California’s New Solar Rules

In many respects, California is on the leading edge of adoption for many key transition technologies. Studying the state can be like Frodo looking into Elf Lady Galadriel’s mirror, showing what the future might look like.

Over the past several months, the mirror is reflecting ominous imagery about battery storage adoption.

What happened: Late last year, California updated a key policy known as net metering meant to help drive the adoption of more energy storage systems.

• In a large part due to the original policy, the state has almost been too successful in the broad adoption of solar panels that it’s now needing to bring more batteries onto the system to handle the excess.

How it worked: In Net Metering 2.0, as it was known, a homeowner could sell excess solar power back to the grid in exchange for credits. The credits helped payoff the cost of the solar panels with an estimated payback period of five to six years, according to Wood Mackenzie.

In times when the sun is fully shining, California now produces so much solar power that no other sources are needed. This is often shown graphically as the “duck curve”.

California’s duck curve over the years, 2015 to 2023
gigawatts

What now: To handle all that extra sunshine, California applied some extra SPF and then tinkered with its net metering policy to make solar-plus-batteries sytems more attractive.

In December of last year, Net Metering 3.0 (NEM 3.0) was released. Without getting into the technical details, the new rules reduce the value of metering credits by about 75 percent, going from carriage to pumpkin overnight.

• Wood Mackenzie estimates that the payback for standalone solar was increased from five to six year up to 14 or 15 years with the reduced credit prices.

But the credit price drop is a feature not a bug. This made the payback period for solar-plus-storage systems lower than standalone solar systems and so relatively more attractive for buyers.

The results: It’s not been great. According to Canary Media, the new policy is “killing” the California solar industry. Solar installations are already way down.

With data from two of the state’s three largest utilities, applications for new solar interconnections is down between 66 and 83 percent since the introduction of NEM 3.0 last year.

California solar interconnection data, 2022-2023
interconnection applications per month

On the jobs front, an estimated 17,000 jobs representing 22 percent of California’s total solar industry jobs will be lost this year. And the pickup in solar-plus-battery system has not materialized as expected.

The big picture: Adding significant storage capacity to any system is proving to be challenging, as seen in California. In a separate review by Reuters, the addition of batteries to grids can displace other power plants, and may inadvertently be making the cost of backup power more expensive.

It’s still early days in the energy storage rollout, but looking into Lady Galadriel’s mirror in California can be instructive on how to properly manage excess renewables in the system in the future.