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Sustainable construction materials
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Sustainable construction materials

In addition to the sustainable building certification system, Environmental Product Declarations (EPDs) are widely used for building construction materials, particularly as most sustainable building certification systems prioritize CO2 as a key indicator, often using CO2 limit values as a foundational criterion. The ISO 14020 series of standards provide globally recognized benchmarks for businesses to develop credible environmental labelling, increasingly vital for products and advertising in response to consumer demand. This includes showcasing the environmental benefits of products, such as the recyclability of packaging, as a core part of a company’s marketing strategy.

ISO 14021 addresses self-declared environmental claims (Type II environmental labelling), providing a framework that enhances the credibility of voluntary claims made by manufacturers, marketers, and resellers for their products or services. The goal of these labels and declarations is to promote products that exert less environmental impact by ensuring the communication of verifiable and accurate information, thereby driving market demand for environmentally responsible products and encouraging continuous improvement. ISO 14024 establishes the requirements for operating ecolabeling schemes, which aim to educate consumers and raise awareness about the environmental impacts of products. Adopted as a benchmark by the Global Ecolabelling Network (GEN), this standard emphasizes the need to consider the entire product life cycle when setting environmental criteria. ISO 14025 outlines the principles and procedures for developing Type III environmental declarations, which provide detailed data on the environmental impacts of products. This standard ensures that the data included in these declarations are independently verified, adding credibility to the environmental performance claims of products. ISO 14064 addresses the monitoring, reporting, and verification of Greenhouse Gases (GHG), relevant for organizations within and outside of regulated schemes like the EU Emission Trading Scheme or the UN CDM mechanism. This standard supports organizations in quantifying and reporting their carbon footprint, thereby demonstrating their commitment to corporate social responsibility (CSR). ISO 14067 focuses on the quantification of CO2 emissions throughout the entire lifecycle of products and services, ensuring that these values are comparable on a global scale. This standard integrates the Life Cycle Assessment (LCA) principles outlined in ISO 14044, further strengthening the credibility and consistency of CO2 measurement across industries.

Table 1: Different type of eco labelling for materials For example, in France, there are seven legally established sustainable building frameworks, incorporating Environmental Product Declarations (EPD), green building certifications, and other sustainability measures. The Netherlands has implemented as well different sustainable building frameworks, underpinned by legislation that mandates the application of LCA. Similarly, Norway utilizes similar sustainable building frameworks, with regulations requiring the integration of LCA in the construction process. For example, Dutch construction law in 2013 already required reports in the form of Life cycle analyses (LCA) according to EN 15804 for all buildings >100m2. LCA calculations should use the national methodology for environmental impact costs. Such a methodology is planned to be applied to infrastructure as well. A unified database has been introduced for the calculation and assessment of the building’s climate impact based on the product EPD climate declarations. The aim is to increase knowledge about the climate impact of building construction and to represent the benefits of climate mitigation.

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Voluntary Certification Systems
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Voluntary Certification Systems

Voluntary certification systems, while not legally required very often are widely recognized and often adopted by both private and public sector organizations to showcase leadership in sustainability. These systems are frequently used by government institutions and local authorities to complement mandatory standards, enhance environmental performance, and align with European Union directives.

Some of most popular voluntary sustainable building certification schemes include:

  • BREEAM (Building Research Establishment Environmental Assessment Method): A widely recognized standard that evaluates the environmental performance of buildings based on criteria like energy use, materials, waste, and ecological impact.
  • LEED (Leadership in Energy and Environmental Design): A popular certification system that focuses on sustainable site development, water efficiency, energy optimization, material selection, and indoor environmental quality.
  • DGNB (Deutsche Gesellschaft für Nachhaltiges Bauen): Developed by the German Sustainable Building Council, this system takes a holistic approach, assessing environmental, economic, and sociocultural factors to determine building sustainability.
  • Passive House (PH): A rigorous standard that minimizes a building’s energy demand through high insulation, airtightness, and efficient mechanical systems, resulting in buildings with ultra-low energy consumption.
  • EDGE (Excellence in Design for Greater Efficiencies): Developed by the International Finance Corporation (IFC), this certification focuses on energy, water, and material efficiency, providing a cost-effective pathway to sustainability, particularly in emerging markets.
  • LCA or CO2 footprint building assessment: Good tools for understanding the full environmental impact of a building throughout its lifecycle, from material extraction and construction to operation and eventual demolition. These assessments provide a detailed analysis of energy use, greenhouse gas emissions, and resource efficiency, helping to identify opportunities for reducing the building’s overall carbon footprint and enhancing sustainability.

