THE IMPACT OF ROOF TOP SOLAR PV UNDER NET ENERGY METERING

PROGRAM ON NATIONAL UTILITY AND PUBLIC IN MALAYSIA

Sansubari CheMud

Tenaga Nasiona Berhad, Level 16 Wisma TNB, 46200 Petaling Jaya, Malaysia

Sansubari@tnb.com.my

1 INTRODUCTION

Net-energy metering or net metering is a policy that enables electricity customers to connect

their own roof-top solar power generation system to the utility grid and receive credits on

their electricity bills for their roof-top solar energy generation in excess of their electricity

consumption that is exported to the electricity distribution network. The term net-energy

metering refers to the fact that the meter can measure the flow of electricity in bi-directional

within the utility system by feeding the grid when excess power is produced and consume

power from the grid at a later time when their production falls below consumption.

In most utilities’ net metering systems, if the customer generates more electrical energy than

the customer uses from the utility electrical system, the customer will not be paid for that

energy, but the customer receives a ‘credit’, which is applied to future bills. This ‘credit’

can either in the form of ‘kWh’ rolling over to next month bill or some opted for monetary

term that rolled over to coming bill, depending on one country net-energy metering policy.

Many different renewable energy sources may be eligible for net metering credits, solar

rooftop installations are the most common and popular type of renewable energy source

promoted with net-energy metering.

Under most net metering policies, utilities are required to buy a roof-top solar customer’s

excess power at full retail price even though it costs those utilities much less to produce that

electricity themselves, or buy it on the wholesale market.

The point of these policies is to encourage the adoption of distributed solar on residential

and to take advantage of existing surfaces, to generate the energy right where it’s needed,

and to reduce the total electric load during peak hours of the day. Along with increased

efficiency and conservation, roof-top solar generation can reduce the need to build new large

power plants even as the population grows.

Rooftop solar users are still connected to the grid, which is necessary to have net metering,

and also to power their homes at night or when their solar arrays don’t produce enough

power.

Malaysia is about to move into big plan for net-energy metering. Malaysia will be

implementing 500 megawatts (MW) of capacity for net energy metering beginning 2016

until 2020, with 100MW capacity limit a year in Peninsular Malaysia and Sabah. 500MW

of solar capacity is equivalent to 7% of national utility company (TNB) total installed

capacity. The development of major strategic plan for net-energy metering in the country

has to be in holistic manner. The impact to the utility and to the ratepayer has to be assessed

in due diligent.

Statistic indicated that electricity demand growth in Peninsular Malaysia continues to

decline for three consecutive years despite the country’s healthy economic growth.

In 2015, peak demand experienced negative growth for the first time in recorded history.

The system recorded a peak demand of 16,822MW which is 79MW lower than the highest

peak demand of 16,900MW achieved in 2014.

Figure 1: Peninsular Malaysia’s peak demand trend in MW, FY1980 - FY2015 (source: TNB)

Based on initial studies, emerging trends and the advancement of distributed generation

solar technology are seen as the key factors influencing the recent slowdown in electricity

demand growth. The increasing impact of solar PV is seen as a contributor towards reduction

in the overall electricity consumption. This impact will increase even further with the

projected solar capacity of 500MW under Malaysia Net-Energy Metering Program in the

system effective from 2016 onward.

Figure 2: The amount of energy generated by solar is increasing rapidly (source: TNB)

It is important for national utility and the industry to address these challenges urgently.

Delay to do so will cause various impacts towards the national economy and current

Incentive Base Regulation (IBR) which the first step toward national electricity industry

restructuring.

For this reason, it is timely and crucial for the “The Impact of Roof Top Solar PV under

Net Energy Metering Program on National Utility and Public in Malaysia” to be

assessed. It will be a good indicator what net-energy metering could offer in future

Malaysia electricity industry.

2 THE CONCEPT OF NET-ENERGY METERING

Net energy metering allows registered customer with solar installation to generate power

for own consumption and if there is any excess, the power allows to be injected into utility

grid.

