Tapping the Potential of Prosumers - Europa

Tapping the Potential of Prosumers

Kristian Petrick

IEA-RETD Operating Agent

Public Hearing organized by European Economic and Social Committee

Brussels, 28 June 2016

Drivers and Policy options (RE-PROSUMERS)

www.iea-retd.org 3

The mission of IEA-RETD is to accelerate the large-scale deployment of renewable energies

Created in 2005, currently 8 member countries: Canada, Denmark, France, Germany, Ireland, Japan, Norway, UK.

IEA-RETD commissions annually 5-7 studies bringing together the experience of some of the world’s leading countries in RE with the expertise of renowned consulting firms and academia.

Reports and handbooks are freely available at www.iea-retd.org.

IEA-RETD organizes workshops and presents at international events.

RETD stands for “Renewable Energy Technology Deployment”.

IEA-RETD is a policy-focused, technology cross-cutting platform (“Implementing Agreement”) under the legal framework of the International

Energy Agency

Background IEA-RETD

http://www.iea-retd.org/



www.iea-retd.org 4

IEA-Reports on prosumers freely available at www.iea-retd.org

IEA-RETD Publications

2014

2015 2016




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Agenda

Is a PV Prosumer Revolution Imminent?

No – Not Yet (Without Incentives and Enabling Policies)

But Policy Makers Need to Watch Key Drivers...

... and Lay Out Potential Strategies Going Forward

RE-PROSUMERS

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The cost to install PV has fallen dramatically, and is likely to continue to do so


Source: IEA(2015)

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Roof-top PV can have an important share in some PV markets

Revisiting RE-PROSUMERS

0

1000

2000

3000

4000

5000

6000

7000

United States United Kingdom Germany France

New PV Capacity Installed in 2014 in MW

Industrial Rooftop (>250 kW) and Ground Mounted/Utility

Commercial (10-250 kW rooftop)

Residential

Sources: SEIA 2014 (US); DECC Solar PV Deployment 2015 (UK); Bundesnetzagentur 2015 (DE), Syndicat des Énergies Renouvelables

Share of commercial PV market does not mean, that those installations are “prosumers” that benefit from self-consumption.

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Agenda





RE-PROSUMERS

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PV costs must fall significantly below socket parity in order for non-incentivized growth to occur

No Prosumer Revolution – Yet

PV LCOE >

Retail price

PV LCOE ≤ retail price, but

investment not attractive

PV LCOE < retail price; investment

is compelling

Socket Parity

Retail electricity rate

PV

LC

OE

• To reach this phase it can still take a number of years

• Regulatory conditions are crucial

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For the time being, prosumers still need incentives and favorable regulations -> support schemes remain key

Mass non-incentivized prosumers are unlikely to arrive in the near-term

Incentives (e.g. FITs) above the retail electricity rate have driven the prosumer revolution to date

Mass prosumer expansion will require policies that compensate most/all of PV output (net metering, below-retail FITs, etc.)

Without support schemes, storage will be required – which adds cost

Non-incentivized mass defection from grids not to be expected soon.


US Germany Spain Colombia

• Standard and

streamlined

interconnection in most

states

• Net metering in many

states

• Retail rates vary widely

• Most residential rates

volumetric

• Guaranteed

interconnection

• FIT for 90% of

production

• 10% of output must be

self-consumed or sold at

wholesale

• FITs below retail rates

• Previously utilized FIT

• PV LCOE below retail

rates

• Introduced tax on self-

consumption

• Introduced fixed charge,

which makes onsite PV

less attractive

• High retail rates

• Only onsite CHP

generation at palm oil

plantations can feed into

grid

• PV cannot feed-in

• Draft law might introduce

net metering

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Grid defection and wholesale competition scenarios for residential sector are unlikely in the near-term

Grid defection with storage?

Estimated 2030-2050 break-even for US and Australia

Onsite load management and energy efficiency can accelerate timeline by a few years (but not decades)

Wholesale competition for residential PV generators?

