A new report aims to explain the pros and cons of different photovoltaic self-consumption policies and how self-consumption of solar electricity could be promoted. For this, the International Energy Agency’s Photovoltaic Power Systems Programme (IEA PVPS) analysed the policies in 20 key countries.
Since photovoltaic power has in many countries reached a level of competitiveness that allows switching to self-consumption measures, the analysts behind this study wanted to highlight the strengths and weaknesses of such measures and provide arguments to develop suitable schemes for the promotion of self-consumption. This is not an easy task since there is such a variety of self-consumption policies, including net-metering and net-billing, which makes the development of PV much more complex than before. Moreover, the increased penetration of PV has created new challenges in terms of grid financing, tax management and impact on incumbent utilities.
The study identifies five main business models associated with self-consumption and their implementation in 20 different countries. Those business models are self-consumption with constraints, self-consumption with FiT, net-billing, net-metering and self-consumption with a premium. Different models have of course different advantages for the prosumer – the person who owns the PV system, uses its electricity and feeds surplus energy into the power grid.
How to compare the different business models?
For pure self-consumption with constraints, additional fees are added to a prosumers electricity bill, which reduces the overall savings and means that the solar electricity needs to be produced at a price well below grid parity. The model with a feed-in-tariff means that excess electricity goes into the grid and is bought for a pre-determined tariff. The difference between net-billing and net-metering is that for net-metering excess solar electricity is remunerated at the wholesale price of electricity, while for net-billing the electricity fed into the grid is remunerated at a rate that differs from the one of the electricity consumed and is usually lower.
With the exception of pure self-consumption, all other models assume grid-parity. For cases where grid-parity has not been reached, the researchers suggest incentivizing it either by awarding an incentive on top of the retail electricity price for part of the electricity that is self-consumed or through a certain bonus for excess electricity injected into the grid, which should be higher than the market price and possibly even higher than the retail electricity price.
Rome was used as a reference location to create an example case: a PV system with a capacity of 3 kW, an annual electricity demand of 7.3 MWh and an annual solar irradiation 1611 kWh/m². This case was then used to assess the attractiveness of a PV investment from the prosumer point of view under the five different business cases mentioned above. For this, the net-present value over thirty years was calculated as well as the simple payback time for the investment made to install the PV system.
Which model is best for prosumers?
The business model “self-consumption with premium” yields the highest net present value and the lowest payback time for the system, thus making it the most profitable for the owner of the PV system. Least profitable is the case “self-consumption with constraints“, since there is no compensation for excess electricity produced and there are additional charges for every kWh the prosumers use themselves. This together with the costs for the PV system itself cannot be compensated by the savings made by consuming less electricity from the grid.
The study then goes on to compare those two cases and their annual cash flows, as well as the impact on electricity system holders and on the public authority income.
Load curves, self-consumption and self-sufficiency ratios
Smaller and larger systems are also compared. Except for the “premium” case (where profits increase with capacity) and the “no compensation” case (which is never profitable), the other business cases are most profitable with capacities between 2.6 and 3.8 kW. Additionally the impact of a changed tariff-structure on the net present value for prosumers, the electricity market and the tax collector was analyzed for the different business scenarios. Broadly speaking, the market and the public income are better off in scenarios with a lower amount of fixed costs (taxes and grid costs) while prosumers obtain higher savings (or revenues) when the fixed costs are higher.
Various methods to improve self-consumption are discussed, among them the use of storage methods, heat pumps and electric vehicles to increase consumption, as well as financing alternatives such as leasing and virtual net metering or meter aggregation and smart grids.
The report is 82 pages long and was written by Jose Ignacio Briano and Maria Jesus Baez of the energy consultancy Creara (link is external) and Gaëtan Masson of IEA PVPS (link is external). The organisation stated that the report will be completed in the coming weeks by a set of policy recommendations. You can download the full report as a pdf document via the following link: “Review and Analysis of PV Self-Consumption Policies”