Net Energy Metering (NEM)

Learn how Net Energy Metering works with Solar

What is NEM?

Net Energy Metering (NEM) is a solar program offered by utility companies. This program allows you to receive credit from your utility for the excess electricity generated by your solar system.


How Does NEM Work?

When your system generates energy, it will power the appliances that require electricity. This energy will replace the energy you usually get from your utility company.


There may be times when you produce more energy than your home needs. In such cases, the surplus energy will be sold back to the utility company. By selling back the excess energy, you will receive an energy credit on your bill that can be used later.


However, there may be occasions throughout the year when you need to use additional power from the utility company, especially during the shorter days of winter. In this situation, if you have generated more energy in previous months, you can use the credit on your bill to cover the electricity used during those months.


What is the Difference Between Net Energy Metering and Net Billing?

Net Energy Metering (NEM) is usually used to describe the type of solar billing program where the utility company will compensate solar customers for excess solar production at a 1:1 rate. This means if the utility company is charging $.20 per kWh at a particular time and a solar customer exports 1 kWh at that time, they will be credited $.20 for that kWh.


Net Billing, is a term used to describe the type of solar billing where the utility company will compensate solar customers for excess solar production at a fixed rate schedule. In some cases, the fixed rate will be the same regardless of time or season, in other cases the buyback rate may fluctuate depending on the time of day or month when it is exported. For example, the utility may have a fixed buyback rate of $.10 per kWh exported back to the grid. This means that if a solar customer exports 1 kWh back to the grid, they will be credited a $.10 for that kWh regardless of what the utility company may be charging to consume kWh’s at that time.


When on a Net Billing program, it typically makes sense to consume the power in your home as it is being produced to offset reliance on the utility company. Having a battery to store excess energy at your home can be beneficial in these situations to help store as much power at your home as possible to avoid using power from the grid during peak hours when the utility rates are typically the highest.


What is a “True Up”

A “true up” refers to when a solar customer will be expected to pay the balance due from their utility provider. Different utilities have different true up periods. For example, some utilities will allow solar customers to have an annual true up while others will require a monthly true up.

Annual True Up

This means that the customer will only pay their utility bill balance at the end of 12 months of having solar installed. With an annual true up, you will be able to benefit from a full year of solar production, in many cases this means you will be able to build up NEM credits with the utility companies during the sunny summer months to use in the darker winter months.


Be aware that with an annual true up, you run the risk of accruing a large true up bill. For example, if you use $100 worth of electricity more than your solar system produces each month of the year, your true up bill will be $1200 at the end of the year. We recommend keeping a close eye on your true up statements each month from your utility provider to plan accordingly to avoid this from happening. You always have the option to pay down your bill throughout the year or you may find ways to reduce electrical usage to help level your bill out.


The ideal situation is that your solar system will produce just as much power as your home uses each year (or even a bit extra) which will result in a true up statement as close to $0 as possible, in some cases, you may end the year with a negative (-) bill from the utility company which will typically roll over into the next year.


Monthly True Up

Some utility companies may have a monthly true up where the balance of kWh’s used from the utility company and not offset by excess solar production will be due every month. In these cases, you will avoid the risk of a high annual true up bill but you may miss out on some of the benefits of being able to see your credits with the utility fluctuate throughout the seasons.


If you live in an area that requires a monthly true up, we recommend sizing your solar system to be slightly larger than what you may otherwise need. This will allow you to produce more power during the darker winter months to reduce the chance of owing the utility company anything at the end of the month. During the sunny summer months, you will still likely produce excess electricity which will be exported back to the grid for credits and if you end the month with a negative (-) balance, those credits will typically roll over to the following months. Please keep in mind that not all utility providers will allow you to install a solar system that will produce more electricity than what is currently needed to meet your needs.


Is NEM Different Per Utility?

Yes, depending on your utility company, they may have their own version of Net Energy Metering (NEM), or they may be using a more advanced version of NEM, such as NEM 3.0 implemented in California.


You can learn about the utility rates offered by some of the more common utility providers we work with here.

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Last updated on December 22, 2023