In December 2022, the California Public Utilities Commission (CPUC) unanimously voted to approve Net Energy Metering 3.0 (NEM), slashing payments for excess solar production sent to the grid by 75%.
If you have been following energy news you will know one of the biggest stories this year was California’s NEM 3.0 Ruling. Essentially, the NEM ruling changes the rate that homeowners with solar get compensated for selling their excess production back to the grid in California. The result being that home solar in California went from a 4-5 year payback period to a 9-12 year payback. The California solar industry has long been a leader in American solar and where things go from here will shine a light on the future of the industry throughout the nation as solar becomes more prevalent.
Why did this happen? Why would the California Public Service Commission unanimously vote for something that seems to cut off their booming industry at the knees?
Without diving into the political lobbying and horse-trading from the utilities, there are a few issues we can highlight:
- California’s solar policies have allowed over 1.5 million homes and businesses to install solar energy systems; now the utilities are saying that it’s too much. They say that California is receiving more energy than it needs from all this solar during the sun soaked afternoons when everyone is sending their excess production back on the grid. This is great, but the utilities say they don’t need that extra power in the afternoon, they need it in the late evening when California has struggled to meet its energy needs. Which leads to……
- Batteries, the hope is that killing the incentive to sell excess power back to the grid will cause homeowners to start installing battery backup with their home solar. This would then allow the utilities to negotiate with the homeowners to use the power stored in those batteries in the evening when they need the power. This is one of the visions of a nation wide distributed energy grid, where every private solar array is a mini power plant to draw from when needed.
- This ruling will take effect in April of 2023 and will only impact new homeowners utilizing the state’s three major monopoly utilities: SCE, PG&E, and SDG&E. This means that anyone with solar already installed isn’t affected and can keep their lucrative arrangement for selling back excess power.
This is a big risk, but one that the American solar industry needed to take at some point – and it might end up benefiting us here in Wisconsin.
To start, it has been long understood that we can’t just keep adding solar energy infinitely without having somewhere to store that energy. The energy must be accessible when it is needed, not on the sun’s schedule. The big debate here is whether it will be the utilities who build massive battery storage operations or businesses and homeowners looking to build small batteries in large numbers and selling that energy to the utilities when needed. California is going with option number 2, and the result may be a new race in the energy storage market. If going solar without a battery no longer makes financial sense in California like it used to, then battery manufacturers need to find a way to change home batteries from a luxury add-on into an affordable part of a standard solar installation. The race to be the first to market with that kind of battery could spark a fantastic wave of new technology and lower prices.
Another benefit is that solar has to get smarter. Before NEM 3, the average California payback for solar was 4-5 years. That made it basically a no brainer for anyone who could afford the upfront cost. As anyone in Wisconsin can tell you, a 4-5 year payback for homeowners would be unbelievable. The average Wisconsin solar payback hovers between 8-12 years. However, that means that our home industry has had to step up to make solar a viable option. Offering better customer service, purchasing programs, expansion options, optimized designs, and so on. If necessity is the mother of invention, then California solar just received a huge dose of necessity. Now we wait to see if the invention follows.
Finally, this ruling puts solar in a new light for what could be around the corner – namely, it might not always be as lucrative so there is no point in waiting. Everyone in California who was on the fence about solar before will either be kicking themselves now or frantically trying to find an installer who can get them installed and turned on before April 2023. Something we experience often in Wisconsin is homeowners deciding to wait and see if things get better or cheaper. California has shown us that waiting doesn’t always pay off, and sometimes the door can shut for good, well before expected.
Whatever happens in the next few years for the California industry will shine a light on the possible future for the national industry. You can be sure that your neighbors at Arch Solar will be following it with great interest.