NET BILLING SCHEMES INNOVATION LANDSCAPE BRIEF © IRENA 2019 Unless otherwise stated, material in this publication may be freely used, shared, copied, reproduced, printed and/or stored, provided that appropriate acknowledgement is given of IRENA as the source and copyright holder. Material in this publication that is attributed to third parties may be subject to separate terms of use and restrictions, and appropriate permissions from these third parties may need to be secured before any use of such material. ISBN 978-92-9260-133-1 Citation: IRENA (2019), Innovation landscape brief: Net billing schemes, International Renewable Energy Agency, Abu Dhabi. About IRENA The International Renewable Energy Agency (IRENA) is an intergovernmental organisation that supports countries in their transition to a sustainable energy future, and serves as the principal platform for international co-operation, a centre of excellence, and a repository of policy, technology, resource and financial knowledge on renewable energy. IRENA promotes the widespread adoption and sustainable use of all forms of renewable energy, including bioenergy, geothermal, hydropower, ocean, solar and wind energy in the pursuit of sustainable development, energy access, energy security and low-carbon economic growth and prosperity. www.irena.org Acknowledgements This report was prepared by the Innovation team at IRENA’s Innovation and Technology Centre (IITC) and was authored by Arina Anisie, Elena Ocenic and Francisco Boshell, with additional contributions and support by Harsh Kanani and Shikhin Mehrotra (KPMG India). Valuable external review was provided by Kessels Kris (VITO), Gabriela Cretu (Energy Community), and Nilmini Silva-Send (Energy Policy Initiatives Center), along with Martina Lyons and Paul Komor (IRENA). Disclaimer This publication and the material herein are provided “as is”. All reasonable precautions have been taken by IRENA to verify the reliability of the material in this publication. However, neither IRENA nor any of its officials, agents, data or other third-party content providers provides a warranty of any kind, either expressed or implied, and they accept no responsibility or liability for any consequence of use of the publication or material herein. The information contained herein does not necessarily represent the views of all Members of IRENA. The mention of specific companies or certain projects or products does not imply that they are endorsed or recommended by IRENA in preference to others of a similar nature that are not mentioned. 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Rather, it is intended as a contribution to technical discussions on the promotion of renewable energy. www.irena.org BENEFITS 1 Increase system fl exibility by engaging prosumers, by incentivizing: • self-consumption and injecting electricity in the grid when prices are high • withdrawing electricity from the grid when prices are low SNAPSHOT KEY ENABLING FACTORS 3 2 Net billing schemes are used in e.g. Indonesia, Italy, Injected energy valued according to system Mexico, Portugal and the USA (NY and AZ). needs In New York, a formula was set to compensate the Mechanisms to recover network costs injection of renewable electricity from prosumers, combining the wholesale price with other elements of Advanced metering infrastructure distributed generation that benefi t the grid: • avoided carbon emissions Prosumer awareness, empowerment and engagement • cost savings to other customers • savings from avoiding capital investments WHAT IS NET BILLING? Net billing is a way to charge but also compensate prosumers Electricity injection meter based on the actual market value of electricity, balancing what they consume against what they Electricity withdrawal meter inject into the grid. Electricity flow Money flow NET BILLING SCHEMES Incentivise prosumers to better interact with the grid. INNOVATION LANDSCAPE BRIEF ABOUT THIS BRIEF his brief forms part of the IRENA project different innovations to create actual solutions. T“Innovation landscape for a renewable-powered Solutions to drive the uptake of solar and future”, which maps the relevant innovations, wind power span four broad dimensions of identifies the synergies and formulates solutions innovation: enabling technologies, business for integrating high shares of variable renewable models, market design and system operation. energy (VRE) into power systems. Along with the synthesis report, the project The synthesis report, Innovation landscape includes a series of innovation landscape briefs, for a renewable-powered future: Solutions to each covering one of 30 key innovations identified integrate variable renewables (IRENA, 2019a), across those four dimensions. The 30 innovations illustrates the need for synergies between are listed in the figure below. INNOVATION DIMENSIONS ENABLING TECHNOLOGIES BUSINESS MODELS MARKET DESIGN SYSTEM OPERATION 1 Utility-scale batteries 12 Aggregators 17 Increasing time 25 Future role of distribution 2 Behind-the-meter 13 Peer-to-peer electricity granularity in electricity system operators batteries trading markets 26 Co-operation between 14 Energy-as-a-service 18 Increasing space transmission and 3 Electric-vehicle granularity in electricity distribution system smart charging 15 Community-ownership markets operators 4 Renewable models 19 Innovative ancillary power-to-heat 16 Pay-as-you-go models 27 Advanced forecasting services 5 Renewable of variable renewable 20 Re-designing capacity power-to-hydrogen power generation markets 28 Innovative operation 6 Internet of things 21 Regional markets of pumped hydropower 7 Artificial intelligence 22 storage and big data 23 Market integration 8 Blockchain 29 Virtual power lines of distributed energy 30 Dynamic line rating 9 Renewable mini-grids resources 10 Supergrids 24 Net billing schemes 11 Flexibility in conventional power plants 4 NET BILLING SCHEMES This brief provides an overview of net billing mechanisms, a market design feature that incentivises prosumers (i.e. actors that both The brief is structured as follows: consume and produce electricity) to better interact with the grid. This works by introducing I Description a method to calculate the compensation of excess renewable energy injected into the II Contribution to power sector transformation grid by distributed renewable generation assets. Net billing is an alternative mechanism III Key factors to enable deployment addressing the limitations of net metering schemes (or net energy metering) and feed- IV Current status and examples of ongoing in tariff compensation mechanisms, which are initiatives largely applicable to prosumers. Further, this brief describes the key benefits of the net V Implementation requirements: Checklist billing mechanism for integrating distributed generation into the grid and increasing system flexibility. 5 INNOVATION LANDSCAPE BRIEF I. DESCRIPTION he installed capacity of distributed renewable While these schemes have been widely accepted Tgeneration, especially from rooftop solar by prosumers, the compensation mechanisms photovoltaic (PV) power plants, has increased defined under these schemes are not reflective at a rapid pace thanks to a significant decline of the cost of electricity at the moment of in the cost of solar power technology over the injection into the grid and might distort the past few years. Further, many countries across market if the quantity injected were significant. the globe have introduced schemes, such as net For example, injection of excess renewable energy metering (NEM) and feed-in tariff (FiT) electricity into the grid is more valuable for the schemes, to compensate consumers for injecting system during peak load hours than during off- excess renewable electricity into the grid, leading peak hours. Similarly, oversupply of renewable to a significant growth in rooftop solar capacity electricity into the grid during time intervals of additions. low demand could lead to curtailment of the power plant or to the formation of negative Under the NEM mechanism, the consumer is electricity prices in wholesale markets. Further, charged for the net electricity consumption retail tariffs include other costs, such as grid from the grid after netting off the electricity access costs, supply costs and balancing costs, injected by the consumer into the grid. This which are not subtracted from the compensation bidirectional flow of energy is measured through made to consumers under NEM. In addition, NEM bidirectional meters, also called net meters, mechanism allows prosumers to use the grid which keep account of the net flow of electricity. as a virtual storage system for free by injecting Since electricity consumption is set off against or drawing electricity at any time for the same the electricity injected into the grid, prosumers price, which reduces consumers’ sensitivity to typically get compensated for the injected volatile electricity prices and hence undermines electricity at the retail electricity tariff. In contrast, efforts to further develop demand-side response under FiT schemes, electricity generation and (CEER, 2016) (IRENA/IEA/REN21, 2018).