These voluntary systems not only help differentiate properties in a competitive market but also support broader goals of reducing carbon emissions, improving resource efficiency, and enhancing the health and well-being of building occupants. Adopting these certifications often reflects a commitment to exceeding basic regulatory requirements and aligning with global best practices in sustainable building design and management.

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Energy efficiency standards in EU
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Energy efficiency standards in EU

The Energy performance certificate (EPC) rating plays a crucial role in providing information on how energy-efficient a home is and how it could be improved. An EPC is an informative label that clearly presents the building’s energy performance rating, GHG emissions indicators, and other optional key characteristics, such as cost-effective energy-efficiency improvements, indoor air quality, and Global Warming Potential based on the building’s life-cycle carbon emissions[1], [2]. EPCs are widely used across Member States (MS) and play a central role in the Energy Performance of Buildings Directive (EPBD).[3]

While mass adoption of EPCs has been achieved, the EPCs presents a challenge for the effective functioning of EPCs. It is hard to compare the impact of EPCs across different EU member states (MS). Major differences include mandatory implementation practices. While most MS use an EPC scale of A to G, some have introduced different energy efficiency classes, including subclasses like A+ and A++, with varying indicators to score each building. Despite minor differences across various EU countries, the approach to evaluating building energy efficiency is well-known and unified fundamental principles are followed throughout the entire continent.

The revised EPBD seeks to improve the quality, accessibility, and harmonization of EPCs, establishing a consistent A to G scale where the G class represents the 15% worst-performing buildings in each country, and the A rating corresponds to nearly Zero-Energy Buildings (nZEB). The remaining building stock is proportionally distributed across the other ratings. This harmonized system creates a clearer and simpler classification of buildings while retaining flexibility and adaptability to the national characteristics of the target building stock, ensuring transparency across all MS.

 

[1] Questions and Answers on the revision of the Energy Performance of Buildings Directive

[2] Certificates and inspections

[3] EPC Green Premium in Two Different European Climate Zones: A Comparative Study between Barcelona and Turin

 

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Types of Building Certification Systems
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Types of Building Certification Systems

Building certification systems could be divided into two main categories: mandatory and voluntary. The market for voluntary building certification schemes is mainly developed and used for commercial buildings. Public and private users rely primarily on the mandatory Energy Performance Certificates (EPCs) required by the EPBD. [1]

Mandatory building certification systems: Mandatory certifications are typically required by local authorities and are designed to meet specific regulatory standards. These systems are usually more robust and are intended to cover a wide range of building types and uses to fulfil public policy goals. Examples of mandatory frameworks include Energy Performance Certificates (EPCs) and minimum energy efficiency requirements. In the European Union, new regulations are being introduced, such as the nearly zero-energy buildings (NZEB) and zero-emission buildings (ZEB) standards, which will become mandatory for new buildings starting in 2028. Future regulations are also expected to include a CO2 life cycle perspective and align with the Level(s) framework, further integrating sustainability into the building process.

Very often mandatory requirements are supported by different type of standards. A standard is a defined set of guidelines and criteria used to evaluate and judge the quality or performance of a product or process. In the context of building practices, standards are typically developed through consensus by recognized organizations such as ASHRAE (American Society of Heating, Refrigerating, and Air-Conditioning Engineers) or ISO International Standards Organization, which plays a crucial role in defining and developing global standards. These standards frequently influence industry norms and can become legal requirements. Standards may include requirements that are either prescriptive, specifying the methods to achieve compliance, or performance-based, outlining the desired outcomes without prescribing how they should be achieved.

[1] https://energy.ec.europa.eu/system/files/2016-11/voluntary_0.pdf

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Buildings and Environment
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Buildings and Environment

Decarbonizing the building and construction sector is a major challenge worldwide, including Central Asia countries. Building sector have a significant influence on energy consumption, economic growth, human health and environment. Building sector is crucial for both economic progress and sustainability. Buildings account for 30% of the world’s final energy consumption, making energy efficiency in construction and building operations a top priority for reducing overall energy demand. The building sector contributes 26% of global greenhouse gas emissions, emphasizing the need for decarbonization efforts to mitigate climate change impacts. Approximately 45% of materials utilized worldwide are directed toward construction activities. Sustainable material choices and waste reduction strategies are essential for minimizing environmental degradation. The construction industry is responsible for 36% of overall waste generation, highlighting the necessity for improved waste management and recycling practices in the sector. As well significant time is spent indoors – humans spent approximately 80% of their time indoors which affects health and quality of life. Buildings are a significant source of air pollution, primarily due to the energy required for heating, cooling, and electricity, much of which is still generated from fossil fuels, particularly coal. Burning fossil fuels for energy releases harmful pollutants into the air, contributing to smog, respiratory issues, and other health problems.

