Distributed Generation:

International Experiences and Comparative Analyses

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The Regional Programme for Energy Security and Climate Change in Latin America, led by the Konrad Adenauer Foundation (EKLA-KAS), and the Electricity Sector Study Group (GESEL) located in the Institute of Economics of the Federal University of Rio de Janeiro (IE/UFRJ) organized a workshop on the decentralization of electrical systems, impacts in the micro generation electric network and its economic-financial consequences for distributors.

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GESEL Distributed Generation

The incentive for and broader use of renewable energy is transforming Brazil's energy sector. In this context, two important characteristics are decentralization and consumption of self-produced energy, both consequence of the implementation of techniques used for generation from renewable sources that, in many cases, favor decentralized production. Thus, more and more consumers install solar micro-generation systems on their rooftops. The advantages of a decentralized power system based on renewables are unquestionable. Besides being more environment-friendly and less dependent on natural resources, decentralized systems, allow, for the first time, for true competition in the energy sector. Nonetheless, these transformations pose new challenges to the whole sector: on the one hand, grids need to be adapted to new technical difficulties such as the introduction of bidirectional energy flows and voltage and current controls. On the other hand, the market for distribution companies tends to shrink since more and more consumers are installing their own micro-generation systems. Furthermore, this trend is detrimental to those consumers incapable of financing the installation of solar micro-generation systems, since they are the ones that will end up paying for growing revenue losses from power supply companies.

Considering this backdrop, the Regional Programme for Energy Security and Climate Change in Latin America, led by the Konrad Adenauer Foundation (EKLA-KAS), and the Electricity Sector Study Group (GESEL) located in the Institute of Economics of the Federal University of Rio de Janeiro (IE/UFRJ), organized a joint workshop with experts to discuss and analyze solutions for the aforementioned difficulties. Later on, a series of articles on the outcome of this event will be published.

At the opening session, the director of EKLA-KAS program, Christian Hübner, the coordinator of GESEL and of the Institute of Economics of UFRJ, Nivalde de Castro, and the deputy secretary for Energy Planning and Development from the Ministery of Mines and Energy (MME), Moacir Carlos Bertol welcomed all participants.

In the first panel, Thilo Schäfer, from the Cologne Institute for Economic Research, commented on the experience with the decentralization of the German energy market. In Germany, a significant share of energy originates from renewable sources, and there is a constant and thriving search for solutions to problems in this context, such as current and voltage fluctuations. According to Schäfer, there are other possibilities for producing renewable energy in a centralized way – both solar and wind power – taking advantage of the effects of economy of scale, of more efficient use of areas with higher incidence of sunlight or wind, and simplifying the transportation of energy. Isaac Dyner from the Universidad Jorge Tadeo Lozano in Colombia explained to participants the distributed generation spiral of growth: according to Dyner, the decentralization of the electricity sector, and above all the growing participation of private solar power generation, leads to revenue losses for traditional supply companies. These losses have to be compensated by the small group of users who are still dependent on the power supply by the grid. Power providers should abandon the traditional economic models and look for new alternative solutions since, according to Colombian and Brazilian examples presented by Dyner, in the very near future traditional economic models are at risk to fail in face of new market conditions.

The second panel addressed issues such as different forms of remuneration for power produced at photovoltaic facilities and the successful introduction of policy incentives for solar power micro- generation systems. Lori Bird, from the National Renewable Energy Laboratory, Colorado, discussed the current situation of generation and regulation of the solar power market in the USA. Although solar power generation has different characteristics in every American state, – California alone accounts for almost 25% of all solar power production in the country – and as each state has its own policies and regulations, Lori Bird indicated that the most important measure for remunerating power generated by decentralized PV systems throughout the country is net metering. According to Lori Bird, a major challenge in designing such measures is to estimate the value added to the public grid by using solar power (indicated by factors such as electricity prices, benefits to the environment and the society, etc). According to Bird, net metering alone is not capable of estimating this value. She presented innovative examples from New York and California, showing how these two states try to include more elements in the calculation of solar power remuneration. Bird also mentioned new projects such as Community Solar, where many consumers participate in a community solar power project. These projects also allow consumers who are not capable of installing their own photovoltaic systems to participate in the production of solar power. Joana Resende, from the University of Porto (Portugal), discussed strategies for fostering photovoltaic power around the world. She presented many strategies, ranging from easier access to the grid to tax and credit incentives and market regulation instruments, such as net metering, net billing, feed-in-tarifs etc. Along the lines of what Isaac Dyner reported during the first panel, Joana Resende commented on the difficult situation faced by traditional power supply companies, stressing that the key to a successful energy transition is to configure market regulation instruments so as to find a balance between incentives for solar power production and financial viability of power supply companies. Concluding the second panel, Davi Rabelo, from the National Electric Energy Agency (ANEEL) discussed the Brazilian solar power market and market regulation instruments. He said that, similarly to what happens in the USA, Brazil's preferred tool is net metering, the compensation instrument, but he confirmed that there are still other instruments, such as feed-in-tariffs and energy auctions. According to Davi Rabelo, community solar power projects like those seen in the Community Solar initiatives from the USA have been present in Brazil for some years as well.

In the third panel, Job Figueiredo Alves, from Grupo Energisa, discussed the effects of solar micro-generation and of the sector's regulation in Brazil. From the standpoint of a major power provider, Alves delved into the challenges of a more decentralized energy sector due to the growing participation of solar power generated by private microsites. Dilek Uz, from the University of Nevada, focused on the situation of solar micro generation systems and the regulations in the state of Nevada, with a large desert area. In the 1990s, Nevada created the first incentives for solar power through the introduction of net metering policies. Dilek Uz addressed the advantages and disadvantages of net metering and highlighted the importance of cost-benefit analyses for adequately assessing the value added by regulations to actually support the achievement of their true goal: fighting climate change. Finally, Lorena Cardoso Borges dos Santos, from CPFL Energia, another power provider, established a comparison between the solar power micro-generation and regulation worldwide and the situation in Brazil. She stressed that in Brazil, where the average solar radiation level is much higher than in Europe and in the United States, and where solar power production increased 550% throughout the last two years, new regulation instruments need to be discussed and designed taking into account the rapid growth of the sector.

This workshop with international experts once again showed the interest of all participants in the changes that are taking place in the energy sector, based on the growing share of renewables. It also demonstrated the adoption of specific regulation instruments and other incentives for photovoltaic systems and the production of renewable energy in most regions around the world, and that these instruments are frequently very similar. Net metering still seems to be the preferred and most widely disseminated regulatory mechanism in the sector. Even though the trend towards production with higher participation of renewables tends to be seen as positive, there is an awareness of the greater risk posed by decentralization systems to the power providing companies. Therefore, the general understanding among all participants was that the regulation instruments already implemented need to be adapted and, in the future, new and innovative instruments would be necessary in order to optimize the energy market's situation for all stakeholders.

Author

Ilona Gremminger

Publication series

Event Reports

published

Brazil, October 24, 2017

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Karina Marzano Franco

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Karina Marzano Franco
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