California has long supported renewable energy, but a change in state policies last year led to a sharp decline in the installation of residential solar panels on rooftops in the state.
Thousands of businesses – including installers, manufacturers and distributors – are reeling from the new policy, which took effect in April, which significantly reduced incentives that had encouraged homeowners to install solar panels. After the change, sales of rooftop solar systems in California fell as much as 85% in some months of 2023 compared to a year earlier, according to a report from Ohm Analytics, a research firm that tracks the solar market. Industry groups expect installations in the state to decline more than 40% this year and continue to decline through 2028.
“Solar installations cost a lot,” said Michael Wara, a senior research scientist at the Stanford Woods Institute for the Environment. “What is happening right now is a painful adjustment process.”
Construct Sun, a solar installation company based in Reno, Nevada, stopped doing business in California after its sales dried up four months after the policy began; executives said the company is now focusing its efforts on Florida, North Carolina and Ohio.
“I had a very dismal pipeline and had to make the decision to shut down in California,” said Thomas Devine, executive vice president of operations at Construct Sun. He added that the state’s rooftop policies undermined its goal of actually eliminating carbon emissions. greenhouse gases by 2045. “These competing policies are crazy,” he said.
State officials bristle at the idea that California is undermining renewable energy and have defended the policy change, which lowered by 75% the value of the credits that homeowners with new installations receive for the energy they send to the network. They argued that the old rules, which still apply to systems installed before April, offered too generous a subsidy, mostly helping wealthy homeowners. As a result, low-income people who couldn’t afford panels found themselves shouldering more of the cost of maintaining the state’s electricity system.
“California has done more for the solar industry than any other state in the nation, providing billions in rebates and incentives since 2006,” the state’s Public Utilities Commission, which oversees rooftop solar, said in a statement and investor-owned services.
States across the country are grappling with how to compensate consumers for the electricity their rooftop solar systems send to the grid. And officials have often looked to California for guidance.
Many states, including California before it changed its policy, generally allow homeowners to receive credits that are roughly equivalent to the retail electric rate for the energy their systems send to the grid. That has never sat well with most utility companies, who argue that offering homeowners a one-for-one credit for solar energy overstates the value of that electricity. Utilities say they could buy electricity much cheaper on the wholesale market or produce it themselves.
Overall, renewable energy is growing and now provides more than a fifth of the nation’s electricity. In California, renewable sources produce more than a third of electricity.
But the growth of carbon-free sources has become uneven as regulators, utilities, consumers and renewable energy companies fight for its financial benefits. They are also trying to find ways to not only add equipment that can generate electricity, but also batteries that can store it, since solar and wind power are intermittent.
California officials point out that while they have reduced the compensation for rooftop solar, they have offered residents more incentives to install batteries. The batteries, they say, can help deliver power to the grid when it’s needed most, not just in the middle of the day when California typically has a surplus. The devices can provide energy even during blackouts.
“Today, California has a tremendous need for more energy storage, and our state must move from incentivizing storage technologies to support reliability, enable the retirement of polluting gas plants, and relieve pressure on utility rates. electricity,” said David Hochschild, chairman of the California Energy Commission. , which generally oversees the energy sector.
Since regulators put the new rooftop solar policy in place, the percentage of consumers purchasing battery-powered solar panels has increased to 50%, up from 5% before the changes.
But batteries are expensive, especially in a time of high interest rates. Without federal tax incentives, a solar and battery system costs an average of $33,700, compared to $22,700 for systems that don’t include batteries, according to EnergySage, a trading site that compares rooftop solar panels.
Installers and homeowners say investing in rooftop solar systems is difficult to justify financially without access to adequate electricity credits. California’s decision to reduce the incentive increased the time it takes for a solar system to pay for itself to at least eight years, up from about five.
The nation’s largest residential solar company, Sunrun, which is based in San Francisco, cut about 2,000 jobs after California regulators reduced rooftop incentives.
“It’s really unfortunate from the perspective that this is happening at a time when the planet is on fire,” said Mary Powell, Sunrun’s chief executive. But she added that given her company’s size and nationwide operations, she has been able to absorb much of the impact.
Other companies face bigger challenges.
About four years ago, Amy Atchley founded Amy’s Roofing and Solar. Before California changed its policy, solar sales accounted for more than 55 percent of her business, which she runs with her husband, Brian, in Petaluma, north of San Francisco. Since the policy went into effect, solar sales have dropped to 45%. To reduce costs, Ms. Atchley said she typically advises her clients to install solar panels when they are also replacing roofs.
“California should do everything in our power to become a clean energy state,” Ms. Atchley said. “But the momentum was stopped.”
Offering energy credits to homeowners with rooftop solar panels was a central component of legislation, passed when Arnold Schwarzenegger was governor, that aimed to add a million solar rooftops, reduce electric bills and fight climate change. The state reached its roof goal in 2019 and now has panels on 1.8 million roofs.
Some solar experts argue that California’s new policy is flawed because it doesn’t adequately take into account the environmental value provided by rooftop solar panels.
“Solar energy is being priced the same as fossil fuel energy, so this doesn’t make sense,” said Yogi Goswami, an engineering professor and director of the Clean Energy Research Center at the University of South Florida. “We should have given some value to the environmental factor.”
By cutting incentives at a time when the world needs more clean energy, “they make everything much more difficult,” he added.
Nationwide, rooftop solar grew about 13% last year, but could decline 11.5% this year, according to the Solar Energy Industries Association, which attributes the decline mainly to changing policy of California.
Pacific Gas & Electric, California’s largest utility, said rooftop solar connections on its system reached a record high last year, up 20% from 2022. That may be because many homeowners of homes rushed to install solar panels before the new policy took effect in April. .
“At PG&E, we recognize the significant role rooftop solar plays in California’s clean energy future,” Carla Peterman, PG&E executive vice president for corporate affairs and a former state utility regulator, said in a statement. “We are proud to have interconnected more than 750,000 residential solar customers, more than any other U.S. utility.”
Rooftop solar advocates have asked the courts to intervene, and others have pressured regulators and state lawmakers to reverse course or risk losing more jobs and businesses.
“The question is: who will survive this?” said Bernadette Del Chiaro, executive director of the California Solar and Storage Association. “How many companies make it through this transition?”
Some energy experts have said rooftop solar could regain some of its financial appeal as California raises electricity rates, which are already among the highest in the country. The Public Utilities Commission recently approved higher rates for customers of investor-owned utilities Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.
PG&E customers will soon pay about 45 cents per kilowatt-hour, up from about 35 cents. That equates to about $250 a month for 571 kilowatt hours, the average usage for homes in California. By comparison, the average national retail electricity rate was 16.2 cents in October.
More Californians could install solar panels and batteries not to earn credits for the excess energy the panels produce, but simply to reduce their dependence on utilities. But this option would primarily be a benefit that wealthy homeowners would be able to obtain rather than those with limited means, Stanford’s Wara said. She added: “There is a huge challenge in terms of affordability for California electricity.”