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California law (SB656-1996) allows electric utility customers to participate in the NEM2 (net energy metering) program.


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Customers who install renewable energy generating equipment(solar electric, wind power or fuel cells) can interconnect that equipment to their residential electrical system.


The utility (PG&E or City of Ukiah) provides a retail credit for any excess electricity that is fed back into the utility grid. In effect, the utility is storing the customer’s electricity until it is needed. Since much more solar electricity is generated during the summer months (mainly due to longer days), a credit is typically built up in the summer and used up during the winter months.

The NEM2 account has a one year “true up” period after which the customer must pay for any kilowatt/hours (kWh) that were used overall during that year. If the solar equipment is sized accordingly, the bill can be zeroed out almost completely. The electric utility will compensate the customer at “avoided cost” (low) rates if more solar electricity was credited than used during the annual term. The NEM2 customer will still be responsible for paying a monthly meter fee to the utility company. The full term of the current NEM2 program is 20 years.

Sonoma Clean Power

Mendocino County has adopted Sonoma Clean Power (SCP) as the default electric generation provider for PG&E customers. PG&E electric customers will see SCP generation charges as one of the line items on their monthly statements.

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NEM2 solar customers receive some extra benefits from SCP for the generation portion of the PG&E bill. For example, SCP credits solar electricity backfed into the grid at 1 cent per kilowatt/hour more than retail rates. If an NEM2 customer backfeeds in more power over the course of a year than used, SCP reimburses the customer at retail rates (plus $.01) for that excess electricity.

Storage Batteries

Storage batteries can be paired with a solar electric system to provide several benefits. For example, they can provide power during a utility power outage. The solar array can even recharge the storage battery on a daily basis during an extended outage.


Another use is running electrical loads from the storage battery during the utility’s peak rate period which typically is weekday afternoons and early evenings. This could be beneficial if the solar array isn’t sized large enough to fully offset the customer’s annual kWh usage, because the peak cost per kWh is high.

The cost of adding batteries to a solar NEM2 system is fairly expensive, so one must consider the options carefully. The larger the loads, the higher the cost is the general rule. A backup fuel-powered generator with transfer switch or interlock device might be a less expensive option for providing occasional utility power outage backup, for example. Separating critical from non-critical loads to be powered by a storage battery (or a backup generator) is a way to lower the size and expense of the system.

System Design and Proposal

The solar contractor typically designs a solar NEM2 system based on the customers past electrical usage history, future additional electrical loads planned, and several other site-specific factors. Most prospective NEM2 customers desire a system large enough to zero out their electric bill but that is not required. A prospective solar customer would be wise to perform an “energy audit” to explore possible reduction in power usage so that the solar array would be smaller and less expensive to install. Once the size (in kilowatts) of the desired system is calculated, a site evaluation will determine the best mounting location for the solar array. This could be on the roof of a building or on a free-standing ground mounted structure.


Since a building permit is required for a solar installation, the solar contractor has to make sure the proposed system will comply with the applicable building codes. For roof-mounted solar arrays, the structural framing must meet certain structural standards or a licensed engineer or architect will need to be hired to review the project. The site evaluation will determine whether engineering will be required. For ground mounted solar arrays, no structural review is necessary as long as the array is less than 7’ in height. The contractor also determines the method and point of electrical interconnection of the solar equipment based on the site evaluation. A contract proposal will be submitted to the customer that includes project description, itemized material list, project cost and time frame for the installation of the system.

NEM2 Application Process

The NEM2 application, whether for PG&E or City of Ukiah customers, is fairly extensive and requires information about the system electrical design, equipment selection, completed building permit and also the customer account information and previous annual electrical usage history in kilowatt/hours. Therefore, a copy of a recent electric bill and a printout of the usage history should be provided to the solar contractor by the customer. Once the NEM2 application has been reviewed and accepted, a “Permission to Operate” letter will be issued by the utility and the first one year “true-up” period will begin.

Benefits of NEM2

  • NEM2 customers pay reduced costs or in many cases zero* for their electrical usage.


  • The utility “stores” the customers excess solar electricity as a retail credit for up to one year.

  • Since the installation cost of the solar equipment is fixed, NEM2 customers are protected from rising electric utility costs.

  • Solar energy is the ultimate free renewable energy source.

  • Solar displaces non-renewable polluting energy sources.

  • Solar electric equipment is very reliable and has a long expected useful life.

  • Residential property values are increased by adding solar equipment.

  • Adding solar equipment does not increase assessed property values except for the cost of the mounting structure.

  • Solar is a smart investment with a potentially short break-even period (typically 5 to 7 years).

  • The solar installation cost is eligible for a 26% federal residential solar tax credit (on customer’s main residence only) if installed 2020. The tax credit reduces to 22% for 2021. After 2021 the residential solar tax credit is due to expire.

  • The California SGIP (self-generation incentive program) offers cash rebates for certain solar electric systems paired with storage batteries. The funding for this program goes fast and maybe re-allocated as it is dispersed.


*PG&E charges NEM2 customers a meter fee of approximately $20 per month.

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