Energy community with houses connected in a circle with sun and wind energy flowing.

Dynamic NEM Pricing: Is This the Key to Energy Community Success?

Samir D’Costa in Climate & Environment December 2025 • 4 min read.

"Discover how dynamic net energy metering (NEM) could revolutionize energy communities, offering greater benefits and sustainability. Learn how it works and why it matters."

Energy communities are emerging as a promising solution to improve energy efficiency, promote economies of scale, and ensure equitable access to resources. These communities, comprising groups of customers who pool and aggregate their energy resources, conduct energy and monetary transactions with utility companies as a single entity. This approach is facilitated by net energy metering (NEM) policies, which measure the community's net consumption and assign rates for both energy purchased (buy rate) and energy exported (sell rate).

Many utilities have started implementing energy-community-enabling programs like NEM aggregation (NEMA) for various settings including university campuses, residential complexes, and medical facilities. The crucial aspect of these setups is the pricing mechanism, which determines each community member's payment based on their consumption, individually-owned renewables, and share of community-owned distributed energy resources (DER).

The focus here is maximizing community social welfare while ensuring that each member benefits more than they would outside the community. To achieve this, pricing mechanism adheres to the cost-causation rule. Dynamic NEM, the proposed mechanism, uses the standard NEM tariff model but sets NEM prices dynamically based on total shared renewables within the community.

What is Dynamic NEM and How Does it Benefit Energy Communities?

Energy community with houses connected in a circle with sun and wind energy flowing.

Dynamic NEM is a community pricing mechanism that sets net energy metering (NEM) prices based on available distributed energy resources (DER). It uses the same prices as the utility’s NEM tariff, but the import and export prices are dynamically imposed based on the gross renewables within the community, rather than individual members’ net consumption and the time-of-use in the utility’s NEM tariffs. With two significant differences from prior approaches, Dynamic NEM prices are set ex-ante (rather than imposed ex-post) to elicit community members’ response that achieves community social welfare maximization. It also induces a community-level net-zero consumption zone where shared renewables balance total consumption.

Dynamic NEM exhibits several key properties:

Individual surplus maximization leads to maximum community social welfare.
Individual surplus under Dynamic NEM is higher than the maximum surplus under the utility’s NEM.
The payment rule under Dynamic NEM satisfies cost-causation principle.

Empirical results using real residential data from a hypothetical energy community demonstrate the benefits of dynamic NEM for community members and grid operators. These benefits includes welfare optimality, individual rationality and conformity cost-causation.

The Future of Energy Communities with Dynamic NEM

Dynamic NEM presents a promising approach to address the operational and financial challenges of integrating distributed energy resources (DER). By enabling community welfare optimization through surplus-maximizing members and adhering to the cost-causation principle, Dynamic NEM achieves surplus levels for its members unattainable under traditional utility NEM regimes. It underscores the potential for energy communities to operate more sustainably and economically, highlighting the need for further exploration and implementation of such innovative solutions.

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This article is based on research published under:

DOI-LINK: 10.1109/pesgm52003.2023.10253295,

Title: Achieving Social Optimality For Energy Communities Via Dynamic Nem Pricing

Subject: eess.sy cs.sy econ.th math.oc

Authors: Ahmed S. Alahmed, Lang Tong

Published: 17-11-2022

Everything You Need To Know

What is Dynamic NEM, and how does it differ from traditional Net Energy Metering?

Dynamic NEM is a community pricing mechanism built upon the standard Net Energy Metering (NEM) model. The key difference lies in its dynamic pricing approach. While traditional NEM uses fixed or time-of-use rates for energy imports and exports, Dynamic NEM adjusts these prices based on the total available distributed energy resources (DER) within the energy community. This is in contrast to how utility's NEM tariffs are implemented which do not consider the total shared renewables. This dynamic adjustment aims to optimize community social welfare by encouraging members to utilize energy when it's most readily available from shared renewables, achieving a net-zero consumption zone for the community.

How does Dynamic NEM benefit members of an energy community financially, compared to being outside the community?

Dynamic NEM is designed to maximize individual surplus, leading to higher financial benefits for community members compared to the utility’s NEM. By dynamically adjusting prices based on the availability of shared renewables, it encourages members to align their energy consumption with periods of high renewable energy production. This can lead to lower energy costs and higher returns on any exported energy, which is not possible in the utility's NEM regime, thus improving each member's financial position, while adhering to the cost-causation principle, ensuring fair and equitable payment structures based on energy usage and contribution to the community's shared DER.

What role do Distributed Energy Resources (DER) play in Dynamic NEM and the success of energy communities?

Distributed Energy Resources (DER) are central to the function of Dynamic NEM. The pricing mechanism in Dynamic NEM is directly influenced by the total shared renewables available within the energy community. This means the prices for energy imports and exports are set dynamically based on the community's total DER production. The goal is to create a net-zero consumption zone at the community level, where the shared renewables balance the total consumption. This integration helps the energy community to operate more sustainably and economically. They also provide an opportunity for community members to maximize the benefits of shared renewable energy resources, making energy communities more attractive and viable.

Can you explain the cost-causation principle in the context of Dynamic NEM and its importance?

The cost-causation principle is a fundamental aspect of Dynamic NEM. It ensures that each community member's payment is directly related to their individual energy consumption, the use of their own renewable energy sources, and their share of the community-owned distributed energy resources (DER). This principle ensures fairness, and transparency, creating an equitable distribution of costs and benefits within the community. When the payment rule adheres to cost-causation, members are incentivized to make energy choices that align with the community's overall goals of efficiency and sustainability. It also means community members are charged based on their actual energy use, making the system more fair and sustainable.

What are the key properties of Dynamic NEM, and how do these contribute to a more efficient and equitable energy future?

Dynamic NEM has several key properties that enhance its efficiency and equity. Firstly, individual surplus maximization leads to maximum community social welfare. This means that when each member acts in their best interest, the entire community benefits. Secondly, individual surplus under Dynamic NEM is higher than the maximum surplus under the utility’s NEM. This increases the financial benefits for community members. Lastly, the payment rule under Dynamic NEM satisfies the cost-causation principle, ensuring that costs are fairly allocated based on energy usage. These properties promote a more efficient and equitable energy future by optimizing the use of distributed energy resources (DER), providing fair financial outcomes, and encouraging sustainable energy practices within energy communities.