California is a rooftop solar giant. New rules could change that

Starting on April 15, new rooftop solar customers in California will earn much less for power they send to the grid, but adding batteries could improve the economics.
By Jeff St. John

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a home with rooftop solar among tall trees. Multiple vehicles are parked in the driveway.
Solar on the rooftop of a home in Danville, California (Smith Collection/Gado/Getty Images)

California’s decades-old rules for rooftop solar are about to radically change. The implications could be profound for the country’s biggest rooftop solar market, for millions of residents looking to go solar, and for the state’s long-range goal of affordable and reliable clean energy.

Starting April 15, most Californians who install new rooftop solar systems will earn about 75 percent less for the electricity they send back to the grid compared to Californians who already have rooftop solar.

That’s because the California Public Utilities Commission voted in December to replace the net-metering structure that applies to the roughly three in four Californians served by the state’s big three utilities — Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric. Instead of having utilities pay customers the full retail rate for solar power produced in excess of their own electricity consumption, the new net-billing” structure slashes payment during all but a handful of hours of the year.

The new policy doesn’t apply to the more than 1.5 million rooftop solar installations already in place, but it will reduce utility-bill savings from new solar systems and extend the amount of time it takes owners to recoup the cost of installing them. It will also provide a much stronger incentive for solar owners to use as much of the power they generate as they can — or to install batteries that can store excess power for use after the sun goes down.

Utilities and some consumer advocates and environmental groups say this change is vital to keep California’s fast-rising utility electricity rates in check. They warn that customers wealthy enough to afford solar have been paying too little on their utility bills, shifting the costs of maintaining the power system onto customers who don’t have solar.

But many solar companies, environmental-justice groups and other rooftop solar advocates say these cost-shift” arguments are based on cherry-picked data and misleading analysis from utilities that want to stifle the growth of an industry that shifts power, quite literally, from utilities to their customers.

These groups fear the change to a net-billing system will decimate a thriving rooftop solar industry, restrict opportunities for less-wealthy homeowners to go solar and undermine a key resource to help the state cut carbon emissions.

Market forecasts concur with fears of an industry slowdown. In their latest U.S. Solar Market Insight report in March, research firm Wood Mackenzie and the Solar Energy Industries Association forecasted that new residential solar installations in California, after doubling in size from 2020 to 2022, were expected to decrease by nearly 40 percent through 2024.

A recent report from solar comparison-shopping software provider EnergySage indicates broad pessimism among the three dozen California solar installers it surveyed. Three in four expect the new rules will significantly harm” their business, and only 6% said the new rules will have a neutral or positive impact.

But EnergySage found that only 17 percent of installers surveyed plan to scale back or stop serving the state’s residential solar market. Instead, most installers — nearly seven out of 10 surveyed — say their primary response will be to invest more in selling batteries.

That’s because batteries can actually improve the economics of rooftop solar under California’s new solar regime. According to EnergySage’s analysis, the payback period for a solar-plus-storage installation will be faster than for stand-alone solar, even after accounting for the added cost of a battery.”

Solar software company Aurora Solar found similar results in recent surveys of its customer base, which includes many top U.S. residential solar installers. More than 80 percent of respondents reported higher customer interest in solar-plus-battery systems. California largely drove the uptick, according to Aurora’s data.

Solar-plus-storage shouldn’t be a hard sell for solar companies since there is existing interest within the market,” said Andrew Gong, Aurora’s senior research engineer.

That’s not to say that Californians are eager to forgo the more lucrative net-metering values that will disappear next week.

Aurora Solar tallied 264,357 solar projects in California in the first two and a half months of 2023 compared to 102,964 projects over the same period last year, with some installers reporting a fourfold increase in the number of customer quotes they’ve provided so far this year. That’s almost certainly the result of Californians rushing to install solar before the new rules take hold.

But for lower-income customers who’ve been mostly left out of California’s rooftop solar boom, the new net-billing regime may put self-generated power even further out of financial reach. That’s the warning from nonprofit groups Center for Biological Diversity, Environmental Working Group and Protect Our Communities Foundation in their January appeal to the California Public Utilities Commission asking it to reverse its December decision.

The groups argue that the CPUC’s decision fails to consider a broader scope of benefits that come from rooftop solar, such as reducing the need for large-scale solar farms and transmission lines and providing a source of energy during blackouts. They also argue that the reduction in rooftop solar’s value unlawfully leaves behind” residents of disadvantaged communities who have suffered disproportionate environmental, health and economic harms of fossil fuel pollution.

The CPUC’s decision does allow for a higher payout for excess power for customers in state-designated disadvantaged communities and tribal communities, as well as for those who qualify for low-income utility-bill assistance programs. But many community groups say those adders aren’t enough to counteract the broader reduction in solar export values.

The CPUC’s decision also cites the availability of $900 million in state funds — $630 million of that set aside for low-income customers — that California lawmakers approved last year to expand a state battery incentive program.

But the state’s budget surplus of last year has been replaced by a forecasted budget shortfall this year, and Governor Gavin Newsom has proposed cutting last year’s climate and environmental spending plans. The battery incentive program is among the items on the chopping block.

In December, we published a three-part series on California’s new net-metering plans. Click here to read part one, part two or part three.

Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.