California’s rooftop solar policy is killing its rooftop solar industry

It’s been six months since California regulators slashed the value of home rooftop solar systems — and the market crash that the state’s solar industry warned would result is now well underway.

On Thursday, the California Solar and Storage Association unveiled data showing a 77 to 85 percent drop in rooftop solar projects since April. That’s when the California Public Utilities Commission’s controversial ​“net metering 3.0” decision, which cuts about one-third to one-half of the compensation value of newly installed solar systems for households compared to what they could have received under the state’s prior net-metering regime, went into effect.

This data, collected by research firm Ohm Analytics from thousands of solar installers across the state, is backed up by data from Pacific Gas & Electric and Southern California Edison, two of the state’s three major investor-owned utilities subject to the CPUC’s net-metering rules. Those utilities have seen a 66 to 83 percent drop in residential rooftop-solar interconnection applications in the five months since the new structure took effect, compared to the same months in 2022.

With this downturn has come job losses. According to data collected by the California Solar and Storage Association (CALSSA), solar installers in the state are forecasting that 17,000 jobs will disappear by the end of 2023, which amounts to roughly 22 percent of the state’s solar workforce. Most of those jobs are in installation, where workers earn an average of $70,000 per year, according to the trade group.

“We are shedding jobs at a level that is reminiscent of the Great Depression,” said Bernadette Del Chiaro, CALSSA’s executive director. Those job losses are steeper than those experienced during the Covid pandemic when most home solar installations ground to a halt, she noted.

“These are people who were building a career in clean energy, a very specialized career in the installation of solar and storage systems critical to meeting California’s clean energy goals,” she said.

Ross Williams, CEO of HES Solar, a San Diego–based solar and EV charger installer founded in 2001, said his company employed 70 people at this time last year and expected to add about 20 more employees to meet growing demand. Instead, the company has had to lay off half its workforce over the past six months as demand for installations has dried up.

“Our teams are sized to do about 25 installs a week, and we’re selling about two a week,” he said during CALSSA’s Thursday press conference. ​“All those jobs are gone. Years and years of workforce development have just been wiped out. I’m very concerned about what sales are going to be like going into the winter and whether or not we’re gonna make it through the winter.”

What’s happening in California mirrors the experience of Arizona, Hawaii, Nevada, Utah and other states where rooftop solar installations have declined dramatically after regulators or utilities reduced the compensation value that customers can receive from them. Installations also declined by more than 50 percent in the California regions where public utilities reduced net-metering compensation between 2015 and 2017.

But the job losses from California’s net-metering shift have been even more severe than those that have occurred in other states, said Laura Deehan, director of nonprofit Environment California. They’re also far worse than what her group forecast in its 2021 Rooftop Solar at Risk report.

California’s rooftop solar dynamics have repercussions across the nation’s rooftop solar industry. California has been the leader in U.S. rooftop solar for decades. The state has 1.8 million installations capable of generating a total of more than 15 gigawatts at peak capacity, according to the latest data.

The downturn in California’s market has been a significant drag on national residential solar companies, countering the positive impacts of federal incentives flowing from the Inflation Reduction Act. Publicly traded companies in the residential solar sector such as Sunrun, Sunnova, SunPower, SolarEdge and Enphase have seen share prices fall over the past six months.

“This has been a volatile time across the solar industry with changes in important policies and rising interest rates, leading to difficult conditions in the sector,” Mary Powell, CEO of top U.S. residential solar installer Sunrun, said during the company’s third-quarter earnings call in November.

But about 70 percent of California’s rooftop solar installations are done by the more than 2,400 ​“long-tail” regional or local companies that work in the state, Del Chiaro said. CALSSA’s poll of its members in this category shows that nearly two-thirds of them expect to experience cash-flow problems over the winter months, when solar installations traditionally slow down, and about 300 companies reported that it will be difficult for them to stay in business through the next six months.

“This should be the golden era” for these businesses, she said. ​“Instead, we have California’s foot soldiers in the market to build our clean energy future in the fastest and most accessible manner worried that they’re not even going to be able to make it through the winter.”

A weakened rooftop solar market may also threaten to undermine California’s broader climate goals. The CPUC has ordered utilities to build a massive 86 gigawatts of new clean energy capacity by 2035 to meet its carbon-reduction targets. But over the past two years, residential and commercial solar installers added more clean capacity than all the utility-scale solar projects in the state, which are struggling to acquire the land, obtain the permits and secure the power grid interconnections they need to get built.

