Why is your Solar PV worth more than my Solar PV?

If you’re on Facebook or LinkedIn, you would have definitely seen articles and postings advertising Solar PV installation for homes in Malaysia. Photovoltaic cells or PV cells convert light from the sun into electricity. Solar PV is one form of renewable energy, and maybe the most easily adoptable by anyone since it’s easily scalable and can be installed on any position that has access to sunlight. To promote adoption of renewable energy, the Malaysian government introduced the Net Energy Metering scheme. You can read more about this incentive on the official website here - http://www.seda.gov.my/reportal/nem/


As the name suggest, the Net Energy Metering (NEM) scheme is not a buy-back tariff, but rather an offset scheme. Let’s assume that you have installed a Solar PV system at your house, and you are subscribed to this NEM scheme. The electricity that is produced by your Solar PV system offsets any electricity that you would have otherwise used from the utility company.


Here’s a diagram to illustrate this

Electricity tariff for homes is not based on a flat tariff. The cost of each kilowatt-hour you use in your home increases as you use more and more. The logic behind this stepped tariff is to make electricity more affordable for people who use less, and more expensive for the homes that use more.

Now that we’ve covered how NEM works, and how electricity rates for homes are structured, let’s consider 2 homes. Let’s assume that both my neighbor and I decide to install Solar PV in our homes to take advantage of this NEM incentive. We both install the same capacity of Solar PV and both our Solar PV installations happens to produce the same amount of renewable energy each month – 400kWH per month. Since both the Solar PV installations are identical, we both paid the same amount for the Solar PV system – comprising of the solar panels on the roof, DC-AC inverters and electrical cabling to connect it all up.


Since I like my home to be naturally ventilated most of the time, I hardly turn on my home air-conditioners except for a few hours at night in the bedrooms. My average monthly electricity usage is about 400kWH before I installed the Solar PV. Now that I’ve installed the Solar PV, my net energy usage from TNB has reduced to 0kWH each month. The amount of energy produced by Solar PV is enough to cover 100% of my monthly usage.


My neighbour however much prefers to keep his house mechanically cooled and the he has his air-conditioners in his living room running during the day, and the ones in the bedrooms running at night. So, it’s no surprise that his electricity usage is much higher than mine at 900kWH each month. With the Solar PV installed, his average monthly electricity usage has come down to 500kWH.


I’ve managed to save RM128 per month by installing the Solar PV on my roof. My neighbor on the other hand, is saving RM215 per month! But we both installed identical Solar PV systems. And both our Solar PV is generating the same amount of electricity each month (400kWH). So why is it that the energy generated by his Solar PV is worth more? Almost double the value of the renewable energy that I am producing.


This of course is due to the TNB tariff structure for homes as well as the way NEM works. Since NEM is an offset scheme, the higher the tariff you are paying for the electricity you use, the higher the value of the energy that is offset by renewable sources. Though unintended, this means that the NEM scheme favours high energy consumers, which is unfortunate, as we do not want to encourage consumption as evident from the progressively increasing TNB tariff.


But this shouldn’t be the case. There is a simple solution. To properly encourage adoption of renewable energy throughout the country so that we can move towards our carbon neutral goals, every kilowatt-hour of electricity produced by renewable sources should be valued equally. The value should not be dependent on the fact that you use a lot of electricity or use little electricity.


This can be easily solved by introducing a fixed buy-back rate for renewable energy. For example, if any electricity produced from Solar PV can be sold to the grid at a fixed rate of 30sen per kilowatt-hour, then both my neighbour and I would be saving RM120 each month from the 400kWH that our Solar PV produces. My neighbour might be less happy…but it’s fair :)