What exactly is Net Energy Metering (NEM?)
Net Energy Metering is a billing arrangement made between the solar owner and the utility in a grid-tied system. As a solar generator, the owner will produce more or less electricity than he/she will use at a given time. The system generates power during daylight hours, however; the customer relies on additional power from the utility when the system is not producing. Questions may be; “Who monitors the energy generated and the energy consumed?” and “Who calculates the costs in the difference?”
Under the Net Energy Metering Agreement, the utility for each customer will monitor the amount of electricity consumed from or supplied to the grid and will send you a statement summarizing that data each month. Each month you will either owe the utility or the utility will owe you. This debt or credit is reconciled annually (every 12 months) at which time you will need to pay if you have a balance owed.
Customers who have generated net surplus energy after that 12-month billing period will be given a value for the excess kWh at a special rate. Solar customers then have options on how they would like to be compensated, including a payout or rolling-over the credit to the following billing cycle. However, the rate at which customers are paid is likely much less than the retail cost of electricity, so for most consumers it makes sense to keep it on their bill as a credit in case more energy is used the following year than you produce.
The illustration below from Southern California Edison further demonstrates the Net Energy Cycle for them.
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