In European Union (EU) buildings are responsible for 43% of the total final energy consumption and 36% of energy-related greenhouse gas (GHG) emissions. Therefor in EU by 2030, all new buildings will be required to be zero-emission, with new public buildings needing to meet this standard by 2028.

The concept of sustainable building plays a key role in addressing many of those challenges. While specific sustainable building certification systems may vary in their criteria and emphasize different aspects depending on regional contexts and impacts, they are generally built upon a shared set of core principles. Sustainable buildings are designed and constructed based on several key pillars that ensure environmental, social, and economic sustainability.  According to the EU initiative Level’s sustainable building is based on six macro-objectives, see Figure 1.[1]

Figure 1: Six Macro-Objectives for Sustainable Buildings

Those six key pillars address key sustainability aspects over the building life cycle:

  • Greenhouse gas emissions along a buildings life cycle: Minimise the whole life carbon output, considering both energy consumption during the use phase of the building and embodied energy.
  • Resource efficient and circular material life cycles: Optimise the building design to support lean and circular flows.
  • Efficient use of water resources: Use water efficiently, particularly in areas of identified long-term or projected water stress.
  • Healthy and comfortable spaces: Create buildings that are comfortable, attractive and productive, focusing on four aspects of quality in the indoor environment.
  • Adaption and resilience to climate change: Futureproof building performance against a changing climate and extreme weather.
  • Optimised life cycle cost and value: Take a long-term view of the whole life costs and market value to deliver more sustainable buildings.

Building sector challenges have driven the development of comprehensive green building standards, certifications, and rating systems. These initiatives are specifically designed to minimize the negative environmental impacts of buildings by promoting sustainable design principles. By incorporating energy efficiency, resource conservation, and eco-friendly materials, these frameworks aim to create buildings that reduce their carbon footprint and contribute positively to the health and well-being of occupants and the surrounding environment. This holistic approach ensures that buildings are more resilient, cost-effective, and environmentally responsible, ultimately supporting global efforts to combat climate change and preserve natural resources. Many studies have identified multiple benefits association with sustainable and energy efficient buildings. The macroeconomic and private co-benefits are listed in Table 3.[2]

Table 3: Macroeconomic and private benefits
These benefits not only enhance the quality and performance of buildings but also contribute to broader goals such as improved health, increased productivity for learning and research work, and economic growth.

 

[1] Level(s) – European framework for sustainable buildings

[2] Impact of co-benefits on the assessment of energy related building renovation with a nearly-zero energy target

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EU example of EMS for municipalities
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EU example of EMS for municipalities

For example, according to the Energy Efficiency Law in Latvia, several key requirements are in place to promote energy efficiency across municipalities and large entities/companies. National cities are required to implement and maintain a certified energy management system, which must be validated by a certificate issued by an accredited certification body. For regional municipalities, implementing an energy management system is mandatory, though they have the discretion to decide whether to pursue certification. Entities with buildings larger than 10 000 m² must also implement and maintain an energy management system within one year of meeting these conditions. Furthermore, annual reporting on energy savings achieved is required to be submitted to the responsible authority, which is the State Construction Control Bureau. In terms of project evaluation, projects that utilize state, EU, or foreign funds receive additional points if they have an energy management system in place, following the relevant regulatory procedures. These measures aim to ensure that energy management practices are standardized and effectively contribute to energy savings across Latvia.

In the implementation of an Energy Management System (EMS) at the municipal level, several key factors must be addressed to ensure the efficient use of energy across public buildings. One of the primary concerns is whether all buildings are being maintained as efficiently as possible, with regular assessments of their structural and operational conditions. A thorough understanding of energy consumption patterns is essential—this includes monitoring heat consumption in each building and identifying any fluctuations or trends. Similarly, tracking electricity usage for each facility allows municipalities to pinpoint areas where energy savings can be achieved. It is crucial to have a clear understanding of how much is being spent on energy on a monthly and annual basis to develop more targeted energy-saving strategies.

