Wole Abayomi, Head of Strategy; E.D. Business Strategy, Vanetti Advisory Limited; Powerex Limited

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  • Electric Power
  • Energy
  • Private Sector Development

How net metering can boost embedded power generation 15 Apr 2024

It is a grave concern that power supply and quality of service in the Nigerian Electricity Supply Industry (NESI) have been stuck at basically the same levels in spite of the huge financial and policy interventions in the last two decades. The daily consequences of these failures are not easily ignored, as household and business customers are grappling with the impact of incessant grid-electricity supply outages on their quality of life and cost of doing business.

With the policy reforms and the power sector operators unable to deliver on the promise of a turnaround in the country’s power supply situation, individuals and businesses that have the means have resorted to self-help by investing in alternative energy supply, which ranges from hybrid power to off-grid systems. The default alternative used to be fuel-powered generators. But with the rising fuel prices on account of the subsidy policy of the current administration, many individual and corporate entities are embracing renewable energy options. Chief among the new alterative energy sources is photo-voltaic (PV) system, or solar power, in popular parlance.

The growing penetration of solar energy in Nigeria presents a unique opportunity for pooling embedded power generation, especially in the medium-size solar home systems (SHS) range. This opportunity can ride on the existing system if right policies and timely technical interventions are incorporated in the mix, specifically, net metering, among others. In simple terms, “net metering”, or “net energy metering”, is a system that allows for electricity consumers to receive (or purchase) energy from the grid when they need it and supply (sell) back to the grid when they have surplus self-generated energy.

A net metering system requires a special metering unit that is able to read and record the flow of energy in both directions of demand and supply and determine the net balance between what is received from the grid and what is sent back to the grid over a given period. There are other requirements like grid-compatible power module (inverter or DC generator) – to ensure that what is generated by the SHS is compatible with grid parameters – and a suitable management platform for seamless system operation and monitoring.

It is easy for SHS consumers to be in situations where they have surplus energy to sell back to the grid with the right system design. The simple reason is that user loads are dynamic, usually varying with different times of the day based on the number of appliances users left powered on per time. Most SHS consumers have energy storage (batteries) as an integral part of the system. Batteries store excess energy for later use. A factor to consider for excess energy generation is that many in the social bracket that can afford mid-size SHS are in the middle class of society who are largely at work away from home during sunshine hours. They are likely going to store energy and use most of it later after the hours of sunshine. Also, batteries can soon reach full charge on a very sunny day, or charge faster to full levels towards their end of life, or during seasonal periods when user loads are generally lower.

Therefore, with the right conditions, many mid-size SHS can easily generate excess energy which may not be utilised or stored immediately, and which would consequently be redundant or lost except there are means of getting it to other consumers who need it and are willing to take it at a good value. Without net metering, such excess energy has no collective mechanism of re-distribution to those in dire need of it. Because quality data on this service is lacking, it is difficult to put a value to the megawatt hours (MWh) lost daily to excess generation from SHS which could otherwise be re-distributed to others in a win-win model.

The potential of medium-size SHS to partially bridge the widening gap between electricity demand and supply is huge. This immense potential can be unlocked with the right and timely net metering policy and strategy. For example, with proper incentives, mid-scale SHS can easily become distributed investments by homeowners who are motivated by the prospect of fair returns from surplus energy sold to the grid. People who need only 5kW can end up investing in 10kW or more, since they can earn from the excess energy sold to the grid and buy it back at any time they have need of it later.

The benefits of the system are huge and myriad. First, SHS owners can leverage their assets for more value and flexibility of use. Second, power distribution companies (Discos) that serve as primary off-takers for surplus energy from SHS will derive more value from their infrastructure, which could otherwise be redundant during outage or periods of sub-optimal bulk supply. Those periods can be complemented by embedded power from a large pool of SHS.

Third, other customers that are connected to the electricity grid but who may not be able to afford SHS capital assets would be able to pay for kHW uptake via the Disco’s network when most needed, at costs far lower than back-up generators and with a lot more convenience. Also, it is beneficial for the environment. A reduction in the hours of running generators saves energy cost, reduces carbon emissions, and saves lives that could have been lost to inhalation of toxic fumes.

Another major value proposition of net metering is that SHS owners can significantly cut their investment in battery storage and reasonably leverage the grid for energy storage, depending on the grid availability pattern at the location – the better the grid availability, the better its suitability for leverage as SHS energy storage. Chemical batteries are the most common form of energy storage system, but they are quite expensive, with limited service life, and therefore represent a substantial component of the total lifecycle costs of a typical SHS. Therefore, reducing battery outlay helps in reducing costs, saving space, lowering energy conversion losses, and cutting down end-of-life disposal wastes from used battery components, thereby helping to reduce potentially toxic environmental impacts.

Additionally, an important but likely overlooked opportunity that net metering offers is the increase in the aggregate renewable energy content in the total energy mix, given the motivation for SHS owners to trade energy back and forth on the grid.

Harnessing these benefits is not far-fetched. A good start could be a well-considered pricing model to and from the grid. For example, SHS owners could be considered for energy credits equivalent to the same price at which Discos purchase bulk energy from their bulk energy sources, or it could be discounted, based on the fundamentals and core objectives of the model. Even if the energy credit is not necessarily monetised, especially for the mid-size SHS owners, the fact that they can utilise their credit whenever required through grid supply is far better than total loss to redundancy.

Some Discos or undertakings may be able to offer monetary value for SHS surplus energy credit depending on their operational dynamics, by the time the decentralised electricity supply market that the country recently instituted starts to take shape.

The fact that Nigeria electricity market is significantly under-metered is a good opportunity that could be seized to roll-out smart meters that are capable of net metering. For instance, if some existing prepaid meter customers desire to adopt SHS, their basic meters can be moved to currently unmetered customers while net-metering-compliant units are provided as replacement for them. Not every customer will require net metering. Therefore, there are enough opportunities to recycle or re-allocate numerous existing non-smart meters to millions of unmetered connections currently on the obnoxious estimated-billing system.

As the customers end of net metering is being considered, the back-end systems of the operators need to be addressed as well, like the upgrade of Disco billing platforms to smart-grid, net-metering compliance. The policy side of the spectrum as well as public communication and orientation must also be attended to.

Finally, given the Nigerian market size and the potential for a high number of SHS owners to sign up for the programme, if it is well incentivised, there should necessarily be a dynamic and robust policy response to the new realities that would emerge with a shift to net metering, if adopted. Close monitoring of the market, not just to ensure that the ship is on course but to also nip likely untoward developments in the bud, should be provided for.  

Wole Abayomi is the Head of Strategy, Vanetti Advisory Limited. He is also on the Board of Powerex Limited. He can be reached at oluwole@vanettiadvisory.com