The bi-directional meter measures the excess power to the grid and amount of electricity

supplied by utility. The monthly energy bill is calculated using this different.

Net energy metering policies vary from country to country. Malaysia is developing its own

policy.

Fig. 3: Net-energy metering scheme

Electric customers that generate their own electricity from a rooftop solar photovoltaic (PV)

are eligible to participate in a billing arrangement called net metering. The rooftop solar

system produced DC electrical energy and converted to AC through an inverter before fed

into the utility network. The power generated in excess of the owner’s electricity

consumption is fed into the grid through a bi-directional energy meter capable of registering

both import and export of electricity. The arrangement of a net metering system utilizes the

same service line for excess power injection into the grid which is already being used by

the consumer for draw of power from utility network.

Net-Metering allows rooftop solar PV owner to generate electricity and set off the power

produced against the power used from the utility grid and consumer pays only for the “net”

number of units (difference between import and export energy) used each month. In the

event the consumer produces power in excess of his usage in a particular month, the

customer’s energy charge becomes zero and the remaining number of units will be credited

Bi-directional Meter

Excess power

Excess energy to

utility network

Utility

Supply Solar PV

Supply

Load

and carried forward to the following month. Normally most of electricity companies allow

carrying forward the excess electricity generated for up to one year period. Some electric

companies may pay back to the consumer for the extra power if more energy has been

injected into the system than the consumer has used. In Malaysia, there is no real financial

transaction between rooftop solar PV owner and the utility. The credit will be carried

forward to the coming bill and at the end of the year, the credit (should there any) will be

forfeited (write off).

3 DEVELOPMENT OF RENEWABLE ENERGY AND NET-ENERGY METERING

IN MALAYSIA

Under the 8th Malaysia Plan (2000-2005), Malaysian Government has set an objective to

diversified energy mix for electricity generation in Malaysia. In year 2000, Malaysian

Government introduced The Fifth Fuel Policy, which Renewable Energy (RE) has been

identified as Malaysia’s fifth fuel in addition to gas, oil, coal and hydro in electricity

generation mixes. On 11th March 2001, Ministry of Energy, Green Technology and Water

Malaysia (KeTTHA) announced the launching of the Small Renewable Energy Power

(SREP) Program under the umbrella of Special Committee on Renewable Energy (SCORE)

chaired by the minister for KeTTHA. The SREP program has provided access for

renewable energy to the national utility grid with other fiscal package such as import duty

and sales tax exemption, accelerated capital allowances for project investment, simplified

licensing procedures by Suruhanjaya Tenaga (the Energy Commission for Malaysia) and

‘pioneer status’ which waives the project investment from taxable income tax for up to five

years.

Motivated by the SREP program and inspiration from the International Energy Agency

Photovoltaic Power Systems Program’s (PVPS) that solar technology cost can be reduced

significantly whenever there is a double growth of solar market, Malaysian government

decided to focus on Building Integrated Photovoltaic (BIPV) technology application. The

SREP program was expanded to include BIPV in 2003. Subsequently, the national

‘Malaysian BIPV (MBIPV) Project’ was launched on 25 July 2005 by the Minister of

Energy. This initiative is designed to increase the uptake of solar technology and ultimately,

realize solar potentials in Malaysia.

On 31st March 2006, the Malaysia Government announced the inclusion of MBIPV project

into 9th Malaysia Plan (2006-2010) and the project received co-financings from the United

Nation Development Programme/Global Environment Facility (UNDP/GEF) as well as the

private sector. The objective was to create a sustainable solar market in Malaysia that will

generate widespread solar applications, in addition to contributing towards the national

energy policy objectives. Study done by MBIPV team indicated that the energy from BIPV

installation could produce more than 12,000GWh of electricity per year1. National utility,

Tenaga Nasional Berhad (TNB) has agreed to allow grid connection of solar installations

under the MBIPV project to its low voltage (LV) distribution network, and to adopt a “net-

metering” concept for the accounting of solar generated electricity transferred to the

national utility distribution network.

