What’s the Difference Between NEM 1.0 and NEM 2.0?

Net Energy Metering (NEM) is a policy that lets homeowners with solar systems send excess electricity back to the grid and receive a credit for it. The original NEM 1.0 and the updated NEM 2.0 are both versions of this policy used in California, but there are key differences in how the credits work, how solar customers are billed, and how much money you actually save.

Let’s break it down.

NEM 1.0: The Original, Most Generous Net Metering Plan

NEM 1.0 was California’s first net metering structure, and it offered the best return for solar customers.

Key Features:

• One-for-one retail credit: You received full retail value for every kilowatt-hour (kWh) your system exported to the grid.

• No additional fees: There were no extra charges for being a solar customer.

• Simple billing: The utility just calculated how much power you sent to the grid versus how much you used and billed you the difference.

• 20-year lock-in: Once you enrolled under NEM 1.0, your terms were locked in for 20 years.

Why It Was So Good:

NEM 1.0 allowed homeowners to offset nearly their entire electric bill, including generation, transmission, and distribution costs, making solar extremely attractive—even without batteries.

NEM 2.0: Still Good, But Not Quite as Generous

As solar adoption grew, utilities and regulators revised the program. NEM 2.0 was introduced in 2016 to balance grid needs with solar growth.

Key Changes from NEM 1.0:

1. Time-of-Use (TOU) Rates Required

• All NEM 2.0 customers must switch to TOU rate plans.

• This means the value of your solar exports depends on when you send power to the grid.

• Midday exports (when solar is abundant) are worth less; evening usage costs more.

2. Non-Bypassable Charges (NBCs)

• Customers must now pay small fees per kWh imported from the grid, even if they exported more energy overall.

• NBCs typically range from 2–3 cents per kWh and help fund public purpose programs.

3. One-Time Interconnection Fee

• A small fee (usually $75–$150) is charged when connecting your solar system to the utility grid.

4. 20-Year Lock-In Still Applies

• Once you’re approved under NEM 2.0, you still get to keep your rate structure for 20 years from your Permission to Operate (PTO) date.

Summary: NEM 1.0 vs. NEM 2.0

Feature

NEM 1.0

NEM 2.0

Export Credit Rate

Full retail (1:1)

Time-of-Use (varies by hour)

TOU Plan Required?

No

Yes

Non-Bypassable Charges

None

Yes (2–3¢/kWh imported)

Interconnection Fee

None

~$75–$150

Term Length

20 years

20 years

What Stayed the Same?

• You still get net metering and bill credits

• You can still use batteries, but it’s optional

• You still save money on your electric bill

• You’re still eligible for solar tax incentives

Which One Is Better?

NEM 1.0 was better financially—no question. But NEM 2.0 is still solid and offers significant long-term savings—especially if your system is designed with TOU optimization, and potentially paired with battery storage to shift your energy usage into peak-rate hours.

Want to go deeper or see how NEM 2.0 affects your exact situation?

Visit www.reinnovations.org and book a free consultation—we’ll run your home through our energy model and show you your exact savings under TOU rates and current NEM policies.