Friday, April 12, 2024

The right energy expectations

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MANY BARBADIANS HAVE ALREADY invested in a renewable energy system or are planning to invest in one. Most people, if not all, made the decision to invest in a system to reduce their electricity bill and among them most have an expectation of a zero bill. Is this a realistic expectation and is it sustainable?

When you install a grid-tie system, it operates during sunlight hours. However, sunlight hours for a system is not from 6 a.m. to 6 p.m., but around 10 a.m. to 3 p.m. These hours are when the photovoltaic panels can produce enough power from the sun to exceed your home consumption requirements and produce excess.

The Renewable Energy Rider (RER) regulations allow the system to be a maximum of 1.5 times your daily average. So although the system size is limited to 1.5 times the daily average, your usage during working hours is normally the lowest.

Therefore the system can produce the maximum amount of excess energy during the day. This is used to net off against the heavier usage which is normally at night-time when you are at home. The rate at which the utility company buys your excess power is regulated by the RER at 1.6 times the fuel adjustment clause.

The method the utility company uses for buying your excess power, is based on the avoided cost of fuel to generate the electricity you would have used. So when the fuel adjustment clause is higher or close to the kilowatt cost of production, the rate that the utility buys excess electricity from you would be favourable. This means the likelihood of getting a zero bill, or even a credit, is high.

For a utility company, when the renewable energy (RE) penetration is at a level that reduces or eliminates the peak demand during the day, it makes perfect sense for them to buy the excess from you. This is simply because peak demand generation for the utility company is very expensive. However, as the RE penetration levels increases, it will reach a very critical point for the utility company. That is when the RE has mitigated all the peak demand generation during the day and is now reducing the base load generation. The base load is the electricity that is demanded from the utility company under normal conditions and is normally supplied by their low speed generators. These low speed generators are the utility’s cheapest method of electricity generation. Reaching to this level would naturally change the cost avoidance point for a utility. At this point, the purchase price allowed under the RER would be higher than the utility’s cost to generate power. Secondly, it gets close to their fixed cost for generating electricity.

What this means is that the utility company would be paying too much for your excess power at the current rates and it also means that the fixed cost of running the low speed generators would not be covered. Now, we are far away from cutting into the operating cost revenue but we are very close to exceeding the peak load generation and cutting into the base load generation. Therefore, the utility company would no longer be inclined to pay such a favourable rate for your excess electricity, so the RER purchase rate would have to drop.

Most people believe that they are entitled to a zero bill because they are using a free source of energy. However, that has nothing to do with the excess power you are trying to sell. If you are a farmer and you are selling onions to a supermarket and onions are in low availability, it means that the basic rule of supply and demand puts the market in your favour as a supplier. So you can sell your commodity at a higher rate. When there is a surplus of onions it shifts to a buyer’s market and you would have to sell them at a lower price. However the RE purchase agreement is a little more complicated than that. You are a buyer and a seller, and the price of the commodity is also influenced by the input cost to produce it.

A farmer selling produce would have spent money to grow his crops. Then he sells them to recover the cost and make a profit. So it’s like if you had the exclusive right to sell apples to 100 customers, but then these customers were allowed to grow and consume their own apples and you were mandated to buy apples from them if they have apples in surplus. Your customer base drops by 30 per cent, therefore your revenue also drops. Now you have to buy apples from your former customers at a cost that is not market driven. You have fewer customers, more apples than you need at a higher cost than you can produce them for and your revenue is down and operating cost is up. How would you stay in business?

Is it still reasonable to expect to a zero bill? Yes, if you are prepared to be very efficient in the way you consume electricity and manage what you can sell against what you use or you purchase a storage solution to store and consume your own excess power. Can you realistically expect the utility company to continue buying your excess at this current favourable rate? No. How would they stay in business? So if you accept that it’s only a matter of time before the rate changes, then you will be more likely to have the right expectations.

Jerry Franklin is managing director of EnSmart Inc. Franklin is an engineer, energy auditor, equipment tester, and energy solutions provider.

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