Strong support from national utility has made the MBIPV project overachieved its target.

2,055 kWp of photovoltaic capacity had been commissioned in August 20112. Importantly,

the MBIPV project coupled with the SREP program led to the development of the Malaysia

Renewable Energy and Action Plan which was approved in 2010 and incorporated into the

10th Malaysia Plan (2011 – 2015). This resulted in the 2011 passage of the Renewable

Energy Act, which created a feed-in tariff mechanism and establishment of champion

agency for renewable energy for Malaysia called Sustainable Energy Development

Authority (SEDA). The feed-in tariff applies to indigenous renewable energy resources up

to capacity of 30MW from biomass, biogas, small hydro and solar photovoltaic. The rate

and duration of the feed-in tariff depending on type of technology applied and capacity of

the power plant3. Take up rate for solar PV under Feed-in Tariff mechanism was

overwhelming. Quota for 20MW Solar Photovoltaic for the first released by SEDA

Malaysia in Jun 2013 taken up within hour4.

In August 2015, SEDA Malaysia has announced the introduction of net-energy metering

(NEM) to address the overwhelming demand for solar PV. NEM allows self-consumption

of electricity generated by solar PV system users, while selling the excess energy to utility

company. It was suggested that the NEM quota for residential to be at 20 per cent, industrial

sector (40 per cent) and the remaining for commercial buildings5.

By the introduction of nation-wide net energy program in 2016, Malaysia will become the

first few ASEAN countries introduced net metering. On top, there will be no upfront

financial obligation upon the solar rooftop owner except for the initial one-time charge for

a new bi-directional meter and protection equipment to avoid sending power back on the

utility grid during a power outage.

The most to be benefited from this net metering facility are industry and commercial

customers, which are subject to capacity charge in their electricity bill element. Having

solar generation system at rooftop for this segment of customer will reduce the peak

demand consumption thus reduce the capacity charge and reduce total energy bill.

Another group of beneficiaries of the rooftop solar PV will the big electricity user under

residential category. Malaysia electricity tariff was designed with tier rate which higher

rate for higher tier of energy consumption. Having rooftop solar system will lower down

the energy tier and reduce the electricity bill.

4 MALAYSIA NET ENERGY METERING

Malaysia is implementing 500 megawatts (MW) of capacity for net energy metering

(NEM) beginning 2016 until 2020.

Malaysia net-energy metering program is open to all electricity consumer and applicable

for existing or newly built premises.

The objectives of introducing the Malaysia NEM policy are:

• To encourage broader community involvement and growth of decentralized Solar Photo

Voltaic (PV) systems.

• To encourage job creation in the downstream Solar PV market segment.

• To provide further impetus to growth of clean technology in the Malaysia.

• To reduce carbon emissions.

Malaysia net-energy metering (NEM) mechanism will allow excess energy from rooftop

solar generation to be exported to the utility distribution grid. The NEM consumer will not

paid for export of excess energy to the grid, but will be given credit in Ringgit Malaysia

(local currency) for consumption of same amount of energy later. These monetary credits

could be carried forward from one billing period to another, for so long as the consumer

has a legal contract for the supply of electricity by utility.

To kick start the Malaysia Net-Energy Metering program, the first 500MW of the

installation will be ‘simple net-metering’ where the exported units are simply subtracted

from the consumption bill, and no monthly fixed fees to be paid by the NEM consumer.

The exported unit will be credited at utility displaced cost.

It is envisioned that after the 500 MW target is reached, the new NEM entrant would have

to pay a monthly fee to remain connected to the grid, the fee to be determined through a

study on the costs of grid connection absorbed by utility.

The Malaysia net-energy metering program is open to residential, commercial and

industrial customers. Only rooftop installation (with or without storage) allowed and

ground-mounted or any other means will be discarded.

Install capacity for residential consumer is limited to 6 kW and maximum capacity for

industrial and commercial consumer is cap at 75% of their maximum demand or 1MW

capacity whichever is lower.

