Futuristic cityscape powered by solar energy, representing NEM X's optimized energy distribution.

Net Energy Metering X: Is This the Future of Sustainable Energy?

Lena Voss in Climate & Environment December 2025 • 4 min read.

"Explore NEM X, a next-generation retail tariff model, and how it could revolutionize prosumer energy decisions, social welfare, and cross-subsidies."

Net energy metering (NEM) has dramatically reshaped how distributed energy resources (DERs), such as rooftop solar photovoltaic (PV) systems, are integrated into the energy grid. NEM policies allow customers with BTM generation to be charged for their net-consumption and credited for the net-production injected into the grid. These customers, capable of both consuming and producing energy, are known as prosumers, while those without DER capabilities are consumers.

Early NEM policies, particularly NEM 1.0, set the rate of net-consumption equal to the rate of compensation for net energy injected back into the grid. While this approach provided strong incentives for adopting BTM DER technologies, it also led to revenue shortfalls for distribution utilities. Utilities were essentially forced to buy electricity from prosumers at retail prices significantly higher than wholesale rates. This imbalance sparked concerns about financial sustainability and fairness in energy distribution.

As DER adoption grew, regulated utilities faced increasing pressure to raise retail prices to remain revenue adequate, further incentivizing DER adoption and potentially leading to a ‘death spiral’ of escalating prices. Concerns about cross-subsidies also arose, as prosumers reduced their bills and effectively shifted grid operation costs onto consumers without DER. This raised questions about fairness and equitable cost distribution within the energy ecosystem.

Understanding NEM X: A New Paradigm

Futuristic cityscape powered by solar energy, representing NEM X's optimized energy distribution.

To address the shortcomings of earlier NEM policies, regulators have introduced variations, broadly known as NEM 2.0. These policies differentiate between retail and sell rates and impose fixed charges like grid connection or capacity-based charges. These changes affect prosumers' consumption choices, consumers' DER adoption decisions, and the overall distribution of social welfare, including benefits from decarbonization.

The rise of NEM 2.0 and the consideration of successor policies (NEM 3.0) highlight the need for comprehensive analysis and modeling tools. These tools should help delineate the impacts of various policy choices within the NEM tariff families. In response, a new model called Net Energy Metering X (NEM X) was created to provide a unified framework for understanding and evaluating NEM policies.

Optimal Prosumer Decision-Making: NEM X facilitates optimal decision-making for prosumers by identifying consumption thresholds tied to DER production.
Regulator Rate-Setting: NEM X assists regulators in setting rates that balance utility revenue requirements with social welfare goals.
Impact Evaluation: NEM X assesses the effects of NEM policies on social welfare, cross-subsidies, and DER adoption rates, providing data for informed policy adjustments.

The NEM X model incorporates essential parameters, including retail and sell rates, fixed charges, and dynamic pricing, offering an analytical framework to evaluate different NEM policy implementations. By understanding these parameters, stakeholders can better assess the effectiveness and fairness of various NEM designs.

The Future of NEM

NEM is a cornerstone policy for integrating distributed energy resources into the retail market. The NEM X model offers a robust framework for analyzing and comparing various NEM policy choices. By characterizing the optimal prosumer consumption policy, NEM X provides insights into rational consumption decisions, prioritizing consumption types based on utility and DER production levels. Short-run analyses using NEM X also highlight the need to balance minimizing cost-shifts and maximizing market potentials.

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This article is based on research published under:

DOI-LINK: 10.1109/tsg.2022.3158951,

Title: On Net Energy Metering X: Optimal Prosumer Decisions, Social Welfare, And Cross-Subsidies

Subject: eess.sy cs.sy econ.th

Authors: Ahmed S. Alahmed, Lang Tong

Published: 21-09-2021

Everything You Need To Know

What is Net Energy Metering (NEM), and how does it work within the context of distributed energy resources?

Net Energy Metering (NEM) is a policy that changes how distributed energy resources (DERs) such as rooftop solar photovoltaic (PV) systems, are integrated into the energy grid. Under NEM, customers with behind-the-meter (BTM) generation, known as prosumers, are charged for their net-consumption and credited for the net-production they inject into the grid. Consumers, who do not have DERs, simply consume energy from the grid. Early NEM policies like NEM 1.0, set the rate of net-consumption equal to the rate of compensation for net energy injected back into the grid.

What are the key differences between NEM 1.0, NEM 2.0, and the role of Net Energy Metering X (NEM X) in shaping the future of energy distribution?

NEM 1.0, was an early approach where prosumers were compensated at the retail rate for excess energy fed back into the grid. However, this caused revenue shortfalls for utilities and raised concerns about financial sustainability. NEM 2.0 introduced changes, such as differentiating between retail and sell rates and imposing fixed charges. Net Energy Metering X (NEM X) is a new model designed to provide a unified framework for understanding and evaluating various NEM policies. NEM X aids in optimal prosumer decision-making, assists regulators in rate-setting that balances utility revenue requirements with social welfare goals, and evaluates the impacts of NEM policies on social welfare, cross-subsidies, and DER adoption rates.

How does the NEM X model help prosumers make optimal decisions regarding their energy consumption?

The NEM X model facilitates optimal decision-making for prosumers by identifying consumption thresholds tied to DER production. By understanding the parameters of NEM policies, like retail and sell rates, fixed charges, and dynamic pricing, prosumers can make informed choices about when to consume energy. This allows them to maximize the benefits of their DERs and reduce their energy costs.

What are the main challenges associated with early NEM policies, and how do these challenges relate to cross-subsidies and fair cost distribution?

Early NEM policies like NEM 1.0 led to revenue shortfalls for distribution utilities because they were essentially forced to buy electricity from prosumers at retail prices significantly higher than wholesale rates. As DER adoption grew, this caused utilities to raise retail prices, potentially leading to a ‘death spiral’ of escalating prices. Concerns about cross-subsidies arose because prosumers reduced their bills and effectively shifted grid operation costs onto consumers without DERs. This raised questions about fairness and equitable cost distribution within the energy ecosystem, highlighting the need for comprehensive policy analysis.

In what ways can regulators use NEM X to improve the design of energy policies and promote a more sustainable energy future?

Regulators can use the NEM X model to set rates that balance utility revenue requirements with social welfare goals. NEM X helps assess the effects of NEM policies on social welfare, cross-subsidies, and DER adoption rates, providing data for informed policy adjustments. By understanding these parameters, regulators can design policies that promote optimal prosumer decision-making, ensure fair cost distribution, and drive the adoption of distributed energy resources, contributing to a more sustainable and equitable energy future. Short-run analyses using NEM X also highlight the need to balance minimizing cost-shifts and maximizing market potentials.