Net energy metering (NEM) is one of the most basic elements of what makes solar power systems a smart financial choice for home and business owners. It also happens to be the center of much contention over the past few years, pitting solar providers and environmental advocate groups against traditional energy companies, with consumers caught in the middle.
What is Net Energy Metering?
Put simply, net energy metering is the contracted billing arrangement that allows consumers with solar power systems to sell back the energy they don’t end up consuming to their local grid. As part of your standard solar installation, your home or business will be outfitted with an energy meter measuring how much electricity your solar power system has generated. This meter is separate from the one that your home is already equipped with by your local energy provider, measuring how much energy you are consuming.
Over the course of a month, both meters are running simultaneously. At the end of the month, your energy provider will tally up how much electricity you consumed, subtract how much you generated, and you will have to pay the difference to your electricity provider. Often, this allows solar equipped homeowners to whittle their electricity bills down to virtually nothing.
How NEM Works
On sunny, cloud-free month, an efficient household with a large solar panel array installed can very easy generate more electricity than it ends up consuming. So what happens then?
This is where NEM comes in. NEM allows for you to “sell back” the excess energy you generated in return for a credit towards future energy bills. This way, on months where you get less sun or you consume more electricity than average, your utility bills are still reduced due to your solar power system. This is what allows some homeowners to be less than $200 a year total towards their electricity bills.
NEM facilitates a unique billing arrangement for those looking to avoid monthly payments: Rather than paying a month to month bill, some electricity providers will issue a single annual bill. At the end of the year, all your credits and expenses will be tallied as part of your Annual True-Up.
This can be a good budgeting tool for those looking to simplify bill payment. Considering the dramatic reductions most solar customers see in their electricity costs, your annual bill with a solar power system may be lower than your current monthly bills without it.
Why is NEM controversial?
The controversy over NEM came when it was initially introduced. Utility companies balked at compensating solar customers at full retail rates — i.e. the rates they charged non-solar equipped consumers for their electricity — and petitioned lawmakers to add fees to solar customers to help balance out what they claimed was an unfair advantage solar customers had over non-solar customers. Some industry experts speculated that this response was in fact an effort to disincentivize customers going solar and the potential loss of income that the utility companies would experience.
This inspired significant debate nationwide, with fierce political battles taking place in states like California. Over the years, the tide has turned and the utility companies have begun to reach compromises with solar providers, paving the way for inexpensive, green power for every American.