From pv magazine 3/24
California, once known as a clean energy leader, has fallen off track with its clean energy goals. That was the view shared recently by the California Solar and Storage Association (CALSSA) during a panel discussion at the Intersolar North America 2024 conference in San Diego, California.
The state passed a bill in 2018 targeting 100% carbon-free electricity by 2045. Governor Gavin Newsom recently set an interim target of 90% carbon-free electricity by 2035, further accelerating the ambition for deployment.
Considering California’s lofty goals for whole-home electrification and a ban on the sale of new gas-powered cars by 2035, electricity demand is expected to rise sharply, making the state’s clean energy goals even more ambitious.
Policy and planning body the California Energy Commission (CEC) projects that the state will need to build 6 GW of solar-plus-storage capacity every year for the next 26 years to meet the 2045 target.
Over the past five years, California has only averaged approximately half of that 6 GW figure.
“We started to get on pace in the past two years but it is driven at least 50% by the distributed [rooftop solar] market,” said CALSSA Executive Director Bernadette del Chiaro.
Based on CEC projections, total solar generation capacity will need to increase by 350%, and total energy storage capacity by 700%, to meet the state’s policy targets.
During its march toward 100% carbon-free power, however, California has shot itself in the foot by introducing the NEM 3.0 policy, which cut customer compensation for exporting power to the grid. Combined with a high interest rate environment, project economics for rooftop solar in California have been eroded and demand has imploded.
Storage costs
As the share of intermittent solar generation in California’s energy mix rises, the need for energy storage to even out generation and consumption has increased as well. When regulator the California Public Utilities Commission (CPUC) passed NEM 3.0, it was described as a “modernized solar tariff to support reliability.” “The new tariff promotes solar systems and battery storage, with a focus on equity, and advances the new clean energy technologies we need to meet our climate goals and help ensure grid reliability,” said CPUC President Alice Reynolds.
The regulator said that under the new tariff, average residential customers who installed solar could expect to save $100 a month on their electricity bills, and customers who installed PV paired with battery storage could expect to save at least $136 a month. However, that economic analysis has not proven to be the case.
While the new rate environment does support the economics of solar-plus-storage projects over standalone solar arrays, it no longer represents a cashflow-positive benefit to homeowners, making such systems a very difficult sell.
Ross Williams, chief executive officer of regional installer HES Solar, shared this grim reality at the Intersolar panel discussion. What was once a $20,000 to $25,000 standalone solar system, with a five-to-seven-year payback period, has turned into a solar-plus-storage system that costs $40,000 to $45,000 and has a nine-to-10-year return.
“You weigh that against all the other options in the investing world and that is not a good option,” said Williams. “Simply adding storage increased the cost by almost double.”
At the same time, high interest rates have further squeezed the industry, making it more expensive to borrow money to pay for systems. Williams said a $25,000 standalone system used to be a cashflow-positive investment, meaning, on an annualized basis, that paying for the loan would cost less than simply remaining with a traditional utility company contract. Now, with a $40,000 project and higher financing costs, customers would expect to pay more for power with a solar-plus-storage system. “It’s not as simple as ‘just add storage’,” said Williams.
Part of what made the NEM 3.0 decision such a disaster for rooftop solar companies was the business turbulence it caused. For HES Solar, a rush of consumers trying to secure NEM 2.0 rates led to the company booking 20% more sales in the first quarter of 2023 than it had in the whole of 2022. Once NEM 3.0 went into effect in April 2023, HES Solar sales dropped to zero.
Policy recommendations
CALSSA has said it is currently focused on supporting changes that can get the industry through the next six months and is suggesting changes aimed at keeping businesses alive. CALSSA Policy Director Brad Heavner has shared some of the steps needed to stop the bleeding. Short of reversing NEM 3.0, CALSSA’s specific recommendations include:
1)Do no more harm and reject the $30 income-graduated fixed charge. Simplify bill AB 2143 to protect small businesses that install solar and storage, and do not limit licensed solar contractors from installing solar-plus-battery systems.
