Solar rooftop in electricity markets : A Case study

The post is a short summary of one part of my master’s thesis on ‘The Evolution of Electricity Retail Markets in a Low Carbon World’. Apart from looking at the electricity retail market regulation and pricing under different scenarios I have also tried to look at it from a utility standpoint. For this analysis the chosen utility was Banagalore Electricity Supply Company (BESCOM) considering its recent regulations and my prior experience in dealing with the policy regulations in Karnataka.

The recent announcement of the  solar rooftop tariff revision in the state of Karnataka has not gone very well with the general public even as they were expecting the tariffs to be reduced eventually. Tariff revision seemed to be an obvious move considering the ever decreasing cost of the solar power system and the recent solar bid results dint quite justify the previous tariff of INR 9.56 which is more than double the lowest tariff in the country with knowledge of the fact that the scale and projects are totally different. (More about it.)

The slide deck below provides a brief insight into the case study part of my thesis.

Electricity markets are undergoing a second round of transformation after the first one in which the vertically integrated utilities were unbundled and regulated. In this phase utilities are grappling with high penetration of renewable energy in the grid mix and also a need to adopt and offer smart technologies to consumers to remain relevant. There are cases where utilities like in Karnataka (Read more) and around the world have gone forward with Renewable Energy (RE) expansion and then deciding to pull the plug.

The story from a consumer view point

Consumers in Bengaluru have one of the lowest electricity tariffs in comparison to most of the metros. Bengaluru does in fact have a high penetration of solar water heaters but the consumers patronage to a similar system in solar PV had failed to take off even when the Feed in Tariff was set at INR ₹ 9.56/kWh. From a general perception having already installed solar water heaters consumers don’t want to invest on a new experiment until the previous investment has paid off. The other issue is also the lack of roof space. Consumers with a solar water heater installation would find it hard to squeeze in a 1-2kWp on the roof. But industry peers who have experience with domestic systems attribute the lack of interest to the financial non viability of a 1-2kWp system on an energy savings perspective and on the contrary consumers don’t really trust the utility to pay them a high Feed in Tariff (FiT).

Utility’s role

BESCOM as a utility ranks higher among other national utilities in financial performance. Over the past few years, it has been pleading with the regulator Karnataka Electricity Regulatory (KERC) to increase the domestic tariffs significantly in order to bridge the gap between the fixed costs incurred and recovered considering a significant portion of BESCOM’s fixed costs is recovered through energy sale to industrial consumers. The industrial consumers are making a slow transition to third party renewable energy purchase through open access regulation which makes BESCOM case even more interesting. BESCOM’s Annual Revenue Requirement filing for 2016 has been very comprehensive. In order to press its case, BESCOM has produced consumer level fixed costs incurred and recovered. It had also proposed a new telescopic tariff for domestic consumers which the regulator discarded. In this background it is forced to pay domestic consumers most of whom will generate more than their consumption a higher FiT. The scenario of electricity market feedback is likely to return here.(More about it. )

Regulator’s perspective

 The regulator driven by national and state level targets and seeing a lack of progress in domestic rooftop penetration in the state is forced to look at alternatives. However, as seen from the analysis a few objectives and principles produce unintended consequences. The flaw here is the premises of its analysis. For e.g. ,it considers the central regulator’s benchmark tariff of 75000/kWp as system cost in estimating the FiT. None of the industry players with credibility offer a 1kWp system at that price considering the technical specifications set by BESCOM in setting up a system are stringent and capital intensive. Hence, there is poor adoption of a 1kWp system. The tariff is set as a standard for 1-10kWp and so the consumers who could afford a 3kWp system generate double their average consumption and will tend to benefit in the long run.

Overall, the system under its current policies could produce unintended consequences. If the ultimate goal is to fix a two part tariff common across all consumers then ensuring parity is critical. Utilities like BESCOM have to be profitable and also ensure the tariffs don’t increase at the current rate of 5% average a year.

