Residential Solar and the Evolution of Net Energy Metering (NEM)
What Is Net Energy Metering (NEM)?
Net Energy Metering (NEM) is a billing mechanism that allows homeowners with solar panels to receive credit for the excess electricity they generate and send to the power grid. When solar production exceeds on-site electricity use, the excess energy is exported to the grid, reducing the amount of electricity a homeowner needs to purchase later. Credits are applied to future utility bills based on the amount of electricity returned to the grid.
In essence, NEM is a system designed to track and balance the flow of energy between solar-powered homes and the utility grid.
The Evolution of NEM
Since its introduction, Net Energy Metering has been periodically updated to reflect changing energy markets, technological advances, and grid management needs. The table below summarizes the primary stages of NEM in California and how they differ:
Stage: NEM 1.0
Period: 1996–2016
Key Features: Full retail-rate credits, minimal fees, participation limits
Purpose of Change: Encouraged early adoption of solar technology
Stage: NEM 2.0
Period: 2016–2023
Key Features: Introduced time-of-use (TOU) rates, non-bypassable charges (NBCs), and interconnection fees
Purpose of Change: Aimed to address cost-sharing and grid equity
Stage: NEM 3.0
Period: 2023–Present
Key Features: Credits based on hourly market export value; includes new incentives for energy storage
Purpose of Change: Designed to reflect real-time energy value and encourage battery integration
Each version of NEM adjusts how exported electricity is valued and credited, aligning with broader grid management goals and policy objectives.
Implications for Homeowners
The specific version of NEM that applies to a home can significantly influence how energy generation and consumption are credited.
- NEM 1.0 and 2.0: Provided full or near-retail value for exported energy, leading to higher bill credits for participants.
- NEM 3.0: Calculates export rates based on real-time grid conditions and energy value, encouraging self-consumption or energy storage through batteries.
Understanding which NEM structure applies to a property helps determine expected energy credits, utility costs, and potential return on investment for a solar system.
Top U.S. States for Installed Solar Capacity (2024)
Rank 1: California
Installed Capacity (MW): 50,640
Rank 2: Texas
Installed Capacity (MW): 41,460
Rank 3: Florida
Installed Capacity (MW): 18,547
Rank 4: North Carolina
Installed Capacity (MW): 9,668
Rank 5: Arizona
Installed Capacity (MW): 9,465
Rank 6: Nevada
Installed Capacity (MW): 7,784
Rank 7: Georgia
Installed Capacity (MW): 7,448
Rank 8: Virginia
Installed Capacity (MW): 6,839
Rank 9: New York
Installed Capacity (MW): 6,657
Rank 10: New Jersey
Installed Capacity (MW): 5,511
Summary
Net Energy Metering remains an essential framework for integrating distributed solar energy into the electric grid. By crediting solar system owners for excess electricity production, NEM supports grid balance and provides a method for measuring the interaction between local renewable generation and utility networks. Its evolution demonstrates ongoing efforts to adapt policy and pricing structures to current energy market dynamics and grid reliability needs.
