How will existing solar net metering users be affected by NEPRA’s new regulations?

Here is what has happened in short: the government has decided to abolish net metering for both existing and future solar consumers. New regulations were approved by NEPRA on Tuesday, and it became clear that the system of billing had changed for anyone who was on net-metering, be it new consumers or old ones. 

There are 4.66 lakh net metering connections in the country, and most of them are installed in urban areas.

In response to the regulation there has been an uproar, and merely a day after NEPRA made its announcement the federal government seems to be backtracking on the status of those households that have existing net-metering connections.

The Prime Minister has already directed the power division to file an appeal with NEPRA and the Power Minister, Awais Leghari, has assured the senate there will be no change in the status of existing net-metering consumers (despite what the regulation clearly states). The question remains: What will happen now?  

The difference between net-metering and net-billing

If you have solar panels, two things happen. During the daytime your panels produce a certain number of units of electricity and export them to the DISCO, and you offset that by consuming a certain number of units, either at the time or later in the day. If you consume less than you export, you get paid, and if you consume more, you pay. (For the sake of simplicity and understnding this analysis excludes the additional calculation of on-peak consumption)

Now, if you make excess electricity, that electricity is free for you to store or to export to your DISCO, depending upon the kind of inverter setup you have. For all intents and purposes, the number that matters in net-metering is the units you export to the DISCO. Say you export 1,000 kWh of electricity in a month and consume 900 kWh from the grid.

Under the older net metering, you would receive credits for the 100 kWh that you give back to the grid. This means that your total bill is (-100 x NAPP), where NAPP is the National Average Purchase Price, the price at which the government buys back extra units. If the NAPP is 27, the bill comes out to be -2700. (The negative sign signifies that this bill is a receivable, and the DISCO owes you Rs 2700)

In net billing, this will change. Under the new regime, the total bill of your export will be netted against total import, instead of treating the differential of electricity consumed/produced. Basically, the DISCO will now bill your entire export at the NAPP and charge you separately against your entire import.

To explain this we take the same example as above. If the electricity purchase rate, the NAPP, is Rs. 27 per kWh, your credit amount would be (-1000 kWh * NAPP), which comes out to be Rs, 27,000. But the bill for your electricity import will be calculated differently, at (900 kWh * Rs 47), which comes out to be Rs 42,300. The amount payable will hence be the net of these bills (hence the term net-billing), which is Rs 15,300. (A three-phased connection's consumption of over 600 kWh is billed at ~Rs 47, according to current pricing regulations).

However, there is another twist. This calculation above is for existing prosumers, who have already signed a 7 year contract. New connections will get a different NAPP, at approximately Rs 11.

Which means that if you are yet to get solar panels installed, then your bill, under the same consumption pattern would not be Rs 15,300, but a whopping Rs 31,300.

Compared to the earlier negative bill, under net-metering, the consumer will now have to pay at least Rs 15,300, for the same pattern of consumption. If the consumer manages to produce an extraordinary amount of units such that the net bill is still negative, they would get PKR credits like before, which can then be used to offset future electricity bills or be paid out based on the agreement, but that is also a fool's hope.

Because the government's plan is two-pronged, in this regard and that is where sanctioned load comes in. Under the new sanctioned load regulation, a prosumer cannot get a net-metering setup of more than their sanctioned load.

Previously, this requirement was at 1.5x a connection's sanctioned load. Simply, this means that if your sanctioned load was 7 kW, you were allowed to install up to a 10.5 kWh solar setup. But under the new rules, your connection will only be approved if it is under 7kwh. This means that no-one can essentially beat the house (DISCO), in the longer run, until they significantly lower their consumption.

For a rough estimate, a 7kWh connection makes ~840 kW(units) per month on average, according to the commonly accepted annual average yield of 4x per day. A new user would hence, have to consume less than 200 units for the month, to merely break even.

How it affects existing prosumers 

The decision has naturally been a cause for concern for those households that have already installed rooftop solar and are on net-metering connections. Initial reports in the media were mixed over the status of existing net-metering users. 

Since those people with existing net-metering connections had signed seven year (in some cases five and three) year contracts with their respective power distributing companies like LESCO, PESCO etc, many felt they could not be shifted to net billing because it would go against the contract. However, while the Nepra regulations are dense, they are also very clear. 

In section 21 of the regulations, Nepra categorically states that the 2015 regulations under which existing prosumers had signed contracts stand repealed. While this does not render the agreements void, the existing consumers will now be billed according to the new regulations. 

[caption id="attachment_226590" align="aligncenter" width="1152"] A screenshot from an official Nepra presentation shows how existing prosumers have been affected by the new regulations that have shifted them from net-metering to net-billing.[/caption]

This has naturally caused an uproar among existing consumers. They feel cheated out of their contracts. While the 2015 contracts explicitly stated that distribution companies cannot change the terms of these agreements, there was a provision that the terms of their contracts could be changed if Nepra intervened, which is what has happened in this case. 

As things stand, all existing net metering connections have been shifted to the new net-billing system. There is still a protection for existing consumers in the new regulations. In section 21, the new regulations make it clear that existing consumers will be charged for electricity at the national average power purchase price until the terms of their contracts are up, which is currently around Rs 27 per unit. After the terms of their contract is up it will be charged at the national average energy power price. 

Is the government backtracking? 

There are currently 4.66 lakh net meter prosumers in the country. Most of these are centered in urban areas and have installed large solar systems to offset their consumption. Many have achieved zero as well as negative bills through net metering. With the introduction of net billing, the party will have to come to an end. 

However, it is worth mentioning that the section of the population that has reaped the benefits of net metering are wealthy and influential as a group. Their complaints are loud and the government is clearly affected by them. The very next day after Nepra’s new regulations, Minister for Power, Awais Leghari, claimed on the floor of the senate that existing users would not be affected — despite what the regulations clearly state. 

A little while after this, Prime Minister Shehbaz Sharif has instructed the power division to immediately file an appeal with Nepra to review the new solar regulations in an effort to protect existing contracts for current solar users. As things stand, the net metering of all consumers including old ones has been revoked. It has been replaced by net-billing. But the tone from the PM’s office indicates that these 4.66 lakh households will get what they want.