When the California Public Utilities Commission adopted a major change to the state’s compensation rates for residential solar power sold back to the grid, opponents argued it could torpedo the state’s solar industry.

Two years later, the new rates have had a notable impact, leading to a new trend in solar installations.

This month, the Lawrence Berkeley National Laboratory (LBNL) released a technical brief, which reviews the market impacts of the state’s new compensation rates. “One Year In: Tracking the Impacts of NEM 3.0 on California’s Residential Solar Market”, evaluates how the California solar market has evolved since the rates changed.

For many years, California had some of the most generous rates for residential solar customers who sold excess power back to their utilities. Dating back to 1995, the state’s utilities were required to use net energy metering (NEM), which compensated customers at the full retail rate. This was a huge incentive for customers to install residential photovoltaic (PV) systems and helped the state develop one of the highest rates of solar power adoption in the country.

In 2022, the CPUC adopted a modified rate structure. It replaced net energy metering with a net billing tariff (NBT), although many refer to the new structure as NEM 3.0. Under the new structure, which went into effect in April 2023, customers no longer receive full retail rates and compensation varies depending on time of use.

The LBNL analysis notes several changes in the market since the new rate structure went into effect. For example, the number of residential PV solar installations, as measured in a 12-month rolling average, has remained relatively unchanged for the past year, at just over 20,000. However, this number is deceiving because many customers scrambled to take advantage of a window period in which to install their systems under the old rate structure. LBNL acknowledges that this number could change with a little more time under the new rate structure.

Despite expectations that installations might spike in some parts of the state where compensation rates are better, the county-level distribution of installations remained unchanged throughout the state. According to the lab, “no meaningful shift” in this pattern has occurred.

Also, solar adoption has “shifted markedly” toward less-affluent zip codes. The lab attributes this to a shift in installations to new home construction that occurs in areas where incomes are lower.

Lastly and perhaps most importantly, the new rates appear to have “driven a significant increase in residential storage installations.” The lab notes that this is not surprising, as the NBT structure incentivizes customers to install storage equipment along with their PV systems to capitalize on the time-of-use rates. Battery systems allow customers to store unused power and consume it at times when rates are higher. According to the lab brief, the share of residential PV solar installations coupled with storage have risen to 60% under NBT, in contrast to only 10% under NEM.