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Encouraging the adoption of heat pumps and electrical vehicles is important part of the energy transition that need to occur if we are to avoid catastrophic climate change. The current two step rate structure does discourage the adoption of these tools and unfairly punishes those who use electrical heat instead of fossil fuels.
However, removing the second step entirely also discourages conservation. Conservation has been shown to be one of the most cost effective ways to make more energy available for new uses.
Rather than eliminate the second step, the kWh threshold for the second step should be increased. The amount an average energy efficient household would consume with heat pumps and an electric vehicle should be calculated and the threshold for step 2 should be set just above that.
BC Hydro has proposed to replace the current net-metering system with a net-billing system where the amount paid for excess generation is a different rate than what the customer is paying for electricity. There are several problems with this:
When California switched from net-metering to net-billing Wood Mackenzie, estimated that California installations would be down by 38% in 2024.1 ROTH Capital Partners, LLC, an investment bank, estimated a 50% market contraction in 2024. 2
With a net-metering a residential customer can quickly calculate their annual savings by comparing the total usage for billing periods with the average solar generation during those months. But calculating the economics of net-billing it becomes more complicated since the customer would need to look at their consumption on and hour by hour basis to determine the net-exported.
Keep net-metering in place.
On January 16th, 2015 the Government of the Province of British Columbia issued Order in Council #23 which permitted third parties to sell electricity to building owners under the net-metering programs of utilities in BC. These are commonly called Power Purchase Agreements (PPAs).
This legislation allowed renewable energy co-ops (RE Co-ops) in BC to offer ownership to individuals who could not otherwise own solar energy systems. Community members could pool their financial resources to jointly own larger solar energy systems on commercial buildings. The subscribers generally receive regular dividends based on their ownership in the co-op.
Three community owned solar energy plants have been developed under this framework. Four renewable energy co-ops are currently using or exploring this model. One of these co-ops is indigenous lead and one provides indigenous ownership on all new solar energy plants.
RE Co-op PPAs have used extensively in Europe. There are over 3,000 RE Co-ops with over 1.5 million members. The Island of Samsø, which is often used as a model of then energy transition, relied heavily on RE co-ops to help support their transition to 100% renewable electricity.
There are also two Virtual Net Metering (VNM) programs in BC. One operates in Nelson and the other in New Westminster.
VNM does not pay subscribers dividends based on their investment in a solar energy plant but rather in credits to their electrical bill. Thus it requires the involvement of the electric utility.
Under both of these programs the solar energy plants are owned by the utility.
BC Hydro has proposed to introduce a Community Generation Rate in the areas of the province that it serves. This would be similar to Virtual Net Metering (VNM) but might more accurately be called Virtual Net Billing (VNB) since the subscriber would get the community generation credits at a different rate than what they are paying. It would allow front of the meter connections to the utility grid up to 1MW.
The solar energy plants would be owned by third parties. The proposal limits ownership to “non-profits” and government entities. This avoids the problem we have seen in the US with communities loosing ownership of community solar. However since co-operatives are not legally non-profits they would be prevented from owning VNM plants.
We see several disadvantages of VNM/VNB compared to Co-op PPAs
VNM subscriptions are only open to utility customers. If you are outside of the utility’s service area you are not eligible. If you are a renter who does not pay for your electrical service you are also not eligible.
RE Co-op PPA investments are available to anyone in BC.
With utility controlled VNM projects you may no longer be able to participate if you move outside of the utility service area. And if you want to sell or transfer your share you can only do so with other customers in the service area.
With co-operative PPAs you don’t have those restrictions.
Most models require community members invest a sum of money in the solar array(s) and then they receive a regular benefit either in the form of dividends or saving on their electrical bill. The amount of savings or dividends compared to the initial investment allows one to calculate the return on investment (ROI).
Historically the VNM programs in BC have offered an ROI that is less than that offered by RE Co-op PPA programs. Based on our financial analysis, we believe that under BC Hydro’s proposal this will continue. See Appendix A for a comparison of financial outcomes for both options.
Under the current VNM programs in BC the subscribers contribute to the cost of installing the solar energy plant but are not legal owners of it. The plants are owned by the utility.
Under the BC Hydro VNM proposal ownership would be through governments and non-profits. This might give the subscribers some democratic input on the governance of plants but they would not be legal owners.
With RE Co-ops the subscribers are owners of the co-op and thus legal owners of any property the co-op owns. The also have democratic control over the governance of the co-op.
We think that we need a more diversified ownership model for energy and that this has an advantage over concentrated ownership in the hands of a few utilities.
Most projects will require an initial investment to help fund the acquisition of the solar array. It is not clear if the VNM/VNB investors can get this sum back if they withdraw from the scheme or move out of the utilities boundaries.
Although RE Co-ops do not guarantee return on capital they can offer two mechanism through which this could happen. If there are enough new investors waiting to invest they can buy back shares from those wishing to sell. They will also set aside a portion of revenues after dividends as a reserve fund. At some point in the future this fund will be large enough to start buying back a portion of shares from investors.
We believe that VNM/VNB adds an extra unnecessary layer of complexity and cost to community ownership through the utility billing process. The cost of the utility changing its billing system would need to be passed on to either the VNM/VNB subscribers or the utility customers (rate payers).
Rather than introduce a new VNM/VNB program with its inherent costs and disadvantages, we would propose that BC Hydro allow First Nations and RE Co-ops to develop community owned renewable plants that are connected to the utility in front of the meter. The plants could be up to 1 MW as would be allowed under VNM/VNB.
BC Hydro could pay a rate for the power generated that is equivalent to the rate it would pay under the proposed VNM/VNB program. So this program would not cost BC Hydro any more than VNM. In fact, it would save money because there would be no need to upgrade the billing system to support VNM/VNB.
If BC Hydro does decide to continue with the VNM/VNB program we would recommend that they allow co-operatives to own and operate VNM/VNB plants.
BC Hydro should look for opportunities to lower the cost of interconnection studies for projects between 100 kW and 1MW.
Appendix
A