Understanding the Impact of Net Metering Changes on Solar Adoption in California
California has long been a leader in the U.S. solar industry, largely due to lucrative financial incentives encouraging adoption. Recently, the California Public Utilities Commission announced it will not be holding another hearing on net energy metering (NEM), confirming that recent changes made to the rules are permanent. In this question and answer article, Amir Cohen, general manager of SolarEdge Technologies, provides insight on some of the changes as well as learnings from similar net metering changes in other countries.
Can you explain the recent adjustments that have occurred in California’s solar sector?
Certainly. In April of this year, California implemented a pivotal change in its energy landscape through the introduction of the NEM 3.0 regulation. This new regulation has ushered in significant alterations to the net metering rates associated with solar energy, subsequently impacting the economic viability of selling surplus energy back to the grid. It’s projected to make it around 70% less profitable for homeowners to sell energy back to the grid, which is a very significant change. As a result, both homeowners and solar installers are grappling with the implications of this adjustment and its potential consequences for the state’s solar adoption dynamics.
Can you provide examples of how similar net metering changes have influenced solar markets globally?
Indeed, similar changes have occurred in many other countries across Europe, so fortunately, we are able to learn from these. If energy becomes more expensive to buy than it is profitable to sell, it is more cost-effective to store your energy for personal use when the sun goes down. What you get is a net metering market shifting to a self-consumption market, in which solar plus storage becomes the norm.
For example, the same pattern was seen in both Belgium and Germany: demand for solar increased significantly in the run-up to the tariff change and then dipped slightly afterwards. However, in both countries this proved to be a blip rather than a trend. In Germany, for example, we have seen incredible market growth since net metering ended in January 2021, with 70% of new SolarEdge photovoltaic (PV) installations including a home battery in the first quarter of 2022, up from 38% prior to net metering ending. This substantial increase in demand for solar plus storage installations has made the market very profitable for German installers.
How can installers show the value of solar installations under the new regulations?
Naturally, investing in storage alongside solar presents a larger, longer-term investment for homeowners, who will therefore look to ensure good value and a system that will last. For installers, the key to maintaining sales is to add as much value for homeowners as possible. A good place to start is by advising homeowners on the help available to reduce the cost of purchasing a solar plus storage system. The introduction of the Inflation Reduction Act in 2022 brought with it rebates for energy efficiency retrofits of up to $4,000 for single-family homes and up to $400,000 for multifamily buildings, which can help to significantly reduce the initial purchase price.
Even with this financial help, purchasing a battery may seem out of reach for some homeowners, and so it is essential to offer a range of solutions to meet every budget. Currently, most batteries in the U.S. are purchased in combination with a back-up unit. However, this is not essential for homeowners who are looking to store energy simply to increase their self-consumption. In order to meet this need, we recently introduced “Rate Saver,” a storage-only solution that reduces battery system costs for homeowners by up to 38% through reduced equipment and installation costs.
What role does energy storage play in enabling homeowners to thrive in this new market?
Energy storage is vital in the new market. Under NEM 3.0, export rates for solar energy will differ from hour to hour, which can make it difficult to determine the revenue homeowners can generate by selling energy back to the grid. On average, homeowners will receive about 5 ¢/kWh. The exception is that during September, between 6:00 p.m. and 8:00 p.m., the rate will increase to $3/kWh, in which batteries can be used to sell energy back to the grid for profit. If done carefully, homeowners could receive a potential paycheck of $750 to $850 for September. Product selection is key for this, as some systems use algorithms that will ensure the battery is automatically fully charged prior to these times, maximizing profitability for homeowners.
Battery choice can make a huge difference to savings. A direct current (DC)-coupled battery provides the highest efficiency energy storage by eliminating what is known as the “triple conversion penalty,” with two less power conversions required than alternating current (AC)-coupled batteries. In some cases, this can result in an additional 10 days of saved energy per year. Currently, homeowners are hyper-aware of how much their energy use is costing them, so it’s easy for them to very quickly calculate the extra savings this will generate.
Are there any other ways to improve the value of solar under NEM 3.0?
Sure, load shifting plays a huge role in increasing solar energy self-consumption and ensuring homeowners maximize savings. For example, scheduling heavier electrical loads, such as electric vehicle (EV) chargers, heat pumps, pool pumps, and air conditioners, to run at times when solar production is at its highest will help homeowners use much more of the energy produced by their array. This functionality will become even more important because of how EV charging increases the amount of energy required in homes. Therefore, a complete end-to-end smart energy management system within the home that automates this process will become a major selling point under NEM 3.0.
Oversizing PV arrays also becomes a more important consideration in a self-consumption market. Oversizing the array (in comparison to the inverter’s AC power) ensures that PV systems produce more power more of the time, even during low-light conditions. This results in a higher energy yield for the home, and a faster return on investment for the homeowner through greater time-of-use (ToU) savings and load shifting.
In light of these changes, what strategies can solar installers employ to succeed in this shifting landscape?
For installers to thrive in the new reality of a self-consumption market, they need to consider the battery options available, and the factors that make installing batteries easier for themselves, as well as beneficial to the customer. It’s worth looking into the types of batteries available as this can make a huge difference to the installation time. Unlike AC-coupled batteries, DC batteries do not require additional breakers to be installed in the home’s load center, which in the vast majority of cases removes the need for a main panel upgrade (MPU). MPUs can be expensive for the homeowner and are extremely time consuming for installers. Reducing the time it takes to complete each project means installers can move on to the next one much quicker, which is great news for their bottom line.
Long commissioning times for batteries is another source of frustration for installers. We often hear stories about batteries that can take up to a day to commission because of the time needed to upload firmware to the battery bank. By choosing a battery with wireless communication and an intuitive installer application, commissioning times can be cut to less than one hour. What’s more, commissioning can also be carried out in parallel with installation, rather than as a separate task once the install is completed.
What’s the future of the Californian solar market?
While there’s no doubt the NEM 3.0 regulations will bring about a major change for the Californian solar market, it presents a huge opportunity for homeowners, installers, and the market in general. As we’ve seen in other self-consumption markets that have experienced a similar shift, sales may dip in the short-term, but this will be followed by a resurgence in demand driven by solar plus storage installations. The emerging market will be more mature, stronger, and resilient, and for installers who understand how to best implement batteries into their sales mix, they will be well positioned to become more profitable than ever.
—POWER staff.