Net Metering vs Net Billing. Amendments to the Law on Energy from Resources are Being Considered in Seimas

2023-10-27

Amendments to the Law on Energy from Renewable Resources submitted by the Ministry of Energy are being considered in Seimas. With the amendments, it is proposed to change the prosumer’s settlement method on electricity produced and supplied to the grid.

Currently, all prosumers pay for the electricity supplied to the grid according to the two-way accounting model, i.e. so-called net metering model, when produced and unused electricity is supplied to the grid for storage and later is recovered from the grid when electricity is needed.

With the amendments to the Law, it is proposed that for some prosumers so-called net billing model shall be established. According to this model, the prosumer sells the electricity to the grid based on the agreed price, and the purchased electricity later is returned to the consumer for the money received. The key difference from net metering is that in the net billing model, the prosumer for the surplus of electricity produced is compensated with money rather than having kWh for future consumption. The main fear of prosumers in the net billing model is the risk of selling unused electricity for a low price (for example in the summer) and later buying the required electricity for a high price in the winter period.

A net billing model would apply to:

– non-domestic prosumers, with the exception of non-profit legal entities;

– prosumers who operate a wind farm or a part of it.

The net billing model would apply to business entities even if they did not choose an independent electricity supplier. This means that these entities would not be able to avoid the net billing model by “escaping” to guaranteed supply, which is ensured by the grid operator.

It is proposed to provide an exception to the mandatory application of the net billing model for non-profit legal entities (public institutions, associations, etc., state or municipal institutions) and domestic prosumers, since the purpose of the net billing model is to promote energy efficiency and respond to changes in the electricity market price fluctuations. According to the initiators of the amendments to the law, the non-domestic prosumers (business entities) have more information about the situation in the electricity market than domestic prosumers or non-profit legal entities and have more opportunities and experience in responding to market signals and changes. The initiators note that business prosumers have a better negotiating position regarding the exchange of electricity with independent suppliers and can also manage their consumption more flexibly, thus ensuring a positive payback.

With the amendments to the Law, it is proposed that the new settlement method would start to apply from January 1, 2024, meaning that the new provisions would apply to persons who acquired the status of a prosumer after January 1, 2024.

However, the draft of the new law is still under consideration, therefore there are some doubts whether the date of entry into force will be January 1, 2024.

Impact on business prosumers:

– Critics of the amendments to the law claim that renewable power plants will become less attractive for prosumers – the payback period will become more difficult to predict due to fluctuations in the electricity market price;

– The quite high impact will be felt by business prosumers who will own remote solar power plants or their parts – due to the seasonality of solar power plants and the inability to consume the electricity produced on site.

Impact on project developers:

– Critics of the amendments to the law claim that renewable energy parks projects will become less attractive to developers because there might be a shortage of buyers – profit-seeking legal entities will have no economic interest in becoming prosumers (or this interest will be low);

– Introduction of the net billing model will complicate the implementation of renewable energy parks projects that have already started but have not been completed yet;

– In the absence of sufficient reservations in renewable energy parks, banks will not be willing to provide financing for project development.

Thus, according to the critics of the amendments to the law, the introduction of the net billing model will make it more difficult for the development of new renewable energy parks.

There is a risk that developers can receive various requests from business entities who have purchased parks to terminate already concluded contracts due to material adverse changes in the contract.

Developers claim that a sufficient amount of park reservations is an essential condition for project financing. Therefore, the removal of reservations will either withhold or even cut off funding, which will inevitably lead to the termination of solar or wind park development projects.

Impact on electricity suppliers:

According to the initiators of the amendments to the law, the net billing model would help compensate suppliers for losses resulting from:

suppliers’ financial responsibilities for the caused imbalance;
different prices of electricity produced and consumed by prosumers.

Thus, the amendments to the law would allow electricity suppliers to buy and then sell electricity to prosumers, considering current market price trends. Initiators of the new law say this will help to mitigate suppliers’ financial losses and is one of the main reasons why the net billing model was introduced.

Comments of the Lithuanian Competition Council:

The proposed amendments to the law may discriminate some prosumers because:

It is planned to apply different regulations to profit-seeking and non-profit organisations.

The Lithuanian Competition Council drew attention to the fact that non-profit organisations can also carry out economic activities and compete with profit-seeking organisations that carry out the same or similar activities. In this case, it is not important what the legal form of the business entity is or the goals of its establishment are. As a result of the proposed regulation, competing profit-seeking and non-profit prosumers could incur different costs, thereby creating a different competitive environment for them.

Possible discrimination based on technology.

The draft of the law envisages the mandatory application of the net billing model for the prosumers who own or manage a wind power plant. Accordingly, if the new law is adopted, prosumers operating wind farms will no longer be able to use the currently existing net metering model. In this way, different competition conditions are created for the developers of solar and wind power plants.

It shall be noted that the anticipated discrimination on the basis of technology was also pointed out by the State Energy Regulatory Council. Thus, there is a quite big pressure from the state institutions to remove the application of the net billing model solely to prosumers who operate wind farms.

The topic is quite controversial and various discussions in Seimas are still ongoing. Even if the amendments are adopted and the net billing model from January 1 is established, there is a risk that such amendments later will be questioned in the Constitutional Court because of the infringement of the principle of legitimate expectations (Article 29, Part 1 of the Constitution of the Republic of Lithuania, the constitutional principle of the rule of law).

The members of the Economic Committee of Seimas at the meeting on October 18, 2023 unanimously approved the amendments to the draft, which established 3 basic rules:

1) insurance of legitimate expectations of business prosumers who are already implementing their projects – the existing net-metering model will not change for them and will be applied until January 1, 2031;

2) the mandatory net-billing model is not applicable to domestic prosumers;

3) the allowance for domestic prosumers to participate in remote wind power plants using the net billing model.

The final draft of the law will be eventually decided by Seimas.

NOEWE Energy & Infrastructure Group: