California regulators are reviewing proposed changes to solar incentive programs that would cut the state’s solar market in half by 2024, according to a new report from energy research firm Wood Mackenzie.
The California Public Utilities Commission’s proposed decision, released on Dec. 13, would reduce payments granted to solar customers for the excess power they generate, which is known as net-energy metering. The proposal would also add monthly hookup charges for customers.
This would increase the payback period for solar systems, or how long it takes for the system to pay for itself. This metric is a key consideration for those deciding whether to switch to rooftop solar.
Under the proposed changes, the payback period would more than double from between five and six years to between 14 and 15 years, according to Wood Mackenzie’s analysis of charges from PG&E and Southern California Edison, the state’s two largest utility companies.
“For both utilities, the payback periods under NEM 3.0 go way beyond the 10-year threshold,” said Bryan White, co-author of the report. “Beyond this threshold, customers are less inclined to invest in solar projects and installers are less motivated to sell them.”
The firm forecasts the state’s new residential solar installed capacity would drop 42% between 2022 and 2023, and another 10% in 2024. That year, new annual residential installed capacity will be about half of 2021 volumes, sinking to its lowest annual output since 2014.
Given California’s leadership role in terms of renewable energy buildout, the effects of the updated NEM policy would extend beyond just the state, having “major implications” for the entire industry.
The CPUC’s proposal has faced significant backlash from solar companies, renewable advocates, and even Gov. Gavin Newsom.
Its final decision was expected on Jan. 27, but has since been delayed. The five commissioners are not bound by the December proposal, and the commissioner who wrote the proposed decision has since left CPUC.
In another blow for the industry, the Investment Tax Credit, which supports renewable energy projects, will decrease beginning next year. An extension of the ITC was part of the Build Back Better plan. However, the ITC has typically received bipartisan support and was last extended under the Trump administration, which means it could still be extended without the Build Back Better plan’s overall passage.
“Ultimately, the NEM 3.0 PD and the ITC stepdown will create a challenging business environment in the near- to mid-term,” said White. “Many solar companies will not survive this double whammy of policy headwinds, resulting in significant consolidation in a contracting California residential solar market.”