Net Energy Metering (NEM) for multi-tenant buildings
Much like an owner occupied building, solar production gets distributed to the multi-tenant building using Net Energy Metering (NEM). NEM is a billing mechanism that credits solar energy system owners for the electricity they add to the grid. If solar generated exceeds the building use during daylight hours, the electricity meter will run backwards to provide a credit against what electricity that is consumed at night or other periods when the building's electricity use exceeds the system's output.
Who pays the electric bill today?
If tenants currently pay for utilities, you need to check your lease agreement. Is there a clause in the lease to allow charging tenants for electricity? If not, you will need to either amend the lease, or create a separate power agreement for selling solar power to your tenants. For more information on how to negotiate a power agreement with tenants for solar, see our recent blog post:
Triple Net (NNN) Leases and Commercial Solar
Once an agreement has been reached with the tenants, several options are available to split up solar production, each with pros and cons:
Do you have a master-metered building?
The Master-metered approach has the benefit of providing property owners with a return on their clean energy investment, without the need to renegotiate leases with tenants.
Mastered-metered buildings are one of the least complex ways of distributing renewable energy to tenants. In this use case, the building has a single meter, and the solar energy production reduces the bill by offsetting the master meter.
Typically, the existing lease gives the property owner the right to bill tenants for electricity using the ratio utility billing system (RUBS). Ratio utility billing system utilizes a mathematical formula for calculating the portion of the electric bill for a tenant and typically is based on square footage, occupancy, number of bedrooms, or some other specific method agreed to by the building owner and the tenant.
E3 Billing Solar Service
E3 recreates the bill that would have existed if the entirety of the electricity was provided by the local public utility. This bill is then used as the source for the RUBS calculation. The tenants are responsible for their portion of the total electricity bill, just as they did before the solar system was installed.
- One time NEM interconnection fee of $132, or $800 for > 1MW systems
Common area meter
Common area meters share the same characteristics as the master metered building scenario (see above). As with master-metered buildings, the property owner already has the right to bill tenants for common area power usage using RUBS methodology. Solar, along with E3 billing, can therefore provide new income for property owners with no changes to lease terms or negotiation with the tenants.
Does your tenant have a dedicated submeter?
Is the tenant paying the electric bill?
In order to have the tenant pay fair market value for the solar credits being added to their local utility bill, E3 can recreate a bill for just the solar contribution. The tenant continues to receive a bill from the local utility company, and receives a 2nd E3 bill for the solar production from the property owner monthly.
What is fair market value for a solar credit? We calculate the value of a solar credit by taking the total bill that the local utility company would have charged for electricity if no solar was installed, and subtracting the ongoing electricity bill, e.g.:
Solar Bill = (Total Bill - Ongoing Bill) x Discount
Are you (the owner) paying the electric bill?
Taking ownership of the tenant’s meter has the following advantages:
- Delayed payment for owner. Property owner pays the ongoing local utility bill yearly. Tenant pays the E3 bill monthly, thus giving additional cash flow to the property owner until the “true up” date. The tenant continues to pay for electricity consumed just as before the solar system was installed.
- Tenant pays one E3 bill monthly, instead of 2 bills (see Is the tenant paying the electric bill? above).
- Property owner is responsible for the electricity bill. If a tenant doesn’t pay their electricity, then the property owner is responsible for collections and/or disconnecting the power due to lack of payment.
- Since the property owner is billing for power, a separate power purchase agreement, or amendment to the current lease may be required.
How to distribute Solar in a multi-metered building?
Option 1: Net Energy Metering Aggregation (NEMA)
NEMA allows a customer to aggregate the electrical load from multiple meters and offset this load with solar production.
- System must be sized to the customer’s recent annual load.
- Accounts have to be located on the same property as the renewable generator or on properties adjacent or contiguous to it.
- The customer of record for all meters must be under the same name.
- Easier to size system. Solar production is shared, so the system is sized for the entire property rather than each individual tenant. Even as tenants come and go, the average electricity usage for the entire building stays relatively constant, so there is less likelihood of overproduction or underproduction as compared to creating a Dedicated solar system for each tenant (see below).
- No extra equipment needed. Since all panels feed into a single meter, there is no need to add extra inverters or hardware to connect panels to multiple meters. There is also no requirement to install a utility provided Net Generation Output Meter (NGOM), which measures the solar production output and adds $1k-$5k of cost to the solar system.
- One time NEM interconnection fee: $132 or $800 for > 1MW systems
- Aggregation - $5 per account per month
Option 2: Virtual Net Energy Metering (VNEM)
VNEM or VNM allows multi-tenant building owners to install a single solar system to cover the electricity load of both common and tenant areas connected at the same service delivery point. The electricity does not flow directly to any tenant meter, but feeds directly back onto the grid. A percentage of solar production is then allocated to each meter.
- Building tenants are sub metered
- Meter can remain in tenant’s name
- Net Generation Output Meter (NGOM) must be installed to track solar production
- The net balance of all charges owed to SDG&E must be paid monthly - normally NEM accounts true up once a year.
- Meter remains in Tenant’s name.
- Reduced risk of nonpayment. If the tenant doesn’t pay the bill, the percentage of solar production dedicated to that tenant can be reduced to 0%. The nonpayment then becomes an issue with the utility company, which can then decide to disconnect power for nonpayment, etc.
- Reallocation of solar production possible. If the electricity usage per meter changes, perhaps due to tenant turnover, the solar production can be reallocated to better fit electric consumption from each meter in the building. Unlike NEMA (see above), which distributes solar across meters automatically, reallocation of solar power under VNEM requires filling out a solar allocation request form provided by the local utility.
- One time NEM interconnection fee: $132 or $800 for > 1MW systems
- One time service origination set-up fee of $25 per meter, $500 cap
- Solar allocation request fee - $0 per meter per 12 month period. Subsequent changes to solar production allocation will cost $7.50 per meter modified.
- Installation of NGOM: $1k to $5k of additional cost to system
Option 3: Dedicated solar system for each tenant
Another way of distributing the solar energy is to create a separate solar system for each tenant. Dedicated solar systems have the following complexities:
- Solar system must be correctly sized. Energy usage is specific to how the current tenant is using the space. Will the tenant be using the power for the next 25 years? If a new tenant arrives, will they have the same energy demands? Will the local utility company pay a reasonable price for any excess power that is fed into the grid, while the space is vacant, or when a new tenant arrives with less power need? These questions become more complex to answer when you are building a dedicated solar system for each tenant, as you are unable to spread the excess production power to other tenants in the building.
- Extra equipment may be needed. Feeding an array of solar panels into a single meter is less expensive and requires less equipment and wiring than dedicating a set of panels and inverters to each tenant meter.
- Local utility bills are paid yearly instead of monthly. The new bill will be on NEM schedule which delays payment for the bill until the true up date, typically one year from start of service. NEM has the advantage of balancing out any overproduction during the summer months to offset underproduction during the winter months.
- One time NEM Interconnection fee per tenant: $132 or $800 for > 1MW systems