to the network focus on system costs they would no longer pay for, as they will not receive an electric bill consistent with the system use (the bill contains a fixed fee and a variable fee, where access charges proportional to consumption are also included).

That is why the new regulation approved forces self-suppliers to pay for all the system’s access charges and fixed costs. Electric companies say “if they use the network, paying for it is fair.” Renewable energy supporters instead state that “paying the same amount for something that will be used to a lesser extent is illogical.”

The Minister of Industry is on the side of electric companies and argues that, in the event that self-suppliers do not contribute to the system’s costs, “then costs should be split among the remaining non- suppliers, thus increasing the cost of their electric bills,” which would be “unfair”, as general costs of the system are totally unrelated to self-supply, as well as “regressive” as the “most vulnerable” consumers would be those facing more difficulties to achieve self-supply.

In this regard, a report from the Boston Consulting Group supported by electric companies states that, under the current Royal Decree, self-supply will have a sustainable impact on the Spanish electric and fiscal system of €64 million ($69.8 million) per each point of penetration into the domestic sector. The consulting firm warns that more cost exemptions to self-supply could increase the price of electricity by up to 6 percent and would have an impact of between €860 million and €1.8 billion ($938 million and $1.9 billion, respectively), with a penetration of 10 percent.

It is worth mentioning that the International Energy Agency and the European Commission have stated that self-suppliers that remain connected to the network must pay for their part of network’s costs, but avoiding discriminatory charges.

From the opposite point of view, figures are very different. José Donoso, general director of the Spanish Photovoltaic Union (UNEF in Spanish) assures that figures regarding self-suppliers will not represent a problem for the system regarding costs. “With the most favorable regulation for us, self-supply will not represent more than 200-400 MW per year,” said in a statement for Energía16.

According to calculations from this trade association, in the most favorable scenario, the system would no longer receive €2.6 million per each 100 megawatts of self-supplied energy. So, “in the end, this is not a matter of costs because the amount is ridiculous,” Donoso says, who subsequently claims “what actually concerns them is the potential competition with electric companies.”

In this regard, traditional electric companies defend themselves by arguing that, although this is not a priori a matter of costs, self-supply can reach a certain dimension. “The more favorable the regulatory scenario for self-supply is, the greater the penetration will be,” they say. In addition, they assure that networks are not planned for huge bidirectional movements.

One of the problems is that the new regulation prohibits consumer associations, like neighborhood associations. Ideally, a consumer’s surplus could be used by another close consumer, as problems in networks arise when electricity is transferred upstream. In this case, electric companies would have problems at the distribution network and finally enhancing the electric mesh would be necessary, representing, therefore, an additional cost paid by users via the electric bill.

As from the operation of the system, self-supply would also have to overcome an important challenge. Incorporating more than 27,000 MW of renewable installed capacity into the system has been an important milestone for Red Eléctrica, and they do not hide their fear that self-supply grows to an extent that Red Eléctrica has no choice but to implement new operation procedures.

Finally, the approved regulation has been deemed deterrent by UNEF, as it represents an obstacle for self-supply instead of encouraging it -as the European commission expects-. Therefore, this association has achieved the commitment of the opposition of the Popular Party as a block (18 political parties) to repeal the Royal Decree and draft a regulation excluding the payment of fixed access charges.

Experts of the sector believe the problem is that the self-supply regulation is not deterrent, but the electric system itself and its tariffs, as clients should pay for fixed costs not related to consumption. The National Commission for Markets and Competition (CNMC in Spanish) proceeded accordingly, by taking a stance in favor of a new tariff methodology that would make the development of self-supply more viable, but the government has not wanted to make any modification in this regard.

Briefly, the photovoltaic association deems necessary to lift the obligatory nature of the payment of access charges related to both wattage and consumption. “Paying for something you don’t use is unbearable,” Donoso states. The association also demands allowing collective self-supply as it would be more efficient and the French case, in which this modality is allowed, could be imitated. Thus, cooperatives could be allowed.

On the other hand, the UNEF also deems necessary to eliminate administrative barriers, in particular for very small projects that will transfer nothing to the network. Under the current law, these projects must request an access feasibility study while, for example, Portugal only requires an Intranet notification. The last section to be eliminated would be penalties to batteries, which is a barrier for self-supply and which implies paying for the power contracted.

Upon the approval of the regulation, the repayment term expected for this kind of facilities has increased, although the cost has not stopped decreasing worldwide since 2009. (See figures 2 and 3).

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Investment is more interesting and bearable in small and medium companies, as a great part of the energy generated can be harnessed at the moment it is produced, enhancing the profitability of the facility and the competitiveness of the company. The photovoltaic association itself says that under the current regulation “figures don’t work” for domestic consumers.

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With respect to regulations in other countries, many of them apply the so-called Net Balance: when a self-supply facility generates more energy than it consumes at that moment, the surplus is transferred to the network. Otherwise, when the facility needs electricity and it cannot produce it, for example during sunsets, it takes an amount of energy equivalent to what it transferred to the network during the day. USA, Canada, Australia, Belgium, Brazil, Chile, Denmark, France, Germany, Israel, Italy, Japan, Mexico, Switzerland, the Netherlands and Great Britain have already implemented similar systems. Meanwhile, a PwC report shows how other countries are adjusting their remuneration schemes to energy generated, for example the United Kingdom.

A report managed by Diego Crescente, partner and head of the Energy Division of MAS Consulting Group, points out that self-supply must be understood as a “citizen’s right to supply on his own, and also as a corporate right to manage the country’s energy resources properly.” Meanwhile, governments must help their electric systems to promote this kind of tools, with new tariff methodologies not discriminating self-suppliers while not penalizing the remainder of consumers.

How self-supply is regulated in other countries

PORTUGAL

– Net Balance: the surplus is paid at 90 percent of the market price.

– It allows developing self-supply for up to 1 MW without any type of access charge. For the remaining powers, this country has introduced a system of charges to growing self-supply with the total installed power.

– Designed to increase competitiveness in the industry and cost reduction for the services sector.

– Facilities that link self-supply to an electric car or a thermal solar energy are rewarded.

– No storage restrictions.

UNITED STATES

– 43 states have already regulated self-supply with Net Balance, a system through which the unconsumed surplus is transferred to the self-supplier.

– For example, California uses Net Metering. This is defined as an existing agreement between the company and the consumer-supplier through which the latter is granted credits for the electricity surplus (the consumer only pays for the net amount, apart from distribution expenses and other services.)

MEXICO

– In Mexico there is more energy generated than consumed, a credit payable to the self-supplier will be generated, which will be saved in an energy bank, being classified by the hourly period and month of the generation of the credit, which must be compensated during the following 12 months. On the contrary, if there is more energy consumed than generated, possible compensations will be made as far as there is energy in the bank.

  UNITED KINGDOM

– In recent years, the United Kingdom exceeded the £7.6 billion expenditure limit for subsidies to renewables. Therefore, the government has taken measures, such as reducing support for photovoltaic self-supply. In particular, it has cut incentives to domestic consumers by 87 percent (Feed-in Tariff), and it will disappear in 2019.

GERMANY

– Like in Spain, expenses in subsidies to renewables in Germany multiplied by six the cost for the domestic customers since 2007, making the German residential tariff as the second highest of Europe.

– To stop the tariff increase, domestic self-suppliers were ordered to contribute to the payment of subsidies to renewables borne by the rest of consumers. To that end, the German government set a charge according to energy consumed.

Post by: Jorge Neri Bonilla

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