DISTRIBUTED GENERATION – A new energy paradigm

Version Español

The distributed generation from renewable  sources, whose regulation is being discussed  by the Congress of the Nation, implies a  revolutionary change in the model of  generation, sale, distribution and  consumption of electric energy. What are  the characteristics of this novel system and  what background information exists at local  and international level?

 Defined by specialists as the first step  towards the democratization of  energy, distributed generation from  renewable sources breaks with the current model  in the production, distribution, commercialization  and consumption of electricity. Far from the static  roles and watertight compartments to which we  are accustomed nowadays in the electrical system,  a new figure appears on the scene, that of the “prosumer”,  that is to say, the user of the electric network  that at the same time delivers to that network energy  generated by the equipment installed in his / her  own home. Professor Bernt A. Bremdal from the Norwegian cluster NCE Smart Energy Markets goes  even further in his definition and states that “energy  prosumers are not only consumers who also produce  energy, but are also sellers of that energy, and active  participants in the market “.  Among the innovations brought by this new paradigm,  the Argentinian Committee of the World Energy Council  (in Spanish CACME / Comite Argentino del Consejo Mundial  de la Energia) identifies “energy equity and security  based on free access to energy resources through technology”,  in the context of “an economy physically based on  the abundance of energy resources, “ as opposed to the  constraints presented by the current model. In its proposal  for the federal regulation of the Argentinean market for  distributed renewable generation, CACME mentions a  series of evolutionary steps that should take us from the  electricity grid known nowadays to the “smart grid”; to  then advance, through the computerization and automation  of its control, to the “intelligent grid” -. Using an  analogy with the Internet in the world of information,  the point of arrival of this evolutionary chain will be the  so-called “energy web”, that is to say, “the infrastructure  that will enable the free and decentralized exchange of  energy”. 

The first step towards the smart grid

 Let’s go back to the starting point: what will happen from the  regulation of distributed renewable generation? “The energy  flows will begin to be bidirectional and, in order to be able to  manage them, it will be necessary to place demand monitoring  stations in certain points of the network, with censors that allow  to measure each flow and to establish the faults that exist  in the network” , answers the engineer Julian Tuccillo, director of  Operations and Technology of the firm SunGreen and coordinator  of the Research Group on Renewable Energies of CACME. “The  management of demand implies matching consumption with  generation, which in the case of renewables is intermittent,” he  adds.  I n order to move forward in this first stage,  it will be necessary to introduce reforms  to the current regulations governing the  Argentine electricity market: Act 24 065, enacted by  the Executive through Decree Law 1398/92. Under  the current regime, despite post-crisis changes in  2001 and the declaration of the economic emergency  in 2002, generation activity is defined as of “general  interest” and operates under a regime of free  competition, while transportation and distribution  are considered a “public service” given their nature  as “natural monopolies”. The entity responsible  for the technical operation of the Argentine  Interconnection System (in Spanish-SADI / Sistema  Argentino de Interconexion) and the delivery is  Compania Administradora del Mercado Mayorista  Electrico S.A. (in Spanish CAMMESA -the Argentina´s  Wholesale Power Market Administrator), whose  Board of Directors is made up of representatives of  the National State, generating firms, transportation  companies, distributors and large energy users.  The CACME project suggests incorporating the figure  of “energy traders”, who “could be several private  companies that compete with each other to install  distributed renewable technology, maintain it, and select,  choose and buy in the market energy to the most  competitive prosumers”. They would act as “intermediary  agents” who would sign energy purchase contracts  with the prosumers and then sell that energy to CAMMESA  or to the spot market that exists for each type  of technology or, alternatively, sign contracts with the  large users in the market in different terms. In addition CACME proposes that the energy traders should  pay to the distributors in the area a “fee for the injected  energy of their prosumers”, so as to cover the cost of  construction, maintenance and operation of the networks“,  which is technically known as “value added distribution”  (VAD). 

