New policies in Central America are connecting small-scale renewable energy users to the grid—but not in the direction you might expect.
Net metering policies allow owners of small-scale distributed renewable energy systems to feed power produced by their installations back into the grid. Under net metering, utility customers who own such systems can install a bi-directional meter that records both incoming and outgoing power and calculates the net difference. If customers produce more electricity than they use, they receive compensation from the utility company, often in the form of avoided costs or by receiving a pre-selected payment per kilowatt-hour (kWh).
Net metering is a low-cost, low-risk policy and has been successfully implemented in many countries around the world. The right of utility customers to produce renewable energy and connect their systems to a distribution network – in conjunction with other polices that promote renewables such as tax concessions and financial assistance —is helping individuals and communities to introduce renewables into the grid on a small scale. In Central America, Panama, Costa Rica, and Guatemala have already introduced net metering policies to promote renewable energy deployment.
In Costa Rica, the total share of renewables in electricity generation declined recently by 0.7 percent between 2010 and 2011, and fossil fuels have met a growing portion of the country’s increasing electricity demand. To combat this trend, the state-owned Instituto Costarricense de Electricidad (ICE), with support from the Ministerio de Ambiente, Energía y Telecomunicaciones (MINAET), launched a net metering pilot program in October 2010 aimed at promoting small-scale renewable energy, while boosting job creation, and promoting energy independence. This pilot program also takes advantage of recent legislation providing fiscal incentives for renewable energy equipment. Perhaps more importantly, MINAET’s 2011 Directriz No. 14, which mandates that electricity sector institutions such as the regulatory agency Autoridad Reguladora de los Servicios Públicos (ARESEP) and the ICE promote small-scale renewable installations for self-consumption through pilot programs, was instrumental in the development of the net metering program.
Costa Rica’s Net Metering Pilot Program allows small-scale distributed renewable energy generators to connect directly to ICE’s grid network. As part of the program, ICE installs bi-directional meters. Any net surplus in power production can be carried over to the next billing cycle (in this case, a one-year period to account for the seasonal variability of renewable energy sources) as a kWh credit. Because the program is intended to encourage electricity generation for self-consumption, credits can only be used to offset consumption; utility customers are not entitled to any payment or additional compensation for producing more than they use. This two-year program, open exclusively to ICE’s clients (other electricity distributors in the country are expected to follow suit in the future), has a limit of 5 megawatts (MW) of total capacity, of which 1 MW is allocated for residential customers and the remaining 4 MW for commercial and industrial customers. The program policy is ‘first come-first served,’ applies only to ICE’s customers, and covers technologies including solar, biomass, wind, hydropower, and cogeneration systems.
The pilot program has the dual purpose of demonstrating new technologies and allowing ICE to assess the effects of distributed generation on the electricity grid. The program also seeks to encourage utility customers to invest in renewable electricity generation systems that take advantage of available solar irradiance, water resources, surplus biomass, and excess heat.
The program represents a win-win situation for all parties involved. As Costa Rica faces rising electricity demand and escalating electricity prices, its consumers will now be able to meet part or all of their power needs through renewable energy installations, while reducing their electricity bills at the same time. The program will also provide consumers with economic incentives to invest in small-scale renewable generation systems, and the ability to feed power back into the grid will resolve the issue of storing any surplus electricity-one of the major challenges facing small-scale renewable systems.
This program will also likely have a positive impact on companies that sell small-scale distributed renewable energy technologies by triggering demand for products and services, generating new jobs, and driving down the costs of materials and services. In this way, a successful net metering program could jumpstart the development of a renewable energy value chain in Costa Rica. As for ICE, if net metering is a success, the additional power produced by small generators will free up more electricity for distribution elsewhere, increasing the grid’s capacity.
I recently reached out to ICE to obtain an update on the program. During the first year and a half of the program, ICE received a total of 48 requests (totaling 225 kilowatts) to participate in the program. Most of the requests were for solar photovoltaic installations, although there were requests for wind, micro-hydro, and hybrid systems as well. Besides these projects, ICE has also provided technical recommendations to other customers to participate in the pilot program. Among these clients are some agro-industries that have biomass power generation potential up to 3 MW.
The pilot program also provides valuable information on key areas where further developments are needed. One significant barrier to the deployment of small-scale hydropower systems is legal requirements. ICE is already working with the Costa Rican government and other institutions to try and prevent licensing procedures from impeding the development of small-scale distributed energy.
ICE is also addressing the barrier posed by grid connection costs. For some medium-scale renewable energy producers, connection costs are too high to rationalize connecting to the grid, thus the grid loses potential additional electricity. ICE is currently working on technical and quality standards for grid connections that will allow energy producers to connect to the grid at a competitive price. These issues, along with any others that might arise during the pilot phase of the net metering program in Costa Rica, need to be addressed before implementing a nationwide program. ICE has already requested an extension of the program to continue its work.
As the number of installations connected to ICE’s grid increases, the program will set precedent for Costa Rica’s electricity services regulatory agency ARESEP. The agency will gain valuable experience in regulating grid connection and net metering as an option for all consumers. A national net metering policy in Costa Rica, along with other policies such as a feed-in tariff system, would incentivize deployment of small-scale renewable technologies—and serve as a model for similar policies in other countries.
Ramon Palencia-Calvo is a Central America Fellow with the Worldwatch Climate & Energy Program. Supported by the Climate and Development Knowledge Network (CDKN) and the Energy and Environment Partnership with Central America (EEP), Worldwatch is currently working to assess the sustainable energy situation in Central America. Visit our renewable energy in Central America web forum.