Uncertainty because of RE impact on wholesale prices

Wide range of wholesale competition dates (for Italy and Spain range between 2025 and 2040)


Defection LCOE vs. retail electricity price (Residential base case) [Y-AXIS 2012$/kWh. Source: RMI (2014)

Even if forward-looking scenarios are conservative and onsite load management and energy efficiency accelerate the case, there is little room for non incentivised mass defection

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Agenda





RE-PROSUMERS

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A complex picture of drivers and national specifics influence the different stakeholder groups

Policy Makers Need to Watch Key Drivers

Economic Drivers

Behavioural Drivers

Technology Drivers

Prosumers PV Supply

Chain Govern-ments

Grid Operators

Generators

DR

IVER

S

STAKEHOLDERS

National Conditions

Consumers

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Drivers can have enabling or constraining effects on prosumer uptake…


High PV system costs Low PV system costs

Low electricity prices and fixed charges

High electricity prices and volumetric rates

High self-consumption ratio Low self-consumption ratio

High insolation Low insolation

PV technology breakthroughs

Improved self-consumption ratio Additional storage costs

Improved self-consumption ratio Additional EV costs

Eco

no

mic

d

rive

rs

Be

ha-

vio

r Te

chn

o-

logy

Environmental awareness, energy autonomy, “cool” factor

Hassle factor, lack of trust in technology, policy uncertainty

Nat

. co

nd

.

Available roof space, tenant ownership Decreasing energy demand

n/a

Enable prosumers Constrain prosumers

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… and Stakeholder Interest are crucial, too.


Stak

eh

old

ers

Enable prosumers Constrain prosumers

Increased resilience of energy supply; improved energy security

Reduced tax income, potential for stranded assets

Economic, social, and environmental benefits created for all consumers

Increased retail electricity rates for other consumers

Prosumers create new business opportunities Reduced generator revenues

Decreased revenue for TSOs and DSOs, grid investments to

accommodate prosumers

Prosumers can reduce T&D investments

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Solutions exist to increase the capability of grids to accommodate more prosumers

Categories Examples

Utility- and System Owner-led Solutions

Grid reinforcement: Advanced voltage control for HV/MW transformers On-load tap changer, static volt ampere reactive control, booster transformer Adopting storage controlled by the distribution grid operator Network reconfiguration Advanced closed-loop operation Improved Data and Forecasting

Prosumer-led solutions

Incentivize prosumer storage Encourage greater self-consumption via price incentives Curtail solar PV power output PV orientation Adoption of advanced or “smart” PV inverters

Interactive Solutions

Demand response via local or market price signals SCADA-based techniques Voltage and VAR control technologies

Technical Challenges

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Policymakers need to keep all of these in mind when considering if, when, why, and how to take action

Some of the drivers are less clear than others.

Economic drivers are well identified and anaylzed

Technology drivers will have different impacts

PV breakthroughs will accelerate prosumer scale-up;

Other technology trends, such as smart grids, batteries, and electric vehicles may enable prosumers by improving the self-consumption ratio in place of net metering.

However, they add additional cost…

and may also add additional “hassle” if they are a prerequisite for prosumers.

Some stakeholder drivers are difficult to predict. Prosumer behavior, for example, could overwhelm economic considerations – this type of diffusion is poorly understood


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Opportunities and risks need to be clearly articulated and balanced – and stakeholder interests aligned


• Emissions reductions

• Water conservation

• Job creation

• Decrease fuel imports

• T&D deferral

• Avoided losses

• PV popular with voters

• “Energy Democracy”

Political benefits Grid benefits

Economic benefits Environmental

benefits

Challenges / Costs / Risks Opportunities / Benefits

• Generators lose revenue

• Risk of bankruptcy

• Cost to expand grid

• Risk of stranded assets

• Reduced revenue

• Risk of “death spiral”

Decreased TSO/DSO revenue

Grid expansion and upgrades

Incumbent generator risks

Decreased tax revenues

• Lower tax payment from the retail rate

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Agenda





RE-PROSUMERS

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To define a policy strategy, governments need to evaluate all drivers and balance opportunities and risks

1. Evaluate drivers and conditions Are the conditions in place to support non-

incentivised consumer scale-up?

2. Balance opportunities and risks Given the trade offs, is support for prosumers

a national policy objective?