Billing, prices, subsidies and incentives

  Once the problem of regulatory regulation is resolved,  the price remains to be determined. For this,  two transactional methodologies are discussed: on  the one hand, the “net metering”; and, on the other  hand, the “net billing”. In the former system, the most  usual one, the energy generated and injected into the network by the prosumer is taken into consideration and  the energy consumed is deducted; the result of that balance  is multiplied by the price of energy to determine the  rate to be paid by the prosumer. The key is to define how  often to measure this balance of energy, since the result  varies if measured in an hourly manner than if it is done  monthly. As far as CACME is concerned, “hourly reading is  a more accurate and fair way to calculate the net balance,  because it takes into account all the energy that comes in  and goes out for the calculation of the rate.”  The second scheme, net billing, consists of calculating  first the monetary value of the energy generated and  consumed by the prosumer, and then establishing the  difference between the two amounts that is reflected in  the final rate. The measurement, as in the model above  mentioned, can be hourly or monthly. A pilot case of this  methodology is the one that has been used in Chile since  the effective date in October 2014 of the legislation of  self-generation based on non-conventional renewable  energy or efficient cogeneration. In the case of residential  consumers whose connected power is less than 100 kilowatts  or their demand is limited to that same figure, the  distributing company pays the prosumer for the surplus  injected into the network with the same price as the sale  of the energy by the same concessionaire of the electricity  distribution service.  At this point, incentives to the prosumer also come into  play. Known in English as feed-in-tariffs, they are nothing  more than differential prices that are paid to small generators  so that they can recover the investment in their renewable  systems in a relatively short term. When are they advisable? When there is no network parity, that is to say,  when it costs less to consume power from the electricity  network than to generate it from such systems in prosumers  ´ homes. According to CACME, these types of incentives  should be applied “with criteria of calculation and  allocation of adequate costs and they should be revised  over time.” In that sense, Julian Tuccillo warned, “the ideal  point is that the price variables of generation are free for  the market to balance them and that it is reached naturally  to the network”, because “in markets where the network  parity has been forced, with long incentives and not  sufficiently revised, the mechanism has failed“. 

Pioneering initiatives in the provinces

  The pioneer district in the field of distributed generation  is the province of Santa Fe, whose provincial distributor  EPE issued in October 2013 the Resolution 442,  which enables the operation in parallel to the network  of customers that have low voltage generation units  from renewable energy sources. On the other hand, on  April 2016, the province launched the “Prosumers” program  (Programa Prosumidores), which facilitates the  repayment of the investment in these types of facilities  through a feed-in-tariff that was set forth in 5.50 pesos  per kilowatt hour. It will be in force for a period of eight  years for those who join the program, for which an annual  quota of 100 projects was established in the first  two years of this initiative.  Subsequently, in June 2014, it was Salta’s turn, whose  Legislature passed the Act 7824, which set forth the administrative,  technical and economic conditions for the  application of the “net metering” energy supply modality,  which authorizes to inject their surplus to the electricity  network to those users who have equipment of  generation of electrical energy by non-conventional renewable  means or of facilities of efficient cogeneration.  The Act was regulated by the provincial Public Services  Regulatory Authority (in Spanish ENRESP / Ente Regulador  de los Servicios Publicos) and currently benefits users with a low voltage supply of between 30 and 100 kilowatts,  who must remain for a minimum of five years in  the system. It is also established a differential tariff / rate  regime by type of equipment: solar / photovoltaic, wind,  hydraulic and biomass.  In turn, in November 2014, the Legislature of San  Luis passed the Act IX-0921-2014, which contemplates,  among others, the figure of the “ distributed self-generator”,  which is authorized to connect to the grid to inject  energy from renewable sources and is granted a tax  credit for up to 50% of provincial taxes for the execution  of the project during four fiscal years. As for Mendoza  provincial distributor EPRE, it regulated in March 2015  the technical conditions for the operation and billing of  surplus energy injected to the electricity grid. It is established  that generating equipment must use renewable  energy sources or efficient cogeneration facilities. The  regulation also adopts the net metering model measured  on a monthly basis and leaves two alternatives  open: A) a “single bill” in which the energy received from  the network and the energy injected to the same by the prosumer are presented; B) a “special energy purchase agreement”  entered into between EPRE and the prosumer consisting  of the separate issuance of the respective invoices for energy  received and energy injected to the grid.  The last two provinces that have passed rules on distributed  generation from renewable energies in the last year are Neuquen  – Act voted last July, which includes differential rates  according to the characteristics of the equipment and also  provides loans for their purchase – and Tucuman. The peculiarity  of this last rule, passed by the Legislature of Tucuman  last October, is that it defines the “prosumers”, that is to say,  those users of electrical energy that have a system of distributed  generation based on the use of renewable sources of  energy and inject that energy into the distribution network.  The next step, claimed by user associations and companies  in the renewable sector, will be the approval of a national  legislation by the National Congress, which would fundamentally  regulate this modality in the case of users of Edenor  and Edesur, subject to Jurisdiction of the National Electricity  Regulatory Entity (in Spanish Ente Nacional Regulador de la  Electricidad / ENRE)