Figure 4: Municipal governments implement and maintain a certified energy management system

Beyond energy consumption, the quality of the indoor environment is also critical. Ensuring good air quality, particularly in schools and kindergartens, is vital for the health and well-being of occupants, and rooms must be well-ventilated to maintain a comfortable environment. Adequate lighting is another important aspect, contributing not only to comfort but also to energy efficiency if optimized correctly. Additionally, systems regulating heating need to be managed effectively to reduce unnecessary energy use, such as lowering heating levels during weekends or periods when buildings are not in use. By addressing these considerations, municipalities can significantly enhance the performance of their EMS, reduce energy costs, and contribute to overall sustainability goals.

It is also important to specify that the timing of development and certification can of course be better ensured through the support of external consultants who are experts in EMS development, implementation and certification.

The experience shows that Energy Management System helps to reach 3-8% energy and costs savings per year. For example, if municipality pays 1 million EUR for energy, it is 3-8% of energy savings that are achieved with small investments.  The main point of EMS is to introduce systematic approach towards rational use of energy with available resources, i.e. with small investments and behaviour change. Once it is done, municipality can plan large investment projects based on real data and needs!

Official certification gives the municipality and its stakeholders formal recognition that its EMS has been set up according to a recognised international standard. Furthermore, this kind of a step tends to help guarantee that the municipality actually devotes itself towards a long-term commitment to maintain and improve the EMS over the years.

Additionally, it is worth mentioning that there already exist various mechanisms which have an official ISO 50001 certification as a pre-requisite (e.g. bonuses on white certificates, etc.), which itself may serve as an incentive to follow through on this important step.

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Energy management system standards
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Energy management system standards

Most of the countries and organizations developing EMS are using ISO 50001 standard. This standard specifies requirements for establishing, implementing, maintaining and improving an energy management system. In line with ISO 50001, energy management systems include regular energy reviews as part of the continuous plan-do-check-act improvement cycle. Although ISO 50001 does not explicitly reference ISO 50002 (energy audits), both ISO 50001 and ISO 50002 recognize that energy audits can support energy reviews and be part of energy management system. The ISO 50001 standard is structured according to the general Plan-Do-Check-Act (PDCA) approach. PDCA is an applied, iterative, four-step management method widely used by businesses for the control and continual improvement of their own processes and products.

  • Plan: establish energy balances of the assets, as well as define necessary objectives, targets and action plans that will improve energy performance;
  • Do: implement an effective energy management action plan;
  • Check: provide a methodological and operational approach for monitoring and analysing the energy performance of the energy assets;
  • Act: continually improve the energy performance with the aim that the EMS becomes not just a niche tool, but rather actually an integral part of the administration’s Energy Policy and day-to-day operations

Figure 1: General framework of the ISO 50000 family [1]

Energy audits or can function as stand-alone tools to assess the energy performance of public entities—such as governmental buildings or municipal facilities—and recommend improvements. In contrast, energy reviews are embedded within a continuous process of improving energy performance, requiring regular updates, typically conducted on an annual basis. The ISO 50001 standard is structured according to the general Plan-Do-Check-Act (PDCA) approach.

Figure 2: Plan-Do-Check-Act (PDCA) approach for ISO 50001 standard

Energy Management Systems, as defined by the ISO 50001 standard, offer a structured yet flexible framework for achieving continual improvement in energy performance. ISO 50001 is designed to accommodate organizational diversity by allowing each company and/or institution to tailor the implementation of the system to its specific operational context, resource availability, and strategic objectives. This built-in flexibility enables the EMS to function as integrated system – encompassing documented procedures, energy-related processes, personnel responsibilities, defined physical and organizational boundaries, and clearly established energy objectives and targets. Figure 3 illustrates the key components of ISO 50001:2019 for Energy Management Systems (EMS), structured according to the standard’s chapters and following the Plan-Do-Check-Act (PDCA) cycle.

  • Context of the municipality and/or company (Chapter 4): Establishes the foundation by understanding the organization, its needs, and defining the EMS scope.
  • Leadership (Chapter 5): Ensures top management commitment, energy policy development, and clear roles and responsibilities.
  • Energy Planning (Chapter 6): Involves identifying risks and opportunities, setting objectives, reviewing energy use, and collecting data.
  • Support (Chapter 7): Focuses on providing resources, building competencies, raising awareness, and ensuring effective communication.
  • Operation (Chapter 8): Covers the implementation of energy plans, including design, control, and procurement activities.
  • Performance Evaluation (Chapter 9): Includes monitoring, auditing, and reviewing performance to track progress and identify improvements.
  • Improvement (Chapter 10): Addresses nonconformities and promotes continual improvement of the EMS.