3. Define policy strategy

Potential Strategies Going Forward

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Prosumer strategies are required to sustain growth and to enable industry transition


New regulatory and policy approaches / paradigms for

utility regulation and grid management

Prosumer Strategy Choices

Restrictive policies to avoid structural changes to

utility business and regulatory paradigms

Enabling policies like compensation for surplus

production and transparent interconnectoin rules

Incremental

Structural

1. Constrain prosumers

2. Enable prosumers

3. Transition to prosumers

A

B

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Policies for Constraining Prosumers

Restrictions on net metering or onsite consumption

Restrictive roll-over policies for excess generation (i.e. how long can excess power be banked?)

Increased customer charges or demand charges

Standby charges for onsite generation

Regulations prohibiting onsite generation, or grid connection

Rules prohibiting onsite storage

Tax on self-consumed generation

Tax on solar system components

1. Constrain prosumers


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Policies for Enabling Prosumers 2. Enable

prosumers

Connecting to the Grid

Permission to interconnect

Interconnection rules

Interconnection application and review fees

Interconnection cost recovery

Interconnection transparency

Feeding into the Grid

“behind” or “in front of” the meter

Compensation for Electricity Fed into the Grid

Amount that will be compensated

Compensation level: Above, at, below retail rate

Certainty of compensation level: Fixed contracts, retail or wholesale compensation

Efforts to Reduce Soft Costs

Remove or reduce cumbersome bureaucratic procedures

Reduce or eliminate fees and costs

Support PV marketing efforts in order to reduce installer acquisition costs


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Policies for Transitioning to Prosumers

Incremental approach

Examples

Prosumer compensation mechanisms

Buy-all/sell-all arrangements or hybrids with net metering

Net excess generation purchased at full retail rate, or (in islands) at, or near, the avoided cost rate

Rate Design

Time-varying prices (this could be positive or negative, depending on the jurisdiction and level of PV penetration)

Pure volumetric tariffs ($/kWh), i.e. without fixed charges

Ratemaking Decoupling utility revenues from power sales

Lost revenue adjustment mechanisms or performance-based incentives

Market Reforms Allowing peer-to-peer power sharing

Encouraging new, prosumer-friendly business models

Tax Reforms Shift electricity sales tax to other income sources

Tax incentives or credits for solar system components, or investments

3.A Incremental Transition to prosumers


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Policies for Transitioning to Prosumers

Structural approach

Examples

Innovative business models

Utilities become neutral managers of grid infrastructure, brokers of new customer relationships, partners with prosumer service providers, or even financiers of prosumer infrastructure

New product and service offerings

Instead of selling electricity as a universal bulk commodity, utilities could make differentiated offerings based on individual requirements.

Selling specific “services” such as light, heat, or load management

New operational models

Strengthened and more sophisticated grid operators

Distribution grids to adapt management mechanisms of transmission grids, e.g. locational pricing, forecasting, and real time visibility

Emerging technologies

E.g. smart grid infrastructure that will reconfigure the utility-customer relationship to be more integrated, interactive, and price responsive.

Utilities will have more visibility and control at the distribution level, customers more opportunities to react to electricity market

3.B StructuralTransition to prosumers


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Policies for Enabling Prosumers 2. Enable

prosumers

Connecting to the Grid

Permission to interconnect

Interconnection rules

Interconnect. application & review fees

Interconnection cost recovery

Interconnection transparency

Feeding into the Grid

Connect “in front of” or “behind” meter

Compensation for Electricity Fed into the Grid

Amount that will be compensated

Compensation level: Above, at, below retail rate

Certainty of compensation level: Fixed contracts, retail or wholesale compensation

Efforts to Reduce Soft Costs

Remove or reduce cumbersome bureaucratic procedures

Reduce or eliminate fees and costs

Support PV marketing efforts in order to reduce installer acquisition costs


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High-level framework for situating different jurisdictions in terms of their engagement with prosumers (1/2)

Prosumer Scenarios Drivers Policies Strategies

No Prosumers

Weak conditions, e.g. low retail electricity prices

No policies or rules permitting interconnection or feeding into the grid

No regulatory or policy strategies for addressing prosumer challenges

Examples: The Gulf Cooperation Council member states

Constrain Prosumers ✔

Good conditions for prosumers, such as high retail prices and low installed costs

Policies or laws that specifically prevent prosumers or that penalize prosumer development

through fines or taxes

No policies or rules permitting interconnection or feeding into the grid

No regulatory or policy strategies for addressing prosumer challenges

Examples: Some Latin American and Caribbean (LAC) countries, Spain


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High-level framework for situating different jurisdictions in terms of their engagement with prosumers (2/2)

Prosumer Scenarios Drivers Policies Strategies

Enable Prosumers ✔ ✔

Conditions are in place to create a competitive environment for prosumers

Enabling policies allow prosumers to rapidly emerge on a non-incentivised basis.