“The distributed market is not some nice little side dish in California’s clean energy market,” Del Chiaro said. ​“It needs to continue to be a major part of the market going forward if we’re going to achieve our goals.”

The consequences of a controversial shift in California solar policy

The CPUC’s December decision to undo a net-metering policy that’s been in place for more than two decades has come under intense fire from opponents. A lawsuit that seeks to reverse the decision is now set for a state appeals court hearing in December, but its prospects are murky since courts rarely overturn utility regulator decisions.

Under the previous net-metering regime, customers were paid the full retail rate for excess solar power they sent to the grid. But under the ​“net-billing tariff” compensation scheme that replaced it, customers earn only a fraction of that energy’s retail value during all but a handful of hours of the year. Without batteries that can store that power to discharge it when it’s most lucrative, new solar customers can expect an average 75 percent reduction in a revenue stream that used to account for about half of a typical rooftop solar system’s value.

In making this unpopular decision, the CPUC took the side of utilities and some consumer advocates and environmental groups that say net-metering shifts utility costs from customers wealthy enough to afford solar onto customers who don’t have solar. These groups argue that reducing this ​“cost shift” is a necessary step to restrain California’s fast-rising utility electricity rates.

But most environmental groups and community advocates agree with the solar industry that these cost-shift arguments, repeated by utilities across the country, are flawed and self-serving. They point out that rising electricity costs are primarily driven by utility investments, such as the billions of dollars that California’s big utilities are spending to expand their power grids and harden them against the risk of sparking wildfires.

Rooftop-solar advocates have also fought back against the contention that solar is only helping wealthier homeowners reduce their utility bills.

“That’s a myth,” said Carlos Beccar, marketing director for Fresno, California–based solar installer Energy Concepts. His company, which has had to lay off half of its workforce in the past six months, works in a city and region that has some of the higher poverty levels in the state.

But Fresno has five times as much rooftop solar as San Francisco in per capita terms, and ​“70 percent of those installations were in ZIP codes where the median income was below the national state average,” he said. ​“The overwhelming reason for customers to go solar is to save money. When you completely withdraw any potential for saving money, you’re really putting a brick wall in front of the industry.”

Solar advocates have only grown angrier at the CPUC in recent months, as the agency has taken actions that make rooftop solar less affordable for multifamily residential buildings, schools, farms and small businesses that share solar across multiple utility meters.

“We haven’t hit rock bottom yet,” Del Chiaro said. ​“We’re only looking at the residential impacts, which are huge, but the commercial impacts are going to hit us in 2024.” 

Meanwhile, it’s not clear whether the CPUC’s rooftop solar policies will be effective in shifting the market toward one of the agency’s key objectives: increasing the installation of batteries with rooftop solar systems.

Batteries can store power generated during sunny midday periods, when the state’s grid tends to be awash in solar power, and discharge it during the evening hours when California’s grid faces its more severe electricity supply shortfalls. The net-billing tariff rewards customers who export power to the grid during those rare but critical hours, for which batteries are a vital tool.

Major residential solar companies such as Sunrun and Sunnova have been building battery sales and installations into their residential rooftop-solar business strategies for years now, making them better prepared to adapt to California’s new market realities. Sunrun reported in early November that the proportion of solar customers opting to add batteries to their systems rose to 33 percent of new installations across the country in the third quarter, up from 15 percent at the start of 2023, while Sunnova reported a ​“battery attachment rate” of 32 percent in the second quarter of 2023.

But smaller solar installers are far less likely to wield the bargaining or buying power necessary to secure their share of a scarce supply of residential battery systems at the price points needed to make such projects attractive to customers.

“It’s actually really simple,” said Thomas Devine, VP of operations for Construct Sun, a solar installer that relocated from California to Nevada this year. ​“You just doubled the cost of the system overall by adding a battery to it.”

Even if battery attachment rates are rising, that doesn’t matter much when solar installations are crashing so precipitously, Del Chiaro said.

“Storage doesn’t sell solar. Solar sells storage,” she said. ​“We simply aren’t selling enough solar to grow either the solar market or the storage market, to say nothing of keeping hundreds of businesses and tens of thousands of solar workers employed to meet our growing clean energy goals and needs.”