Figure 3: The main elements of ISO 50001:2019

For public institutions, this continuous approach is critical for achieving long-term sustainability goals and reducing energy consumption across the public sector. The ISO 50001 is based on common elements found in many other ISO management system standards, which ensures a high level of compatibility with other ISOs you may already have in place, notably with ISO 9001 (Quality Management System) and ISO 14001 (Environmental Management System). Recommended to have a manual acting as the main document which describes its whole EMS process. In case if person changes or new employee arrives in the, the main rules are written down, shouldn’t be reinvented again and can be easily communicated.  Then there are procedures which define in more details how a particular activity (e.g. the energy review) is actually achieved. This means in a practical sense that precise responsibilities, methodology and other aspects are already clearly established and approved beforehand. In several cases, additional templates and supporting documents are needed, including also databases (e.g. spreadsheets and/or monitoring tools as part of the EMS etc.).

 

[1] https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ:L_202402002

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Carbon pricing
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Carbon pricing

Carbon pricing mechanisms are market-based tools designed to reduce greenhouse gas (GHG) emissions by assigning a monetary cost to carbon emissions. By taking into account the environmental and social costs of carbon, these mechanisms incentivize businesses and individuals to reduce their carbon footprint and transition to cleaner technologies.

Carbon pricing mechanisms operate by either directly setting a price on carbon emissions or by creating a market for emission allowances. The two primary instruments are:

  • Carbon taxes: whereby governments impose a fixed price on each ton of GHG emissions or the carbon content of fossil fuels. Carbon tax sets the costs of emissions, however the emission reduction outcome is not pre-defined and is left for the markets to respond.
  • Emissions Trading Systems (ETS) (Cap-and-Trade): a cap is set on total emissions, and companies are issued allowances that they can trade. The market determines the price of carbon based on supply and demand. The EU Emissions Trading System, covering power generation, industry, and aviation, is the largest ETS globally.

Carbon pricing encourages the most economical emission reductions by allowing market forces to drive change. It also generates funds that can be reinvested in RE or environmental programs, and works well in combination with other climate policies. However, it may increase costs for consumers and carbon-intensive sectors, cause industry relocations to lower/avoid carbon pricing (leakage risks), require complex monitoring, reporting and verification systems.

As of 2024, carbon taxes and ETSs were implemented in 39 and 36 jurisdictions globally[1]. In 2023, carbon pricing revenues reached a record 104 billion USD. Carbon taxes and ETS covered 24% of the world’s emissions in 2024[2].

Despite the record revenue and the increased coverage, average carbon prices are still insufficient to incentivise renewables or energy efficiency on their own. At a global level, the effective price on carbon emissions from the energy sector was only around 3 USD/tonne of CO2 in 2023. Therefore, carbon pricing has to be supplemented by other policy measures.

[1] Carbon Pricing Dashboard, World Bank, https://carbonpricingdashboard.worldbank.org

[2] IRENA, COP28, COP29, GRA, MoEA and Government of Brazil (2024), Delivering on the UAE Consensus: Tracking progress toward tripling renewable energy capacity and doubling energy efficiency by 2030

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Fiscal and financial incentives
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Fiscal and financial incentives

Financial and fiscal incentives are used to improve access to capital, lower financing costs, reduce the burden of high upfront investments or production costs of RE projects, and address misalignment of incentives associated with energy-efficient technologies. They can be introduced in a variety of forms, such as tax incentives, capital subsidies, grants, performance-based incentives, concessional loans, guarantees and risk mitigation measures.

Fiscal (tax) incentives are typically offered in the form of reductions in sales, energy, value-added or other taxes or in the form of investment tax credits, production tax credits or accelerated depreciation.

Reduction in taxes reduce the cost of RE systems for the installer/generator and increase their affordability and profitability. These are the most widespread policy instruments globally as they can be applied to projects and installations of all sizes, and in areas that are not connected to the grid.

Production and investment tax credits can support large-scale deployment, mainly in the form of production tax credits based on actual energy produced and investment tax credits that address high upfront investment of a project. Therefore, production tax credits can be more effective in incentivising the maximisation of energy production.

Accelerated depreciation is an incentive that allows the owner of new assets to reduce taxable income by claiming a much larger than usual depreciation allowance in the early years of the RE assets’ operation.

Performance-based incentives are provided based on actual performance of an installed technology (e.g. cents per kWh payment). They are often provided by utilities and funded through utility customer payments.