Policy makers and utilities do not anticipate, plan for, or react to the challenges introduced by

prosumers. Prosumer development conflicts with incumbent business models

Examples: European countries that experienced PV booms during the past 5-10 years.

Prosumer Transition – Incremental and Structural

Approaches ✔ ✔ ✔

Conditions and enabling policies are in place.

Policy makers have identified clear objectives for supporting prosumers, near-term financial

and technical boundaries and pathways to make the required grid infrastructure investments

and support the development of alternative utility business models.

Examples: Some jurisdictions have implemented incremental transition approaches, e.g.

Hawaii. No countries have yet to articulate an integrated roadmap for prosumer scale-up.


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Prosumer scale-up will require policies to sustain growth and to enable industry and markets transition

Conclusions

A prosumer revolution is not here yet.

Support policies are currently the primary determinant of prosumer emergence.

But major drivers, especially economic ones, are accelerating the case for prosumers.

Policy makers should duly evaluate drivers and conditions, as well as opportunities and challenges.

And lay out the policies needed to enable and encourage prosumers.

RE-PROSUMERS provides a framework to define thsese policies.

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Targeted interventions aimed at enabling a sustainable growth of prosumers could include

Designing new policies for net excess generation

Facilitating improved data on national building stock

Developing programs that specifically target commercial decision making

Recommendations

For additional information on IEA-RETD Online: www.iea-retd.org Contact: [email protected] Report: http://iea-retd.org/archives/publications/re-prosumers-report

THANK YOU!




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PV system costs favour commercial prosumers but electricity prices/tariffs are usually lower than in the residential sector

Prosumer drivers

Legend Description Comparison of Commercial Prosumer Competitiveness to Residential

PV system costs

PV installed costs are lower

Electricity prices and rate structure

Retail electricity rates tend to be lower (in OECD countries)

Rate structures have a higher percentage of fixed charges (e.g. demand charges)

Onsite demand and self-use ratio

Commercial buildings are able to achieve higher self -use ratios because

their available rooftop area is small compared to their overall load and/or because they can optimize their systems size downward to serve their minimum daylight demand without a significant economy of scale penalty.

In many cases, peak demand of commercial buildings matches peak PV production time, which contributes to the higher self -use ratio compared to residential prosumers

Behavioural drivers

Commercial return on investment requirements are higher than

residential

Commercial de cision making processes are complex and may either enable or constrain PV adoption

Technology drivers

In jurisdictions with high demand charges, PV and battery systems configured to shave peak can improve the economic case for commercial prosumers.

National conditions

There is significant commercial roof space available for PV development

The share of owner -occupied space in the commercial sector is lower than in the residential sector

T&D operators

Both residential and commercial prosumers may pose challenges to incumbent owners of electricity infrastructure, although commercial PV may have a lower negative impact while at the same time creating new opportunities for utility business models.

Incumbent generators

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For other drivers it cannot be generalized as to whether they favour commercial over residential prosumers

Prosumer drivers

Legend Description Comparison of Commercial Prosumer Competitiveness to Residential

PV system costs

PV installed costs are lower

Electricity prices and rate structure

Retail electricity rates tend to be lower (in OECD countries)

Rate structures have a higher percentage of fixed charges (e.g. demand charges)

Onsite demand and self-use ratio

Commercial buildings are able to achieve higher self -use ratios because

their available rooftop area is small compared to their overall load and/or because they can optimize their systems size downward to serve their minimum daylight demand without a significant economy of scale penalty.

In many cases, peak demand of commercial buildings matches peak PV production time, which contributes to the higher self -use ratio compared to residential prosumers

Behavioural drivers

Commercial return on investment requirements are higher than

residential

Commercial de cision making processes are complex and may either enable or constrain PV adoption

Technology drivers

In jurisdictions with high demand charges, PV and battery systems configured to shave peak can improve the economic case for commercial prosumers.