All the installation cost such as interconnection cost, metering cost, etc will be borne by

the NEM customer.

5 COMMERCIAL STRUCTURE OF MALAYSIA NET-ENERGY METERING

Provisions for energy accounting and commercial arrangements for Malaysia Net-Energy

Metering is in accordance to Malaysia Electricity Supply Industry (MESI) Acts &

Regulations 2014.

The excess energy produced by the customers during a billing period shall be carried over

to the next billing period in the form of energy credits, which can be utilized for calculation

of net electricity, injected or consumed in the future billing periods. At the end of a

settlement period, the excess energy generated shall be adjusted in the subsequent billing

period. The energy accounting/ settlement period shall be of two years as per the Energy

Commission regulations.

The billing structure for Net-Energy Metering consumer is as follows:

Item RM Total Payable

kWh import from utility x tariff A TNB supply

(A + B + C + D + E) Good & Service Tax (GST) 1: (A+E) x 6% B

RE Fund: A x 1.6% C

Penalties D

Imbalance Cost Pass Thru E

kWh export x solar rate F NEM Rebate

(F + G) GST 2: F x 6% G

Total Payable (A + B + C + D + E) – (F + G) Table 1: billing structure for NEM customer in Malaysia

NEM customer will only receive one bill monthly. If NEM Rebate (RM) more than utility

supply (RM) then customer is will pay the net amount to utility. If NEM Rebate (RM) more

than utility supply (RM) then customer is given monetary credit in the next bill.

Unused credit amount will rollover up to end of calendar year. At the end of each calendar

year, change in tariff category or upon the termination of NEM contract with utility, any

remaining credit will be adjusted to zero.

The credit rate for energy excess to utility classified into two categories based on utility

displaced cost. For low voltage connection, credit rate is at RM0.31/kWh and medium

voltage connection rate is RM0.238/kWh (note: RM4.0 = USD1).

6 MALAYSIA NEM IMPACT ASSESSMENT METHODOLOGY

Impacts of net-energy metering (NEM) from roof top solar are complex, and discussions

of these issues are invariably argumentative. In the interest of ensuring that the findings

from this study are interpreted and applied appropriately, the key parameter of data

collection governed as below:

The data and information for this study contain relatively high level of detail of national

utility tariff derivation and revenue collection but less detail in company internal production

and operating cost. As a result, the impacts of net-energy metering from roof top solar on

utility actual cost-of-service are based on a rougher set of assumptions than what might be

possible with detail actual operations model.

The model configured for this study, captures financial effects at the utility level, not at the

customer segmentation level (ie industry, commercial and residential segment of

customer). As such, the study do not directly quantify cross-subsidization among customer

segment, although the modelled impacts on average retail electricity rates may, under many

of the scenarios, be considered a proxy for the impacts on non NEM customers from various

segment.

The analysis is focused narrowly on the financial impacts of NEM customer on utility sales

and ratepayers by the implementation of net-energy metering. It does not analyse costs and

benefits for customers with NEM systems and therefore does not consider costs that NEM

customer incur for their system nor any broader social benefits (e.g., reduced emissions,

economic development, energy security).

7 IMPACT OF NET-ENERGY METERING FOR THE CONSUMERS AND TO THE

MALAYSIA UTILITY

Implementation of net-energy metering in Malaysia came with both benefit as well as

challenges. In this regard, these are impact of net-energy metering to the customers and to

the utility:

7.1 Impact of Net-Energy Metering to the Customers

Net-energy metering facility is viable for heavy electricity users who have to pay exorbitant

rates for the higher tier blocks of units (kWh) they consume. Although the initial investment

is much higher to install a rooftop solar facility, the payback period would be very low for

heavy electricity users.

Solar power generation is very much intermittent in nature. The facility produce electricity

when good solar irradiation. Conversely, when the irradiation is not good, the facility will

not produce power and in a typical intermittent type of generation system a bank of batteries

is needed to store the energy for those times. But, the customers having net-energy metering

facility can use the grid to buy power during times when their own systems are not

producing enough energy to meet their needs as well as it allows them to receive value for

the electricity they produce without installing expensive battery storage systems.

