By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Power & Light (BPL) will initially be allowed to “undervalue” the price it pays to purchase renewable energy generated by its residential customers, according to proposals released yesterday.

The Utilities Regulation and Competition Authority (URCA), in unveiling the public consultation on BPL’s plans to facilitate small-scale renewable generation, said the utility monopoly is proposing to purchase power via a ‘net billing’ arrangement.

This will allow homeowners to sell excess renewable energy to the BPL grid, but at a price that is lower than the utility’s retail tariff rates.

While agreeing that net billing was “preferable” to the other option, net metering, URCA said the standard practice is for energy utilities to base the price they pay for renewable energy on their ‘avoided cost of generation’.

This represents the savings produced from utilities having to generate less energy themselves from their own plant, but URCA’s document revealed that BPL is only willing to pay consumers a price equal to its then-prevailing fuel charge.

The regulator said the fuel charge component of BPL bills would not represent all its ‘avoided cost of generation’, and did not account for other benefits - such as reduced losses from its transmission and distribution(T&D) system.

As a result, URCA acknowledged that BPL’s proposed compensation to homeowners actually “undervalued” the excess energy it was buying.

Yet the regulator, in its preliminary decision on URCA’s offer, said it was minded to allow this as a “temporary measure”, in a bid to both kick-start renewable energy development in the Bahamas and avoid “the significant costs” that will be incurred in calculating BPL’s ‘avoided cost of generation’.

Assessing the two options for compensating small-scale renewable energy producers, the regulator said: “URCA notes that BPL has proposed net billing, and proposed a charge equivalent to the prevailing fuel charge during the billing period when the electricity was supplied to the grid.....

“URCA is in general agreement with BPL that a net billing arrangement would be preferable. URCA, however, considers that the fuel charge, while a suitable starting point, does not actually comprise all of BPL’s avoided cost of generation.

“Small-scale renewable generation may also create additional value, such as reducing transmission and distribution losses. Therefore, the fuel charge undervalues the electricity provided to the grid by small-scale generators.”

URCA said it wanted “a more accurate assessment of the value of small-scale generation” to ensure consumers were fairly compensated for what they supplied to BPL.

However, it indicated its readiness to temporarily suppress such desires due to the “significant costing exercise” that this would require.

“As an interim measure, URCA therefore proposes to allow BPL to implement the small-scale generation programme based on a net billing arrangement at the fuel charge,” the regulator said.

“However, URCA proposes to commence a review of BPL’s avoided cost of generation, and once completed (including necessary consultation) URCA will determine the net billing tariff based on the outcome of that review.”

URCA said it planned to complete its review by November 2017, which is when BPL is due to launch phase two of its small-scale generation programme.

Analysing the merits of net billing as opposed to net metering, URCA said BPL favoured the former on the grounds that it would ensure fairness, and equity, between consumers who had their own renewable facilities and those that did not.

“BPL argues that this approach is appropriate to ensure that consumers without small generating facilities are not disadvantaged by paying a higher cost for the electricity provided by small-scale generators, compared to the cost of electricity generated by BPL,” the regulator said.

“BPL will install a meter to register any surplus electricity sent to the grid. BPL will credit the customer’s account for this electricity at the fuel charge rate in effect for the month that the electricity is reflected on the customer’s bill.”

While net billing would allow consumers to generate their own energy, and sell any excess to BPL’s grid, net metering credits consumers on their electricity bill for such a supply.

“In essence, BPL compensates consumers for electricity provided to the grid at the retail rate (including fuel and electricity charge),” URCA said of net metering.

The regulator said that while a net metering policy would likely encourage a swifter consumer uptake of renewable energy, due to the compensation on offer, it could also increase electricity costs - directly contradicting the Government’s National Energy Policy objectives.

“Net metering encourages the uptake of renewable energy, a key goal of the Electricity Act,” URCA said. “Net metering does so by giving a very attractive price for small-scale generation: the full retail tariff. This is a subsidy for small-scale generation, since the full retail tariff is designed to cover the cost of transmitting and distributing electricity, as well as generating it.

“Compensating small-scale generators at the full retail price gives them more than the value of the electricity they generate (since they are only generating electricity,and not distributing, transmitting or retailing it).”

While net metering was also simple to administer from BPL’s perspective, URCA added: “Net metering may be inefficient. Paying more than the value of the electricity generated encourages uptake of forms of generation that are not least-cost.

“As a result, the overall costs of electricity tend to rise where net metering is implemented, which is contrary to the goals in the National Energy Policy and Electricity Act to reduce electricity costs.”

URCA added that since high income consumers and businesses were more able to finance investments in renewable energy systems, and therefore enjoy the benefits, the ‘profits’ generated by net metering would “cause low income consumers to subsidise high income consumers”.

“This cross-subsidy would run contrary to the Electricity Act’s goal to protect vulnerable consumers,” URCA said.

“The subsidy for net metering may incentivise more small-scale generation than the utility can reliably incorporate, forcing the utility to stop allowing new small-scale generators to sell electricity.

“To ensure that only renewable generators take advantage of the subsidy to small-scale generators, BPL and URCA would have to set up and administer a more complex framework for small-scale generators that distinguishes between renewable and conventional sources.”

URCA said net billing, in contrast, would not cause an increase in electricity prices or a “cross-subsidy” in favour of higher income consumers, while also encouraging efficient renewable generation.

On the down side, it added: “The uptake of small-scale renewables will be slower than with net metering. However, this may be needed to allow the utility to incorporate small-scale generation without compromising reliability of supply.

“Setting the rate for net billing is more time-consuming and expensive than net metering.”