Capital subsidies can be used to help create a level playing field with conventional energy technologies and reduce initial capital costs. They can be used to target very specific RE technologies as well as particular user segments or geographies. Capital subsidies are typically used in markets in the very early stages of deployment, after which they tend to be replaced by performance-based subsidies.

Grants are normally provided by local governments, development finance institutions or non-profit organisations to fund feasibility studies; research and development; system demonstration, installation and operation; pilot projects and business development. Through hybrid approaches, grants may also be combined with concessional loans to support RE and energy efficiency deployment.

Concessional loans are provided on favourable terms (below market price) with lower interest rates, longer maturities and longer grace periods compared to standard commercial market loans. These loans help to overcome such barriers as limited access to or shortage of financing, high cost of capital, unproven technology or business model, low creditworthiness of the customers, lack of awareness and technical implementation skills.

Risk mitigation measures aim to improve risk-return characteristics of a RE investments. Such measures may include guarantees (covering political, technology, credit risks), loss-sharing arrangements, local currency lending and hedging instruments, bankable project development and technical assistance. These de-risking instruments enhance financial returns and help attract private sector investors into RE projects.

Globally, financial and tax incentives are being implemented in over 130 countries. They are often applied in parallel with other regulatory and pricing policies.

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Net metering
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Net metering

Net metering is widely regarded as having an important role in scaling of distributed generation (DG), especially solar PV. DG represents electricity generation capacity located on customer property (commercial, industrial or residential). Net metering policies determine how electricity customers with their own distributed generation capacity are compensated for electricity they deliver to the grid.

Under the net metering scheme every kWh of energy produced by consumer’s DG system goes toward reducing their electricity bill by the same amount. Customers offset the energy volume exported to the grid against their own energy consumption on 1-for-1 basis. Therefore, the energy sent to the grid is compensated for at the same rate as retail electricity tariff and is called the retail-parity compensation.

Together with DG system, new bi-directional meter, which can record energy export to the grid and energy import from the grid, is installed. At the end of each billing period, the utility totals up the energy that was injected to the grid and energy used from the grid. If the consumer used more electricity than sent, the utility bills for the difference. If the consumer sent more power than used, the utility records a credit balance that will be applied to the next period’s bill. Usually, the surplus (kWh credits) can be banked for a predefined period of time (credit rollover period), thus facilitating the offset. Unused credits at the end of that period are either compensated by the utility (at preset rate) or are lost.

Net metering programs may differ by their credit rollover period and redemption value of unused credits. Some net metering programs allow to carry over the credit indefinitely, but most often the accumulated credits are reconciled and settled on annual basis. The excess credits left at the end of rollover period are usually redeemed by utility company at a greatly reduced rate close to the wholesale price of electricity. This limits DG owners’ incentives to install systems considerably exceeding their self-usage.

Net metering is a very popular policy instrument used to encourage households, commercial entities and industrial facilities to invest in their own RE systems by enabling them to sell surplus electricity to the grid. The application of net metering proliferated strongly worldwide after year 2010, when around 70 countries have adopted this payment arrangement. By year 2023 end, a total of 92 countries had net metering policies in place[1].

Net metering is generally considered more favourable for distributed energy producers (compared to net billing or gross metering) because of typically higher compensation rate received for electricity sent to the grid. Net metering has helped to drive RE market by markedly lowering its customers’ electricity bills and shortening payback periods for investments into DG systems. However, the application of net metering remuneration schemes leads to the following challenges:

  • Compensation at retail-parity rates encourages high-tariff-paying consumers to deploy DG, and in many cases, this is achieved at the expense of other customer groups
  • Net meters distort revenue recovery and creates financial pressures for utility companies.

The alternative mechanisms to net metering, which measure and price the energy consumed from the grid separately from that of the energy fed to the grid, are gaining increasing popularity, including:

  • Net billing, under which electricity delivered to the grid is compensated at a pre-determined rate, which is typically lower than the retail price or may vary based on the time of day
  • Gross metering (buy-all, sell-all arrangement), under which a utility buys all electricity generated by the customer at one (usually, lower) rate and sells all the electricity consumed by the customer at a different rate (usually the same retail rate charged to any other customer).

In recent years, many countries were gradually moving away from net-metering-only programs by:

  • materially amending, scaling down or even eliminating net metering
  • shifting to (or adding) net billing and gross metering schemes
  • introducing support policy features that incentivise the installation of energy storage systems.

[1] REN21 Policy Database, 2024

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