7.2 Adverse Financial Impact to Utility and customers

Malaysia electricity industry is undergoing incentive-based regulation (IBR) in an effort to

improve industry efficiency which has been implemented effective January 2014.

Through this framework, average base tariff for a regulatory period of four years is set

based on forward-looking approach of matching revenue requirements with efficient

forecast costs. Next revision period for IBR will be 2018.

Implementing NEM at this point (2016) would lead to adverse financial impact and revenue

loss to utility since the sale of electricity under IBR mechanism has already been ‘locked’

into the tariff calculations. This will give rise to insufficient returns to utility and may lead

to insufficient finds necessary for infrastructure development

Further, implementing NEM in a big way will increase tariff to customers since less sale

will need to recover fixed costs of generation, transmission and distribution which have

been committed. Ideally implementation of NEM must be undertaken together with the

overall planning of the power sector to ensure that investment are not ‘stranded’.

Implementation of NEM should also take into consideration the tariff design of the

electricity sector to address the tariff re-balancing aspect in particular the recovery of fixed

cost to avoid ‘stranded asset’. These impacts pertain to the recovery of stranded investment

(generation, transmission and distribution infrastructure) and provision of inherent cross

subsidy (inter sector, region, income) in current tariff structure. It’s expected revenue loss

is about RM 714mil per year and the stranded investment affected is estimated to cost

RM306mil per year.

7.3 Impact on Utility system reliability

Utility is committed to keep the lights on for the nation at all condition and times, as

electricity is the engine of economic and social well-being. This obligation is inherent in

the technical requirement imposed on the spinning reserve and operating reserve that

safeguard the operation and reliability of the grid operation especially during the peak

demand period.

RE technology particularly solar still has certain limitation on supply reliability and

consistency, which is dependable on external uncontrollable factors such as weather

conditions. Thus, NEM will impact the grid operation through effect on spinning reserves,

operating reserves and reverse power flow.

7.4 Impact on the Utility investment in generation capacity requirement

In relation to generation capacity, the introduction of net-energy metering will not minimize

the capital expenditures required for power generation plant-up in the medium to long term

as new generation capacity for Malaysia requirement has been committed until 2020 with

sufficient reserve margin.

8 SUSTAINABLE APPROACH TOWARD IMPLEMENTATION OF NEM IN

MALAYSIA

From utility perspective, a sustainable mechanism must be introduced for the

implementation of NEM. The sustainable mechanism is crucial in order to maintain balance

in the electricity tariff and o ensure that non-NEM customers are not excessively burdened.

A right mechanism will ensure a sustainable implementation of NEM without burdening

others customer.

8.1 The balance of tariff must be maintained

The current Malaysia electricity tariff was set based on the pre-determined demand volume.

When this volume reduces due to NEM, the building blocks of the tariff structure are

disrupted. Hence, in order to maintain the balance tariff, the cost per unit of energy will

now have to be distributed across a shrinking customer base. This increase in tariff will

therefore have to be borne by everyone, including NEM customers who utilise the network

system.

Based on the NEM quota of 100MW per year, the estimated unaccounted loss to the system

is estimated to be RM1.3billion for the period of 2016 to 2020, and expected to increase

further.

8.2 A review on the current tariff mechanism will ensure customers of all sectors are

protected

Currently, there exists an inconsistency in the cost revenue structure in the Malaysia

electricity tariff design. The fixed cost element which form 60% of the total cost can only

be recovered via 25% of the total revenue element. The remaining fixed cost can be

recovered via the revenue element as illustrated below:

In addition, there is a heavy cross-subsidy among various customer groups. At the moment,

the Commercial, Industrial and Agriculture groups are heavily subsidizing the Domestic

and Mining groups. While the current tariff structure was designed to relieve the tariff

impact of Domestic customers through cross-subsidization, inefficient NEM

implementation would disrupt this configuration.

