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Tuesday, April 22, 2008

Double metering - its insidious

When a private residence or a small business decides to install solar panels or a small wind turbine, it is more financially advantageous to use the existing grid as an energy storage system rather than installing batteries. A revolution in battery technology could change all this but at present, to quote the mice, "that's the way things are". (Babe)

I think most of us would agree that the installation of small solar and wind generation equipment is a vital need. A country gains independence from overseas sources of energy, we, as individuals, gain a degree of independence from our own energy companies, our country gains the Internet type protection from a natural or man made disaster since it would be very hard to knock out the grid, and we improve our national balance of payments. You would think, therefore that it would be very much in the interest of the governments of all countries to make the uptake of these technologies financially worthwhile for their citizens. I wish.

If you are a small generator of electricity, Your government could decide that you will either be single or double metered. If you are single metered, the electricity you generate simply turns your meter backwards. Suppose you put in a small generator (solar, wind, hydro) of a size that will more or less generate the amount of power you use. At the end of each month, you will show a slight excess or a slight deficit and, possibly, once a year, you and the power company will have a financial reconciliation. Great!. It is of small consequence how much the power company charges for electricity or how much they give you for your excess. The difference between what you use and what you consume is small so the amount you pay or receive is small.

If, on the other hand, you are double metered, as occurs in some jurisdictions (Germany for instance), you have one meter that records all the power you use and a second meter that records all the power you generate*. You put all the electricity you generate into the grid and take all the power you use from the grid. Here is where the trouble starts and why it won't be worthwhile for you to put in a renewable electrical generation system if the government or your power company insists on double metering.

* you may be on yet a third system with two meters in which the second meter records your instantaneous export of power and the first one, the top up you need.  This is marginally better than the German system of two meters in which one measures all the power you produce and the other all the power you use but it is still an abortion.

First lets look at the most benign system. In this system the power company agrees to give you the same rate per unit as they charge you and they simply calculate what they owe you or what you owe them by taking the difference in the readings between your two meters. Then if you produce a little more power than you use, your revenue will be added to your income for income tax purposes. If you use a little more than you produce, you will be charged for this amount plus GST (sales tax). However it is unlikely that the powers-that-be are planning to do the calculations this way. If so why go to all the expense of putting in a second meter. they could simply read your existing single meter and just read off the difference, either positive or negative. More likely they intend the following. (as is done at present in Germany)

Since your power readings are being done by a registered company, the information is available to the government for tax purposes. They will likely note how much you are earning from all the power you produce and add this to your income for tax purposes. As a Kiwi with an average salary you pay 19.5% on your first income and 33% on the rest. Very well paid people pay 39% on the top part of their salaries. Since the extra money from your power generation is on top of your salary, the middle income Kiwi will pay to the government at his marginal rate of 33% of the revenue from his generation. To add insult to injury, the government will note how much power you buy and charge you GST on it. GST in New Zealand is 15%. Remember, this is not on the difference between what you use and what you consume. It is GST on every kWh you use and income tax on every kWh you produce. Suppose you are producing just about as much power as you use and that the power company gives you the same rate that they charge you (about 20c per unit in my country). Dusting off my algebra it turns out that instead of paying 20c per unit, you will still be paying just under 6.9c per unit even though you are producing an amount of power pretty well equal to what you use. Looked at a different way, if you want to be financially neutral with respect to your power bill, you will have to produce just under 1.7 times as much power as you use. In other words you will have to finance a system almost twice as big as you need when you install your renewable home generation system. Note that you will pay sales tax to the government on this larger system.

The situation is actually worse than indicated above. With double metering, the power company itself is libel for GST on all the power it buys from you.  They will have to pass this extra cost on to all their customers.

They are also libel for income tax on all the power they sell you. They loose on both buying and selling power to the small generator. This will make them even more reluctant than they already are to serve as your storage battery. Single metering is in the interest of the power company too. Note here the quadruple dipping system that the government can implement if you have double metering. Power you produce is taxed leaving your system and then taxed as it goes to the power company. Power the power company sells you is taxed when it leaves the power company and taxed again when you receive it*.

* the situation is marginally  better when your second meter records you excess and the first meter records your top up.

Many of you will have heard of the German system. In case you haven't, I'll recap. German small generators are double metered and their system has resulted in the private uptake of solar panels with a generation capacity of approximately 4 large coal fired power stations and rising. They succeeded with this in a very cloudy country. Their secret is this. The government has decreed that the small generator will get approximately 3 times as much for every unit they produce as they pay for every unit they use. The government is not involved. The power company is allowed to charge a little more to all its customers and use this money to pay the customers with a small generating system. Another interesting wrinkle in the system is as follows. If you installed your system in 2004, you will be getting 55c per unit for 20 years. If you were to install your system today (2008), you would get 45c per unit also for 20 years. The longer you wait to install your system, the less you get. Clever Ehh??. This creates a great incentive to install your solar panels as soon as possible. What happens after 20 years.

The government may decree that you are taxed (income tax or GST depending whether you have a positive or negative balance) on the difference between the two metres. However this is unlikely. Even now, when they want the maximum uptake of solar-electric, the German government is charging its small generators both Income tax and GST just as outlined above. If you dust off your algebra, you will find that a small German generator in the top tax bracket will have to generate 2 to 3 times as much power as he uses to be financially neutral with respect to power. This is because his income tax and GST rate is higher than ours in New Zealand.  As I mentioned above, in New Zealand you would have to install a system about 1.7 times as big as you need for your own use to neutralize your electricity bill.

If countries are serious about getting a lot of renewable energy financed by private individuals they have to make the system financially attractive. One necessary measure is to legislate for single metering.

April, 2013
Thinking about it, double metering, depending on the arrangement you have with the power company can be even worse than outlined above.  Assume that your relationship  with the power company is such that they give you 10c/kWh for the excess you send to them and you pay 20c/kWh for any excess power you buy.  This assumes, of course, that you aren't on the German system in which all your power produced goes through one meter and all the power you use goes through a second meter.  As the day goes on, your power use is unlikely ever to be exactly in sinc with the amount of power you produce.  The amount of power you produce varies throughout the day as does the amount of power you use.  So all through the day, one or other of your meters will be recording.  Not to despair, though.  I think I have a solution.  If it is possible to have a truck battery or two in your system and if it is possible to set up the electronics so that you alway fill or empty the battery before you export or import power, your costs should be much less.  A couple of grunty batteries would also carry you through some of the dark hours in the morning and evening.