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The state of Californias rooftop solar industry is losing jobs at a rapid rate and losing companies filing for bankruptcy due to adverse political changes. The California Solar and Storage Association (CALSSA) is proposing some short-term policy changes to stem the bleeding and address the cause of this crisis.
California, once known as a leader in clean energy, has fallen off track in meeting its clean energy goals. This is the opinion shared last week by the California Solar Energy and Storage Association (CALSSA) in a panel discussion at the Intersolar North America conference in San Diego, California.
The state passed a bill in 2018 with the goal of achieving 100% carbon-free electricity by 2045. Governor Gavin Newsom recently set an interim goal of 90% carbon-free electricity by 2035, speeding up the clock for the deployment.
Considering the states ambitious goals for whole-home electrification and ending sales of new gasoline cars by 2035, demand for electricity is expected to increase dramatically, making these goals even more ambitious.
The California Energy Commission (CEC) projects that the state will need to build 6 GW of solar plus storage each year for the next 26 years in a row to meet the 2045 goal. Over the past five years, California has only achieved an average of half the figure of 6 GW.
“In the last two years we have started to catch up, but the distributed market [for rooftop solar] has driven at least 50%,” says Bernadette del Chiaro, executive director of CALSSA.
In this march toward 100% carbon-free energy, California shot itself in the foot by approving Net Energy Metering (NEM) 3.0, a policy that cuts compensation to customers for exporting energy to the grid. Combined with a high interest rate environment, the profitability of rooftop solar projects in California has eroded and demand has imploded.
According to CALSSA, around 17,000 jobs have been lost in the rooftop solar sector, demand for this type of energy has been reduced by 80% and solar company insurer Solar Insure has told pv magazine that the 75% of its covered companies are considered “high risk” of bankruptcy. Major publicly traded global equipment suppliers such as Enphase and SolarEdge have made significant workforce cuts.
In recent years, California has seen an average of 2.3 GW of utility-scale solar plus storage installations, far behind the pace needed to reach the mid-century goal of 100% carbon-free energy. Del Chiaro believes that the objective is impossible to achieve with an exclusively commercial-scale model, towards which the State seems to be heading.
Just add storage?
NEM 3.0 was supported by the CPUC to move the State from an exclusively solar market to one defined by the combination of solar energy and energy storage. Although the new rate environment favors the profitability of a solar plus storage project over an isolated one, it no longer represents a positive benefit in terms of cash flow for the homeowner, making it a very difficult sell.
Ross Williams, CEO of HES Solar, a regional installer operating in California, shared this grim reality at the Intersolar roundtable. What was once a $20,000 to $25,000 standalone solar system with a five to seven year payback has become a $40,000 to $45,000 solar plus storage system with a nine to ten year payback.
“If we compare it with the rest of the options in the investment world, it is not a good option,” says Williams. “Just by adding storage, the cost increases almost double.”
At the same time, high interest rates have put even more pressure on the sector, making loans to pay for the systems more expensive. Williams said a $25,000 off-grid system used to be a cash flow positive investment, meaning that on an annualized basis, paying off the loan would cost less than simply staying with the traditional electric company. Now, with a $40,000 project and higher financing costs, customers would have to pay more for energy with a solar plus storage system.
“Its not as simple as adding storage,” says Williams.
Part of what made the NEM 3.0 decision a disaster for rooftop solar companies was the wild swings in business it caused. In the case of HES Solar, the rush of consumers trying to secure NEM 2.0 rates led to 20% more sales in the first quarter than in all of 2022. Once NEM 3.0 came into effect in April 2023, sales were reduced to zero for HES Solar.
“We had a sale in May. In the first quarter we sold 600 systems. I’m telling you, they went down to zero,” Williams says.
When July and August rolled around for HES Solar and sales were still 50% of what they needed to maintain staff, Williams had to start laying off staff. A similar story has plagued most of the states rooftop solar installers, resulting in the loss of about 17,000 jobs.
CALSSA warned that the next two months could be even worse, as it is typically a slow season for rooftop solar. According to Del Chiaro, liquidity and operational problems are likely to arise in the first quarter of 2024.
Changes
Intersolar panelists warned that California may be just the beginning of the decline of rooftop solar. According to Del Chiaro, between 15 and 20 states are already considering cuts to net metering, including Minnesota, Oregon and Washington. He said utilities have the wind at their back now, citing Californias decision to cut net metering as justification for their own cuts.
CALSSA said it is currently focused on supporting changes that can get the sector through the next six months, suggesting changes to keep businesses alive. Brad Heavner, policy director at CALSSA, shared steps to take to stop the bleeding. CALSSAs specific recommendations, which do not consist of canceling NEM 3.0, include the following:
Do no more harm: reject the graduated flat fee of $30 per income. Simplify AB 2143 to protect small businesses installing solar and storage, and not limit licensed solar contractors from installing solar plus batteries.
Launch the Million Solar Battery Initiative – creating investments in energy storage for all consumers at all income levels.
Restore the right of properties with multiple meters to self-consume energy.
Dramatically expand virtual power plant programs.
Reduce bureaucracy: impose penalties for failure to meet interconnection deadlines by electric companies and simplify the granting of permits at the municipal and county level through the full application of Senate Bill 379.
Reform the utility profit model: The financial profitability of utilities must be based on positive results, not just capital expenditure.
As currently structured, utilities in California and much of the country have a perverse incentive to spend money inefficiently on transmission projects. The more capital companies spend on infrastructure, the more rate increases they can approve.
Customer-installed solar is preferable to enterprise-scale centralized solar when it comes to reducing transmission needs, system-wide costs and efficiency, and transmission line losses. It also reduces development of land that would otherwise be usable. Californias largest solar-plus-storage facility has just come online, and to power more than 200,000 homes, more than 1,000 hectares of undeveloped land have been developed to install nearly two million solar panels.
Customer-installed solar represents competition for utilities and directly reduces their potential revenue base. In return, it offers customers clean local energy, more efficient in its operations, more respectful of the environment and with a more predictable cost.
“Getting utilities to stop fighting customers solar is ultimately what is needed in California and around the world,” Heavner said. “We have been thinking for years about how to change this perverse incentive. It is difficult, but there is more and more talk about it.” |