Effectively, Domestic customers who are most likely non-NEM customers, will have to

bear the cost of the unaccounted losses due to NEM. Therefore, it is commendable that

these concerns are appropriately and efficiently addressed to avoid unnecessary burden for

non-NEM Domestic customer.

The best way to address these concern is by reviewing the whole tariff design taking into

account the cost of supply for different customers at different voltage levels. However, the

Malaysia electricity tariff review can only be implemented in scheduled Regulatory Period,

thus the interim balancing measure must be undertaken by energy authority.

8.3 Introduction a Grid Fixed Charge for NEM customer to restore balance to the tariff

Utility has made proposal for the implementation of a Grid Fixed Charge (GFC), which is

effectively a charge for developing and maintaining the grid for all customers. This GFC is

to be introduced to only the industrial and commercial customer groups to ensure that fixed

grid charge are recovered equitably.

The introduction of grid fixed charge will recognize the value of the grid fixed cost since

the Industrial and Commercial customers will still need to rely on supply from the grid in

the event there is no generation from solar PV. This is deem a more targeted and fair

mechanism to ensure a sustainable implementation of net-energy metering.

Cost Revenue

Fixed Cost

(60%)

Variable

Cost (40%)

Cost

Fixed

Revenue

(25%)

Variable

Revenue

(75%)

Revenue

9 CONCLUSION

Malaysia is embarking on net-energy metering program in a big way. 500MW capacity is

targeted in first phase of five years period to drive solar industry in the country. The

development of such ambitious target will impact the utility economically and subsequently

the utility ratepayer.

The concept of net energy metering is simple, customers only pay the utility the difference

between their usage and their solar generation. But the impact of net-energy metering are

anything but simple.

These impacts evaluated under a base-case set of assumptions under a wide range of

sensitivity cases that considered within the utilities’ operating and regulatory environments.

The findings from this assessment suggest several implications. The energy sales expected

to drop and capital interment deferred subsequently affected utility return on investment.

This scenario may create pressure on utilities to address shareholders concerns about the

erosion of profits caused by net-energy metering.

Give the complex set of issue by net-energy metering, regulator may wish to address the

concern from the electricity rate-making process perspective. The study suggested that

these impacts are highly dependent upon the specifics of the utility operating and regulatory

environment, which will be important for regulator to consider the particular conditions of

any new tariff formulation which are; change in utility operating cost and change of service

for non-participating customer as well as fixed charge for net-energy metering customer

for utility asset utilisation (cable, poles, etc).

From this perspective, the study indicated that net-energy metering penetration level at

utility network will be proportionate to magnitude of cost variables that will give specific

indicator impact to the ratepayer as whole.

10 RECOMMENDATIONS

Based on the aforementioned facts and finding, the followings are recommended for

betterment of Net-Energy Metering implementation in Malaysia;

a) Benchmarking on several measures taken by utilities around the world, Malaysian

utility prefers a systematic and gradual approach in handling net-energy metering. As

such, net-energy metering implementation should incorporate assessment period

(learning curve), development and optimisation pace.

b) For the first assessment period, the net energy metering capacity should be limited to:

12kW for domestic customer. For Commercial and Industrial customers, the capacity

is <75% of max demand or max 1MW whichever is lower. The capacity shall be less

than declared Maximum Demand such that to limit the electricity export capacity while

impact assessment will be monitored.

c) Credit rate (utility buying price for access energy from NEM) is at utility Displaced

Cost (DC) is considered as sufficient and quite generous, which includes the

proportional cost of avoided Generation cost, Transmission and Distribution. It’s

recommended for the rate to be reviewed accordingly based on overall assessment

impact of NEM to utility and non-NEM customers.

d) It’s recommended that the authority to review the NEM Policy & Guideline every 2

years on NEM terms and condition such as tariff rate, credit rollback, penetration,

capacity quota is required to optimise NEM mechanism according to latest situation

and scenario

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