Net Metering 3.0 Rules Create Chaos In Rooftop Solar Market In California

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The problem with policies is that they can change. For years, California has had a policy in effect that required utility companies to compensate homeowners and small business owners for any electricity they exported back to the grid from their rooftop solar systems. But there is such a thing as too much of a good thing. California has been a leader in the clean energy energy revolution for decades, but today it has so much solar power available — especially in the late afternoon when the sun is the strongest — that much of it is wasted. It is either given away to those who will take it or sent to ground.

Most CleanTechnica readers are aware that the utility industry has been openly hostile to rooftop solar ever since it first became available. For one thing, it disrupts how the electrical grid is structured — one or two central generating stations that feed electrons out to the community through a series of substations. It was never intended to be a two-way street, and accepting electricity from the margins of the grid caused structural issues that utilities would rather avoid.

But there’s more to it than that. For more than 100 years, most utility companies have been investor-owned, for-profit enterprises that were granted exclusive rights to provide electricity within a specified territory. It annoys them to no end when others try to horn in on the monopoly. Their general attitude is “We have the exclusive right to provide electricity in this market and we will do everything we can to keep from sharing our rights with any interlopers!”

The thing about solar panels is that anyone can install them and make their own electricity. How dare they! It was never possible for individual homeowners to build their own thermal generating station or nuclear power plant. Rooftop solar leads to the democratization of electricity and that is anathema to the utility industry. Why, before you know it, one person may get the wild idea to share some of that rooftop solar electricity with a neighbor and then where will we be?

Net metering is the engine that has driven the rooftop solar industry since its inception. Putting solar panels on the roof isn’t cheap, even with various federal and state incentives. The money the utility companies had to pay pursuant to various net metering schemes went a long way toward making rooftop solar affordable for many, especially low-income families for whom the monthly electric bill was a significant part of their household budget.

An Earthquake In Rooftop Solar

Last year, the California Public Utilities Commission (CPUC), with the active support of the state’s largest investor-owned utilities, eviscerated the existing net metering regulations. The new plan, known as NEM 3.0, slashes the amount the utilities have to pay their rooftop solar customers by 75 percent. Ouch! As a result, applications for new rooftop solar systems skyrocketed, as people sought to get in on the gravy before the new rules went into effect. After NEM 3.0, applications fell by about 50 percent. Since then, several large rooftop solar companies have gone bankrupt.

The CPUC justified the change by saying the state needed more batteries to soak up electrons during the day and send them back to the grid in the evening and in fact the number of residential batteries installed in California has jumped. But batteries are expensive and add quite a large amount to the total cost of a rooftop solar system. The amount the utilities now have to pay to access that stored electricity is hardly enough to justify the added expense, but it can lower utility bills if self-consumed by the homeowner.

According to CNET, NEM 3.0 created significant challenges for solar businesses. Solar Insure, a solar insurance company, says that 32 solar businesses in California closed their doors in 2023 and 2024. Among these were well-known top solar companies like ADT Solar. Those closures had ripple effects. 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.

Rooftop Solar Plus Battery Storage

rooftop solar plus battery storage

The impact on residential storage batteries has been dramatic, however. Berkeley Lab reports there has been a 50 percent increase in battery storage attachments — the coupling of a storage battery with a rooftop solar system — since NEM 3.0 went into effect. Vincent Ambrose, chief commercial officer of solar battery manufacturer FranklinWH, said the impact may be more dramatic than that. His company’s data indicates attachment rates 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.

Carina Brockl, chief revenue officer at Aurora Solar, said NEM 3.0 initiated a steep learning curve for installers to effectively design and market solar plus storage systems. “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.”

While battery prices may be going down, 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.”

Lawrence Berkeley National Lab has been looking at the data since NEM 3.0 went into effect, and while it confirms that more solar plus battery installations are taking place, it says the average cost of those systems have spiked by 17 percent over last year. It’s the old supply and demand conundrum. Suddenly everyone wants a battery with their rooftop solar system but there aren’t enough batteries or trained installers to meet the demand. Therefore, prices have gone up, something the CPUC seems not to have taken into account.

Microgrids and Virtual Power Plants

The upshot of the new rules is that fewer customers are sending electricity back to the grid because the economic incentives to do so are simply not there. California needs a robust system of virtual power plants similar to what Green Mountain Power is doing in Vermont, but the new rules don’t do enough to encourage VPPs, says Canary Media. That’s another thing the CPUC failed to adequately take into account.

In addition, the state and the utilities seem to have totally ignored the possibilities of vehicle-to-home (V2H) technology. California has more electric cars per capita than any other state. The batteries in those cars could easily form the basis of a wider microgrid that would allow utilities to store more solar power during the day. Instead of those companies buying grid-scale batteries, they could rent some portion of all those batteries and combine them into microgrids that feature demand response strategies to form a number of local microgrids.

Any CleanTechnica reader would be happy to advise the utilities and the CPUC how to devise a comprehensive plan that focuses on the future rather than policies that were obsolete years ago. What the CPUC has done is create chaos. The citizens of California deserve better.

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Steve Hanley

Steve writes about the interface between technology and sustainability from his home in Florida or anywhere else The Force may lead him. He is proud to be "woke" and doesn't really give a damn why the glass broke. He believes passionately in what Socrates said 3000 years ago: "The secret to change is to focus all of your energy not on fighting the old but on building the new." You can follow him on Substack and LinkedIn but not on Fakebook or any social media platforms controlled by narcissistic yahoos.

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