California has dealt a blow to renewable energy, some companies say
California has long been a proponent of renewable energy, but a change in state policy last year led to a sharp decline in residential rooftop solar installations in the state.
Thousands of businesses — including installers, manufacturers and distributors — are reeling from the new policy, which went into effect in April and significantly reduced incentives that had encouraged homeowners to install solar panels. Since the change, sales of rooftop solar installations in California have fallen by the same amount 85 percent in some months of 2023 compared to a year earlier, according to a report from Ohm Analytics, a research firm that tracks the solar energy market. Industry groups predict installations in the state will fall by more than 40 percent this year and continue to decline through 2028.
“The solar installations have lost a ton,” said Michael Wara, a senior researcher at the Stanford Woods Institute for the Environment. “What is happening now is a painful adjustment process.”
Construct Sun, a solar installation company based in Reno, Nev., stopped doing business in California after sales dried up four months after the policy began; executives said the company is now focusing its efforts on Florida, North Carolina and Ohio.
“I had a very dismal pipeline and had to make the decision to close in California,” said Thomas Devine, executive vice president of operations for Construct Sun. He added that the state's roof policy undermines its goal of effectively eliminating greenhouse gas emissions 2045. “These competing policies are insane,” he said.
State officials bristle at the idea that California is undermining renewable energy and have defended the policy change, which has cut by 75 percent the value of credits homeowners with new installations receive for the power they send to the grid. They have argued that the old rules, which still apply to systems installed before April, provided too generous a subsidy, helping mostly affluent homeowners. As a result, lower-income people who could not afford panels effectively had to bear a greater share of the costs of maintaining the state's electricity system.
“California has done more for the solar industry than any other state in the country by providing billions in rebates and incentives since 2006,” said the state's Public Utilities Commission, which oversees rooftop solar and investor-owned utilities, in a statement.
States across the country have grappled with how to compensate consumers for the electricity their rooftop solar systems send to the grid. And officials have often looked to California for guidance.
Many states, including California before it changed its policy, generally allow homeowners to receive credits roughly equal to the electricity rate for the energy their systems send to the grid. This has never sat well with most utilities, who argue that offering a one-for-one solar credit to homeowners exaggerates the value of that electricity. Utilities say they can buy electricity for much less on the wholesale market or by producing it themselves.
Overall, renewable energy is growing and now supplies more than a fifth of the country's electricity. In California, renewable sources produce more than a third of electricity.
But the growth of carbon-free sources has become bumpy as regulators, utilities, consumers and renewable energy companies compete for their financial benefits. They're also trying to figure out ways to add not only equipment that can generate electricity, but also batteries that can store that electricity, since solar and wind energy are intermittent.
California officials note that even as they cut the offset for rooftop solar, they have offered residents more incentives to install batteries. Batteries, they say, can help deliver energy to the grid when it's needed most, not just in the middle of the day, when California typically has a surplus. The devices can also provide power during power outages.
“Today, California has a tremendous need for more energy storage, and our state must shift incentives to storage technologies to support reliability, enable the decommissioning of polluting gas plants and ease pressure on electricity rates,” said David Hochschild, president of the California Energy Commission. , which broadly oversees the energy sector.
Since regulators implemented the new rooftop solar policy, the percentage of consumers purchasing solar panels with batteries has increased to as much as 50 percent, compared to just 5 percent before the changes.
But batteries are expensive, especially in an age of high interest rates. Without federal tax credits, a solar and battery system costs an average of $33,700, compared to $22,700 for systems without batteries, according to EnergySage, a retail site that compares rooftop solar panels.
Installers and homeowners say investing in rooftop solar systems is difficult to justify financially without access to sufficient electricity credits. California's decision to reduce the incentive has increased the time it takes for a solar system to pay for itself from about five years to at least eight years.
The nation's largest residential solar company, San Francisco-based Sunrun, cut about 2,000 jobs after California regulators reduced incentives on rooftops.
“It's very unfortunate from the perspective that this is happening at a time when the planet is on fire,” said Mary Powell, CEO of Sunrun. But she added that because of her company's size and national operations, the company has been able to absorb much of the impact.
Other companies face greater challenges.
About four years ago, Amy Atchley started Amy's Roofing and Solar. Before California changed its policy, solar sales provided more than 55 percent of her business, which she runs with her husband, Brian, in Petaluma, north of San Francisco. Since the policy went into effect, solar energy sales have fallen by up to 45 percent. To reduce costs, Ms Atchley said she typically recommended her clients install solar panels if they were also replacing their roof.
“California should do everything in our power to become a clean energy state,” Ms. Atchley said. “But the momentum has stopped.”
Offering energy credits to homeowners with rooftop solar was a central part of the legislation, passed when Arnold Schwarzenegger was governor, which aimed to add a million solar roofs, lower electric bills and combat climate change. The state has achieved its roof goal indoors 2019 and now has panels on 1.8 million roofs.
Some solar experts argue that California's new policy is flawed because it does not adequately consider the environmental value that rooftop solar panels provide.
“You value solar energy the same way you value fossil fuel energy, so that doesn't make sense,” said Yogi Goswami, professor of engineering and director of the University of South Florida's Clean Energy Research Center. “We should have valued the environmental factor.”
By removing the incentive at a time when the world needs more clean energy, “they're making it that much harder,” he added.
Nationally, rooftop solar grew an estimated 13 percent last year, but could fall 11.5 percent this year, according to the Solar Energy Industries Association, which attributes the decline mainly to California's policy change.
Pacific Gas & Electric, California's largest utility, said rooftop solar connections reached a record high last year, up 20 percent from 2022. That may be because many homeowners rushed to install solar panels before the new policy took effect in April. .
“At PG&E, we recognize the important role that rooftop solar plays in California's clean energy future,” Carla Peterman, PG&E executive vice president for corporate affairs and a former state regulator, said in a statement. “We are proud to have connected more than 750,000 residential solar customers, more than any other U.S. utility.”
Rooftop solar advocates have asked the courts to intervene, and others have lobbied regulators and state lawmakers to change course or risk losing more jobs and businesses.
“The question is: who will survive this?” said Bernadette Del Chiaro, executive director of the California Solar and Storage Association. “How many companies will survive this transition?”
Some energy experts said rooftop solar could regain some of its financial appeal if California raises electricity rates, which are already among the highest in the nation. The utility commission recently approved higher rates for customers of investor utilities Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.
PG&E customers will soon pay about 45 cents per kilowatt hour, down from about 35 cents. That works out to about $250 per month for 571 kilowatt hours, the average usage for California homes. By comparison, the national average electricity rate was 16.2 cents in October.
More Californians could install solar panels and batteries, not to earn credit for the excess power the panels produce, but simply to reduce their dependence on utilities. But that option would mainly be a benefit that could benefit wealthy homeowners, rather than people with limited resources, said Mr. Wara of Stanford. He added: “There is a huge challenge for electricity affordability in California.”