2)Launch a “Million Solar Batteries” initiative. Invest in energy storage for all consumers across all income brackets.
3)Restore the right of multi-meter properties to self-consumed power.
4)Dramatically expand virtual power plant programs.
5)Cut red tape. Assess penalties for utility non-compliance in interconnection timelines and simplify permitting at the city and county level by implementing Senate Bill 379.
6)Reform the utility profit model. Utility financial returns should be based on positive outcomes, not just capital expenditure.
“We had one sale in May,” said Williams at the Intersolar discussion. “In the first quarter, we sold 600 systems. I’m telling you – it went to zero.”
When July and August came around for HES Solar, and sales were still at 50% of what was needed to retain staff, Williams had to lay off employees. A similar story has plagued most of the rooftop solar installers in the state, leading to the loss of some 17,000 jobs.
California interconnection data indicate batteries would typically be paired with 10% to 15% of rooftop solar systems before NEM 3.0. In the first three weeks of selling NEM 3.0 systems, residential installer SunPower reported battery attachment rates rose to 47% and solar and storage modelling software platform EnergyToolbase projects that attachment rates will reach as high as 70% to 80%.
Demand for rooftop solar has fallen 65% to 80% during NEM 3.0, according to interconnection queue data. So did CPUC accomplish its goals?
Based on middle-of-the road analysis, the numbers would suggest the outcome has been mixed at best. Assume a scenario where, in the NEM 2.0 era, 100 rooftop solar projects were installed with an attachment rate of 12%, indicating 12 battery systems. Under NEM 3.0, the solar installation figure would be reduced to 28 arrays due to lower demand. With optimistic battery attachment rates of around 75%, that would lead to 21 battery installations. Industry reports indicate the actual battery attachment rate could be as little as 48%, meaning 13 batteries under that model.
Essentially, the new net metering regime may have led to a marginal increase in total distributed battery storage capacity but it has also cratered rooftop solar installations.
Trouble ahead
CALSSA has warned that the next couple of months could be even worse, as this is typically a slow season for rooftop solar. CALSSA’s Del Chiaro said cashflow issues and other ongoing concerns are likely to be raised in the first quarter of 2024.
Insurer Solar Insure told pv magazine USA that 75% of the companies it covers are considered to have a “high risk” of bankruptcy. Major publicly traded global equipment suppliers, including Enphase and SolarEdge, have made significant cuts to their workforce. National installer Sunworks has filed for bankruptcy and ceased operations. In December 2023, SunPower issued a warning that it endured recurring operating losses for three of the nine months ending Oct. 1, 2023.
California has averaged around 2.3 GW of utility scale solar-plus-storage installations per year over the past few years – far below the 6 GW pace needed to reach the 2045 goal of 100% carbon-free power.
Del Chiaro said she believes that goal will be impossible to reach with a utility-scale-only energy storage model that the state seems to be hurling itself toward.
Policy changes
The Intersolar panelists in San Diego warned that California may only be the beginning for the fall of rooftop solar. Del Chiaro said 15 to 20 states are already mulling cuts to their net metering payments, including Minnesota, Oregon, and Washington. She said utilities now have the wind at their backs and are citing California’s decision to cut net metering compensation as justification for their own reductions.
As they are currently structured, utilities in California and much of the nation have a perverse incentive to inefficiently spend money on transmission projects. The more capital that utilities spend on infrastructure, the more they can get electricity rate increases approved.
Customer-sited solar is preferable to centralized, utility-scale solar, as it pertains to reducing transmission needs, system wide costs and efficiency and transmission-line energy losses. Distributed solar also cuts down on the development of land that could be used for other purposes. California’s largest solar-plus-storage facility just went online and, to power more than 200,000 homes, more than 4,600 acres of previously undisturbed land was developed into an expanse of almost two million solar panels.
“Getting the utility to stop fighting customer solar is ultimately the thing that is needed in California and around the world,” said CALSSA’s Heavner. “We’ve had it in our head for years, how do we change this perverse incentive? It’s a hard thing to undertake but I’m hearing more talk about it.