Market for Ancillary Services in India

As India takes giant strides in the integration of renewable energy in the grid mix, in addition to a big market for renewable energy developers and service providers a new market for ancillary services becomes vibrant. If current projections hold true, from a market of over 250GW of power with nearly 13% of renewable energy, India will achieve a renewable energy target of 40% by 2030. The projected growth will require a whole new level of electricity services moving from just a market for power trading to a market of electricity services, capacity market, and demand management. If the vision statement of the current Indian government ‘One Nation, One Grid, One Price’ is to be realised, the development of ancillary services is as crucial as the development of power infrastructure and projects.

Ancillary Services in India

India dint really miss the lack of structured ancillary services in the electricity grid until the blackout in 2012. The blackout portrayed the network operator in a bad light. The situation which turned out to be demand/supply mismatch is what primarily constitutes the genesis of ancillary services. The situation was just before the time when the southern grid was integrated to the NEW grid.
The Indian ancillary market revolves around the operation of powergrid who in turn control the Regional Load Dispatch Centres (RLDC). The RLDC along with their state counterparts coordinate on a daily basis with all the power generating companies in forecasting and scheduling the demand/supply. The required ancillary services are mostly provided by the vertically integrated utilities. The Automatic Generation Control is still in its nascent stages and hence India traditionally relies on Frequency Controlled Ancillary Services (FCAS) and Voltage Control Ancillary Services (VCAS) for grid operation.
The Central Electricity Regulatory Commission didn’t have a regulatory framework for ancillary services until recently which evolved from what was called a ‘Staff paper on introduction of ancillary services in Indian electricity market. The Ancillary Services Operation Regulations which came into effect in 2015 defines the guidelines for participation in Reserves Regulation Ancillary Services (RRAS). The RRAS is the first of the ancillary services which reigns in the grid frequency within operational limits by calling on participants to increase/decrease generation.

Balance1

The future

Although Reserves Regulation Ancillary Services (RRAS) looks to define the scope for solving the key problem in an electricity network, it is just the beginning. The services are typically referred to as balancing services around the world. Balancing frequency alone could be achieved in a multitude of ways, for e.g. UK regulates frequency balancing through five different approaches ranging from mandatory frequency response to enhanced frequency response with each one of them differing in terms of contract regulations and response times. Drawing comparisons between two different economies is not always plausible but policy drivers in the electricity sector have for long been adapted from the developed world. It will only prepare the policy makers, regulators and the industry to anticipate change and deliver on time.

BatteryThe ancillary services have evolved from a market which called for increase/decrease of power by turning off loads or turning on the power plants. Emerging technologies are increasingly becoming indispensable in terms of operation within this market space. Energy storage systems including pumped storage or battery technologies have proven to provide significant benefits to the developers and utilities. Ancillary services in UK is increasingly being provided by the new age entrepreneurial ventures who are trying to integrate big data, smart meters & devices, smart grids and energy storage technologies into the market which is currently valued at over £1Bn a year. Nearly half of the market has been evolved by policy options of the national grid which has brought in new players with interesting solutions into the electricity grid. The requirement sought from players in each sector of frequency response has ensured each service provider has developed a niche technology and service scope to deliver the particular requirement. The market is clearly demarcated in terms of the capacity under offer, response time and asset owners/clients under control. For example, a company like Flexitricity has evolved from being just a frequency service provider to offering unique services like footroom which incentivises participants to consume more when there is excess of wind energy in the grid.
Ancillary services in Indian market will take time to reach the diversification as seen in an UK market but it brings along its own opportunities. India will witness technological adoption in this sector faster in comparison owing to the availability of technology and the declining cost of technologies. The market in UK has been operational for a long time but the smart meter rollout plan has just begun which in contrast to India will witness smart meter rollouts before the ancillary service market reaches a maturity. The proposition could provide a unique opportunity for domestic and small scale industrial consumers who have been adopting rooftop solar in a big way which when coupled with smart meters and devices will be an interesting proposition to offer domestic scale demand reduction services. UK, however offers an example of how policies in this sector have to evolve, it has seamlessly integrated companies who offered services in the traditional large scale route and then sought services that could be possibly offered by small scale providers and start-ups with certain services being sought well in advance thereby allowing companies to plan in advance. Overall, I believe multi nationals and traditional players will fancy a pie in the ancillary markets in the long run and a mix of competitive markets and energy supplier services will be key factors. The market will truly open up when the proposed privatisation of distribution is achieved to an extent and when there are a few pilot projects that are up and running. Technological solutions in terms of hardware devices and software will deliver the requirement but like in any power sector reform unless there are favourable policies and regulations at the right time the true potential will not be realised.

