Everything You Need to Know About NEM

*This post applies specifically to SCE's transition from NEM 1.0 to NEM 2.0. Other utility companies may have differing NEM requirements and clauses.

An overview

A Grid-Tied residential or commercial solar system connects directly to your utility power grid through the net energy metering (NEM) program. Your NEM agreement provides the basis for you to generate your own power at home. During the day, your solar power system is generating electricity that feeds into the main grid, sort of like a small power station.  

The electricity created by your solar system during the day is used to run your refrigerator, computer, TV, etc. If you are not using electricity during the day equal to that which are producing with your system, that electricity goes back onto the grid, and you get credit for that electricity. 

At night when your system is not creating electricity, you simply draw whatever power you need right back from your utility service. At the end of your 12 month period, the utility will issue a 12-month “true-up” statement and you pay whatever the balance of your bill may be. 

NEM 1.0 to NEM 2.0

There are several changes to be aware of as the NEM program currently in place (NEM 1.0) terminates on July 1, 2017 to make way for NEM 2.0.  Be aware, however, that customers already participating in the NEM 1.0 program will be allowed a transition period of up to 20 years before they will be switched to a new NEM program. Is this good or bad news? Well, as always, it depends.

Under NEM 2.0, customers will be required to select a time-of-use (TOU) rate plan from their utility provider. If you're a residential customer, this could be beneficial depending on how much energy you use and when you use it. To see for yourself, visit SCE's TOU plan webpage and determine which category you fall under. If you're a "low energy user," transitioning to NEM 2.0 may be a wise move. You may in fact find that a TOU rate under NEM 2.0 affects your energy bill very little, or even rewards you for your energy use habits better than NEM 1.0 did. 

NEM 2.0, though, will mandate an interconnection fee for new solar systems (previously waved under NEM 1.0). At $75 for residential systems producing less than 1 MW (and $800 for systems > 1MW), it's a small price to pay for the energy bill savings you'll gain with an energy generating source on your property. Nonetheless, keep in mind that all new solar projects will require an interconnection fee under NEM 2.0.

The last major change to be aware of regards "non-bypassable charges" (NBCs), small fees (2-3 cents per kWh) that are used to fund programs for energy efficiency and low income customer support. These NBCs (automatically included in your utility bill) did not previously apply to energy-generating customers on a month-to-month basis. With NEM 2.0, however, solar customers will have to pay NBCs on each kWh pulled from the utility grid  (i.e. night time electricity use, additional non-generated electricity, etc.) on a month-by-month basis.  They will still be exempt from energy used that was generated from their own system. 

The good news, regardless of whether the transition from NEM 1.0 to NEM 2.0 will help or harm your energy bill, is that solar will continue to be an economically intelligent investment in California. The NEM program is unprecedented in the way it rewards customers for smart energy decisions, starting with the integration of a renewable energy source into their home. As TOU tariffs continue to capitalize on consumers' peak electricity use, energy storage (batteries) may be the next major move for the energy-savvy customer. For now, though, think of NEM as your very own form of energy storage if you're a solar owner. 



Lease or Purchase? 5 Things to Know

1. Who Owns the Solar Panels

...You, or the leasing company? When you lease solar panels, you are not the owner, and therefore you are not the recipient of the 30% federal tax credit currently offered. 

This also matters because when you lease solar panels, you effectively give a leasing company free reign over your roof. It decides how many solar panels to install and where they should go. The risk, then, is having a large array installed in an aesthetically displeasing spot on your roof. 

The upshot: not having to pay thousands for your own system

The bummer: control over your roof, solar system design, and tax credits is handed over to someone else

2. Who Owns the Energy

Since the leasing company owns the solar panels on your roof, it also owns the power that they generate. This means that, yes, you'll be saving about 10% on your monthly energy bill, but that remaining 80-90% goes straight to the leasing company because it has essentially replaced your energy utility. 

If your system doesn't completely offset the electricity you used, you pay not only the lease for the panels but also the remainder of the electricity bill to the local utility. 

When the leasing company owns the power, they also get to determine an "escalator clause" to simulate the projected rising utility costs of the grid. The danger here, though, is that these added payments (anywhere from 1-5%) may not accurately parallel the rise of energy costs. While your neighbors are only seeing a 2% increase in payments per year, you're stuck with payments increasing 3% each year. Why? Because you're not in charge of the energy produced by your solar panels. 

3. How Savings Compare

Below gives a breakdown of savings from leasing compared to buying (or loaning) your own solar panels. The example depicted is a residential system in New Jersey. A house in California would be expected to demonstrate even more dramatic differences in savings. 

If you don't have the cash to purchase your own system, leasing (for $0 up-front) might be your best option. Something else to consider before leasing, though, are different solar loan options. For sunnier states like California, you can find loan options specific to solar systems that might be just right for you. 

4. If (or when) You Plan To Sell Your Home

Leasing contracts typically come in 15-20 year increments. If you decide within that period to sell your home and/or move to another, keep in mind that whoever is buying your home will have to take on the terms of the lease or you'll have to buy off the lease yourself. 

Sometimes the leasing company will give you the option to move your system over to your new home. This will typically cost you about $1000 all said-and-done to audit and transfer the solar panels. 

The real benefit of owning the system proves itself here because integrated PV (solar) systems have actually been found to increase the selling price of your home or business. In other words, home buyers love to see solar! This is probably because the new owners can move in and immediately begin to see their energy savings (usually 100% offset costs) from their solar panels. 

5. How You Would Plan on Taking Care of Your Solar 

Yes, it's true that if you own the solar panels, it is your responsibility to clean and maintain them. However, a good solar company will, first, use good materials and, second, offer a workmanship warranty. 

A leasing company may or may not offer a "maintenance plan." The catch, though, is that the panels are covered by a warranty, not a maintenance plan. This means a maintenance plan may never actually kick in until your system takes on some serious damage. In the meantime, you'll be paying higher costs for panels that aren't functioning at full efficiency. 

This isn't necessarily avoided by owning your own system, though. If you plan on buying solar panels, it's important to find a solar company who uses materials that are right for your home and who offers a warranty that will have you covered.