California has the nation's largest residential solar market by far, largely due to rate programs and incentives to help decarbonize the state’s electricity grid by 2045. Other states have adopted at least some of these programs in hopes of driving similar adoption in their jurisdictions. Now, the Golden State may be at the forefront of yet another solar regulatory trend: officials recently reduced some rooftop solar benefits while maintaining those for home energy storage systems. As California has become a bellwether of grid reform, the move could be a boost for battery makers seeking to expand their market among homeowners.

Program’s pros and cons

California is home to 38% of U.S. residential solar capacity, according to the Solar Energy Industries Association, with photovoltaic panels topping more than 1.5 million homes and providing about 10% of its power. Homeowners were incentivized to invest in these systems by compensating them for power sent back to the grid at the full retail rate, which includes distribution and transmission fees, rather than at just the avoided cost of the electricity. Called net-energy metering, the program has been adopted by more than 30 other states and helped push solar adoption nationwide.

The program’s overwhelming success has had downsides. California can now have more electricity than it can use during day, while struggling to meet demand during late afternoon and early evening peak-demand periods. This has forced costs up during those times and sent system operators scrambling for resources. With PV owners getting credited at the full retail rate, more of the cost of maintaining transmission and distribution networks fell on those without panels, often lower-income residents and renters.

The new rules apply to systems installed after April 15, 2023. Now, solar owners are compensated at the wholesale rate for their electricity at the time it’s generated, resulting in a 75%–80% reduction in the incentives’ value. Additionally, those customers will be put on a rate plan with higher evening rates. As a result, advocacy group Solar Rights Alliance estimates buyers will see their payback periods grow to more than 10 years, from the previous average of six. (The California Public Utilities Commission estimates paybacks with the new rates in nine years or less, on average.)

Battery storage

The higher evening rates are intended to encourage buyers to include battery storage in their plans. With batteries, homeowners could support some or all of their own demand without calling on utility supplies. Plus, those exporting electricity to the grid from their on-site battery systems will be compensated at a higher rate. The rate plan also incorporates upfront incentives for low-income solar-plus-storage adopters.

Early reads from market observers anticipate a big hit to solar installers’ business with the new structure. Wood Mackenzie estimates California’s residential solar market could be cut in half by 2024, with single-digit growth returning in 2025 and 2026, as expected price declines pique homeowners’ interest again. However, companies with battery expertise could be cushioned from some economic damage. Wood Mackenzie anticipates attachment rates of storage to distributed solar systems in California will increase to more than 80% by 2027, from today’s 11%–12%.

California’s experience could be a harbinger for actions in other jurisdictions. For example, in March, North Carolina’s Utilities Commission approved a Duke Energy plan to start a three-year transition from full net-metering to a time-of-use plan based on the value of the solar energy when it’s generated. However, as in California, regulators also directed Duke to open a solar-plus-storage pilot program with a $0.36/watt incentive for those installing new combined systems. Current guidelines set a limit of 10 megawatts of new capacity for the plan.

In California, dealers are developing options for homeowners who might previously have been interested in a solar-only installation. In September, battery­-maker Sonnen, Stone Mountain, Ga., and solar marketer and installer Baker Electric Inc., Cerritos, Calif., partnered up to launch the new ChargeOn offering. The plan networks Sonnen batteries across the state to create a virtual power plant during peak periods. Owners receive an upfront incentive and cash rewards when their batteries provide grid support. And the batteries still can be called on during utility outages to provide backup power.

Sunrun, San Francisco, the nation’s largest residential solar company, developed a unique offering for customers who lease its solar-plus-storage systems that’s strictly focused on maximizing rate savings. Called “Shift,” it helps customers make the most of their own stored electricity during expensive peaks. However, it doesn’t allow batteries to be used as backup power sources, so installations avoid the labor and equipment costs required to allow the systems to island during an outage. 

As NEM rates are reconsidered elsewhere in the country, such approaches also could become more prevalent nationwide.

SHUTTERSTOCK / Ksanawo/ mipan