National conditions

There is significant commercial roof space available for PV development

The share of owner -occupied space in the commercial sector is lower than in the residential sector

T&D operators

Both residential and commercial prosumers may pose challenges to incumbent owners of electricity infrastructure, although commercial PV may have a lower negative impact while at the same time creating new opportunities for utility business models.

Incumbent generators

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Study found that building types and level of self-sufficiency ratio are not the main drivers for uptake

Prosumer drivers

15,2% 4,6% 6,3% 4,9%

21,1%

73,6%

29,3%

67,2% 66,8%

23,5%

170,1%

0,0%

20,0%

40,0%

60,0%

80,0%

100,0%

120,0%

140,0%

160,0%

180,0%Self-Sufficiency Ratio of Various Commercial Building Types

Source: Ong et al. 2012

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Solar PV adoption may depend heavily on building ownership and property management strategy

Category of Building Considerations

Commercial real estate • Leased and managed by the owner • Leased but managed by a property

management company • Owner-occupied

Franchises and chains (e.g. supermarkets, retail, restaurants, and hotels)

• Highly diverse ownership, management and corporate strategies)

Institutional (e.g. public buildings, universities, and hospitals)

• Long-term occupancy • May be enabled or constrained by

government policy

Prosumer drivers

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Create long-term plans

Executive team responsible for energy

Metrics to track progress

Set targets

Routinely review opportunities

Bench-mark vs. leaders

Organizational decision making is complex – and a key determinant of commercial PV adoption

Prosumer drivers

Executive

Leadership

Human

Resources

Financial

Resources

Projects &

Performance

Mgmt.

Public

Relations

Continuous

Improvement

Clear mandate & formal responsibilities

Engaged employees

Cross-functional teams

Learning opportunities

Clear process for obtaining funding

Ample funding available for projects

Reliable funding available

$

$ $ $

Potential projects are continuously identified

Potential energy savings is modeled

Pipeline of projects implemented

Energy data is monitored and used in decisions

Results of projects are widely shared

Projects are highly visible

Regular energy & GHG reporting

Executives involved in PR

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Case study objectives

What is currently occurring in the countries in scope with respect to onsite PV in the commercial sector and what are the primary drivers behind PV prosumers?

Are commercial prosumers emerging and what are the drivers for this?

Is a “breakout scenario” for commercial prosumers imminent?

If not, what conditions and barriers are holding back widespread adoption of PV for self-consumption in the commercial sector?

Building types selected based on which ones had strong potential to emerge as prosumers in a given country. The criteria included:

Good available roof space

Relatively steady and large daily load profiles throughout the week and year

Common building type within the country

Data availability from either public or private sources

Case Studies

Four country case studies (FR, DE, UK and US) were investigated

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The United States: Big box retail store in Massachusetts

2320 m2 floor space

1 floor, flat roof

310,000 kWh annual consumption

98.6 kW peak demand (July)

Case Study: United States

12% discount rate, 1.8% annual electricity rate escalator

-100

-50

0

50

100

1:0

0

7:0

0

13:

00

19:

00

1:0

0

7:0

0

13:

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19:

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1:0

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0

13:

00

19:

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1:0

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7:0

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13:

00

19:

00

1:0

0

7:0

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13:

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19:

00

1:0

0

7:0

0

13:

00

19:

00

1:0

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7:0

0

13:

00

19:

00

kW

Consumption PV Generation Net Grid Injection

Energy Usage, Week of July 18-24

100 kW PV at $2.25/W installed costs

4.33 kWh/m2/day avg. annual insolation

90.8% self-consumption ratio

37.4% self-sufficiency ratio

With Incentives

No Incentives

No incentives ($1.50/W)

Net Present Value

$179,298 -$21,774 $35,440

Simple Payback

2.6 years 7.4 years 5.1 years

IRR 30.5% 10.2% 16.1%

Building load data from U.S. DOE Commercial Reference Data for standalone retail; hourly PV data modeled from PVWatts

Despite very favorable system economics from incentives and high electricity rates, commercial prosumers are not scaling up rapidly in Massachusetts.

