How a Policy Change Disrupted California's Solar Panel Market
One year into a big net metering cut, panel installations are down, but battery installations are up in the biggest state for home solar. What it means for you.
California cut the rate that utilities will pay customers for solar power sold to the grid, causing big changes in the state's solar industry.
In a little more than a year, one change to how Californians get paid for excess electricity produced by solar panels has turned a booming industry on its head.
The California Public Utilities Commission's new net metering policy, known as NEM 3.0, decreased the compensation for excess energy by about 75%. And the country's largest solar market saw a rush to get solar before the policy went into effect in April 2023. That was followed by a precipitous drop in installations.
"While we did anticipate some negative impact from the NEM 3.0 rule changes on California's rooftop solar sector, the significant decrease in installations was unexpected," said Carina Brockl, chief revenue officer at Aurora Solar, a company that produces software for solar installers.
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The result: a widespread belief that 2023 was a bad year for solar in California. Is there hope for 2024?
For one, solar advocates and industry groups in the state aren't done fighting the change. They're challenging it in California's highest court.
At the same time, the upheaval has gone deeper than just a decline in rooftop solar installations. It's changed how Californians go solar -- including a rise in solar batteries.
Despite the massive shift, solar panels remain an appealing choice for many people. And though installations are down, there are still many panels being put up every day.
NEM 3.0 expectations vs. reality
Before the NEM 3.0 decision, the energy consulting firm Wood Mackenzie predicted the policy would cut the solar market in California in half by 2024. Leading up to April 15, 2023, the day NEM 3.0 took effect, homeowners rushed to submit interconnection applications, because they could grandfather into the favorable NEM 2.0 rates.
As a result, the total number of solar installations in the year since NEM 3.0 appears equal to the prior year. An analysis by the Lawrence Berkeley National Laboratory found that 80% of those installations submitted an interconnection application in the rush to get in before the April 15, 2023, deadline.
Data from Aurora Solar show a 44% drop in solar interest for the year following NEM 3.0. From April 15, 2022, to April 14, 2023, there were 882,275 residential projects designed in California. From April 15, 2023, to April 14, 2024, there were just 494,672.
Not all projects designed were completed, but Aurora's data shows NEM 3.0 has slashed the number of Californians who show interest in solar panel installation for their home.
Impacts of NEM 3.0 after one year
A decline in solar installations left a trail of negative impacts from NEM 3.0.
The policy created significant challenges for solar businesses. According to Solar Insure, a solar insurance company, 32 solar businesses in California closed their doors in 2023 and 2024. Among these were well-known top solar companies like ADT Solar.
When a company closes, the effect ripples out to its employees. The California Solar and Storage Association reported a 22% decline of solar jobs in California, equating to 17,000 fewer positions by the end of 2023.
Are there any positive impacts? If you ask a solar battery company, they might say yes.
The rise of solar battery installations
Solar battery companies can send a big thank you to NEM 3.0. Lower compensation under NEM 3.0 increased solar battery installations. The logic is pretty simple: The energy your solar panels generate is worth more if you use it in your home than if you sell it to the grid, and a battery lets you use more of your own power.
"NEM 3.0 initiated a steep learning curve for installers to effectively design and market solar plus storage systems," Brockl said. "Although battery costs are decreasing -- making them increasingly beneficial -- the industry had previously considered the economic viability of combining solar and storage to be several years away. NEM 3.0 has expedited the feasibility of battery technology in the market."
Berkeley Lab reported a 50% increase in battery storage attachment with the updated policy. Vincent Ambrose, chief commercial officer of solar battery manufacturer FranklinWH, echoed those findings, saying his company's data indicates attachment rates -- the portion of solar installations that include a battery -- have been 90% to 100% since NEM 3.0 started.
"This increase is not only a good thing for battery companies -- it's good for the energy grid and homeowners wanting to secure their energy resiliency," Ambrose said.
Changes to solar net metering rates have encouraged Californians to add solar batteries, like these Tesla Powerwalls, to their homes.
Is NEM 3.0 really the cause of solar decline?
While NEM 3.0 is a major factor in the decrease of solar installations in California, it's not the only culprit.
"Rising interest rates caused homeowner interest in solar plus storage to drop as contract prices increased substantially," Ambrose said. "This, along with the rising interest rates and installer bankruptcies forced financing companies to tighten lending guidelines. As a result, solar installers faced liquidity problems, leading to bankruptcies."
The legal battle over NEM 3.0
Rooftop solar allies Environmental Working Group, Protect Our Communities Foundation and the Center for Biological Diversity are taking the CPUC to the California Supreme Court to petition the NEM 3.0 decision. The groups claim the policy contradicts state law and didn't consider its impacts on disadvantaged communities.
The outcome of this legal battle could significantly impact the future of solar energy in California for businesses and homeowners.
"Even in today's California market, the comparison of solar price per watt to utility price per watt shows a clear case for adoption. However, significant reeducation is required for homeowners and solar pros alike," Brockl said.
Despite the rollercoaster ride for California's solar industry, there's collective hope that legislative adjustments and continued solar advocacy will smooth out the ups and downs, paving the way for a more predictable and resilient future for renewable energy in the state.
How to go solar despite NEM 3.0
Just because net metering rates are lackluster doesn't make going solar unfeasible. Here are some ways to cope:
Keep an eye out for incentives: One of the great things about net metering is that it makes it easier to pay yourself back for the big upfront cost of solar panels. But just because the net metering rates aren't as great as they were before doesn't mean other incentives have gone away. There's the federal solar tax credit, which will help you recoup 30% of the cost, along with other programs and incentives available in California specifically.
Get a battery: Having a solar battery allows you to use all the power your panels generate, meaning it doesn't matter if the grid is paying you a pittance or a king's ransom. Batteries cost a lot of money on their own (although the federal tax credit and state incentives help), but give you more ways to save over the long run.
Consider community solar: You don't have to own the solar panels to get solar energy. Programs like community solar allow you to pay for energy generated by a specific solar facility, often at a better rate than you'd get from the grid.
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