Images © Author

Domestic PV systems: A case study

I have been discussing domestic PV systems, Feed in Tariffs (FiT) and the importance of having a balanced policy for Gross/Net metering in the last few posts. (In case you missed it, Karnataka Solar Rooftop Story and Systems feedbacks and the electricity market ) In this post, I will discuss an interesting case study from New South Wales (NSW), Australia.

The publication that I’m referencing for this post is titled ‘Assessing the short-term revenue impacts of residential PV systems on electricity customers, retailers and network service providers’

Before, discussing the case study a short note on the Australian electricity market. It is similar to India, the electricity regulation is done at the central level (Federal Government’ Renewable Energy Target,RET) and at the state level like in the case of NSW, The Independent Pricing and Regulatory Tribunal of NSW (IPART) is responsible for regulating electricity prices. The federal RET scheme mandates a 20% Renewable Energy contribution in the Australian grid by 2020 and the scheme was providing upfront subsidies for installation of PV units when it started. As a consequence of the target and subsequent green schemes at central and state levels, the retail prices started to rise which has since led to a series of interesting publications.

IPARt

IPART report summarising the rise in prices in different verticals.

The NSW Case

  • NSW government was running the Solar Bonus Scheme (SBS), which offered generous FiTs(60c/kWh) for electricity produced by residential PV systems.
  • The SBS was established in 2010, as a 7 year project (50MW target) to create a market for solar, but it had to stop accepting applications within a 1 year and half owing to a significant adoption of domestic PV systems  in this period. Close to 150,000 residential systems were installed from a initial number of 3000.
  • In 2011, it went to the regulator, IPART asking for suggestions on fixing a new benchmark FiT which would be acceptable to the consumers, government and the retailers. A revision in FiT (20c/kWh) soon followed. A decrease in retailer contribution was also undertaken.

Key issues

  • Utilities are concerned with the growing trend where demand is less than net energy generation from the household systems.
  • Even without FiTs, there is an increasing rate of PV adoption among residential consumers owing to a rapid decline in the capital cost of PV over the past few years.

Research Methodology

PV Gen

Cty: Olivia S et.al. 2016

The publication in discussion, conducted an audit of 80 households. The consumers had installed rooftop PV systems. The author collected load profiles and PV generation details. The aim was to identify if there was an opportunity to incentivise the revenues for utilities while increasing the consumer benefits through new tariff mechanisms. The tariff proposals considered include Gross Metering and Net Metering at different tariff levels in line with the wholesale and retail prices.

Results

The author produces revenue benefit calculations for consumer and retailer at different FiTs and policy options. The revenue distribution depends on the type of FiT chosen. It is good to have net metering if the consumption is greater than the average PV generation but gross metering could be ideal if the FiT is lower than the average retail price or equal to the wholesale price. Nevertheless, with technological innovations like smart meters, having a Time of Use tariff and time variant FiT is not far behind.

Overall, the publication provides key insights on why there is a need to consider utility benefit in deciding FiTs. Also emphasized is a need to monitor the individual PV generation profiles with consumers’ load profiles which in the long run could prove useful in estimating the demand reduction potential. The future will welcome residents with PV-battery storage systems who can participate in demand management by feeding energy back into the grid when the overall demand is high.

References: IPART Solar feed-in tariffs; Olivia S et.al. 2016