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France: New rules for the sector are currently being debated.

PV market has been adding annually between 600 MW and 1,700 MW over the last 5-6 years

But commercial prosumers represent a small part of the market due to a range of economic and policy-related factors:

average French commercial electricity rates are low (25% below the EU average);

the rates offered to commercial-scale systems for exported generation under both the feed-in tariff and the auction frameworks have historically exceeded commercial retail rates

As a result, outside of a number of pilot projects, virtually all commercial rooftop PV installations in France have been developed under either the feed-in tariff or the auction scheme.

With the end of regulated electricity tariffs and the move to more market-based pricing at the close of 2015, the situation may change.

Case Studies

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Germany: Future prospects for commercial prosumers are unclear

Following years of record PV growth from 2010-2012, commercial prosumers were expected to emerge in large numbers: the levelised cost of energy (LCOE) of commercial-scale solar projects reached socket parity with commercial electricity rates, and the feed-in tariff dropped below the retail electricity rate.

However, in 2014, a major surcharge was applied to PV electricity consumed onsite, impacting the economics of commercial PV systems and delaying the emergence of commercial prosumers.

New PV installations have declined, particularly in the commercial sector.

Case Studies

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UK: Uncertainty around continuing government support for solar energy more broadly

The UK led the European solar market for the first time in 2014, but the vast majority of this growth was in residential or large ground-mounted systems.

Commercial PV adoption has been constrained by a number of factors, including a high share of leased commercial space, short average lease duration, and insufficient project economics.

Though policymakers have announced some steps towards supporting growth in the commercial rooftop market specifically, future prospects for commercial prosumers are unclear.

Case Studies

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Targeted interventions aimed at enabling a sustainable growth of commercial prosumers could include

Designing new policies for net excess generation.

For markets where commercial retail rates are below LCOE of PV, any rate offered for excess generation would likely need to be designed as slight premium to the commercial retail rate paid in order to drive adoption.

For markets where commercial retail rates are above LCOE of PV, the rate offered for excess generation would likely need to be below the retail rate paid, in order to avoid excess compensation and encourage efficient use.

Facilitating improved data on national commercial building stock.

Some countries conduct detailed surveys of the number and type of commercial buildings, as well as energy usage within those building types.

Research, update and share these statistics so that policymakers can make better informed decisions on how best to target their interventions and what the outcomes may be.

Recommendations

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Targeted interventions aimed at enabling a sustainable growth of commercial prosumers could include

Developing programs that specifically target commercial decision making.

Policymakers, local decision-makers and business developers can assess the institutional needs of specific commercial entities (e.g. supermarkets, shopping malls) and craft appropriate local regulation accordingly.

Provide focused training programs or on-call PV technical assistance

Deploy low-interest loan facilities

Create recognition campaigns, and other public-private awareness

Conducting broad characterizations of commercial building type according to the factors that may influence decision making.

Project developers or industry associations to assess whether certain property ownership types can be broadly associated with specific building types, and whether policy interventions can be tailored accordingly.

Map different building ownership considerations and their implications for energy decision making.

Recommendations

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Commercial prosumers are not yet “breaking loose”

Conclusions 1

As a result of organizational decision-making and comparatively low commercial electricity rates, the commercial sector is less well-positioned for growth than residential prosumers.

Traditional emphasis on the influence of commercial building type in driving prosumer behavior overlooks other more significant factors, such as rate structure.

Commercial prosumers have been slow to emerge on an “incentive free” basis.

The slow emergence of “un-incentivized” commercial prosumers has been largely due to poor economics

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The commercial PV prosumers can play an important role if enabled by transition policies

The significant potential of commercial PV prosumers in the markets examined remains largely untapped.

As technological and market conditions for commercial prosumers continue to improve, policy makers – and other stakeholders – will need to think more carefully about how best to govern their rise.

This may require assessing the commercial sector as a distinct factor in the evolution of the electricity sector

The commercial sector could play a significant role in accelerating the transition toward a more decentralized, interactive, and highly networked system.

Policy makers, regulators, and affected utilities therefore need to develop strategies to better anticipate, integrate, and plan for a growing number of commercial prosumers.

Conclusions 2

Tapping the Potential of Prosumers - Europa

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