How does Net Energy Metering(NEM) work?

In recent years, the world has experienced a remarkable shift towards renewable energy resources such as solar and wind power. The deployment of these technologies is essential for reducing carbon emissions and mitigating the effects of climate change. One of the main challenges associated with the adoption of renewable energy is that the power generated from these sources is intermittent, meaning that it is not produced continuously. Net energy metering (NEM) is a policy mechanism that enables households and businesses that generate their electricity from solar panels to sell their excess energy back to the grid. In this blog post, we will discuss how net energy metering works, the benefits of the policy, and the challenges associated with its implementation.

What is Net Energy Metering?

Net energy metering (NEM) is a policy mechanism that enables households and businesses that generate their electricity from solar panels to sell their excess energy back to the grid. The concept of net metering is straightforward: when a solar panel system generates more electricity than a home or business needs, the excess energy is sent back to the grid. In turn, the utility company credits the customer’s account for the excess electricity generated. The customer can then use those credits to offset their electricity bill when their solar panels are not producing enough energy to meet their demand.

How Does Net Energy Metering Work?

Net energy metering works by measuring the net amount of electricity that flows to and from the customer’s premises. A bi-directional meter is installed at the customer’s location, which measures the amount of electricity that is produced by the solar panel system and the amount that is consumed from the grid. When the solar panel system generates more electricity than the customer is using, the excess energy is fed back into the grid, and the customer receives a credit on their bill for the excess electricity generated.

The credits are calculated based on the difference between the electricity that is produced by the solar panel system and the amount of electricity that is consumed from the grid. For example, suppose a customer’s solar panel system produces 500 kWh of electricity in a month, but they only consume 400 kWh. In that case, the customer will receive a credit on their electricity bill for the 100 kWh of excess energy that was fed back into the grid.

The credits that a customer receives for the excess energy generated are typically valued at the same rate as the electricity that they consume from the grid. This rate is known as the retail rate, which is the price that customers pay for the electricity that they consume from the grid. In some cases, the retail rate may be higher than the wholesale rate, which is the price that utilities pay for the electricity that they purchase from power plants. The ability to receive credits at the retail rate is a significant incentive for customers to invest in solar panel systems.

Benefits of Net Energy Metering

Net energy metering provides several benefits to both customers and utilities. For customers, net energy metering allows them to reduce their electricity bills by generating their electricity from solar panel systems. The ability to sell excess electricity back to the grid also provides a financial incentive for customers to invest in solar panel systems, which can be expensive to install initially. Net energy metering can also help to reduce peak demand on the grid, which can reduce the need for utilities to build new power plants or purchase electricity from expensive peak-load power plants.

For utilities, net energy metering can help to reduce the need for investment in new power plants, transmission lines, and other infrastructure. By incentivizing customers to generate their electricity from solar panel systems, utilities can reduce the overall demand for electricity from the grid, which can help to reduce the strain on the existing grid infrastructure. Net energy metering can also help to reduce the need for utilities to purchase expensive peak-load power from power plants, which can help to reduce overall electricity costs.

Challenges of Net Energy Metering

While net energy metering has several benefits, there are also some challenges associated with its implementation. One of the main challenges is the issue of cost-shifting. In some cases, customers who generate their electricity from solar panel systems may receive credits for the excess electricity that they generate at a higher rate than the cost of producing electricity from conventional power plants. This can result in other customers who do not generate their electricity from solar panel systems subsidizing those who do. This issue of cost-shifting has led some utilities to propose changes to the net energy metering policy, such as reducing the value of credits for excess electricity generated. We are seeing this impact with the new NEM 3.0 guidelines set to roll out in California on April 13, 2023 which you can read up on here(will be a hyperlink to our NEM 3.0 article).

Another challenge of net energy metering is that it can create uncertainty for utilities regarding the future demand for electricity. As more customers invest in solar panel systems and generate their electricity, utilities may experience a reduction in their overall demand for electricity, which can make it challenging to plan for future investments in infrastructure.

Finally, net energy metering policies can vary significantly from state to state, which can create a lack of consistency and transparency for customers and utilities. The lack of consistency can make it challenging for customers and utilities to understand the value of the credits that are received for excess electricity generated. Our Design Professionals are trained to help you understand your NEM policy and will review how it works with you during your design consultation. 

Conclusion

Net energy metering is an essential policy mechanism that enables households and businesses that generate their electricity from solar panels to sell their excess energy back to the grid. The policy provides several benefits, including the ability to reduce electricity bills, incentivizing investment in solar panel systems, and reducing the strain on the existing grid infrastructure. 

However, there are also some challenges associated with the implementation of net energy metering, including cost-shifting, uncertainty regarding future electricity demand, and a lack of consistency in policy across different states. Despite these challenges, net energy metering remains a critical policy mechanism for promoting the adoption of renewable energy resources and reducing carbon emissions.