Key Takeaways
Despite enormous federal and state subsidies for rooftop solar installations, the industry is failing due to a change in California’s “net metering” law that lowered the rate that rooftop homeowners could receive for their excess power.
The “net metering” law originally allowed rooftop solar homeowners to receive credit for their excess electricity at the retail rate, resulting in non-rooftop solar homeowners subsidizing rooftop solar homeowners.
PG&E estimates that the subsidization was $5 billion annually.
The change in the law in 2023 resulted in solar companies selling and installing fewer solar systems, leading to layoffs and economic troubles.
Exasperating the situation are solar cost increases from inflation and higher interest rates due to Bidenomics.
California slashed the amount of money rooftop solar owners receive from selling their excess power to the grid, a process called net metering. The goal of net metering was to induce homeowners to install rooftop solar panels, which it did, but the policy became regressive as non-rooftop solar owners were subsidizing rooftop solar homeowners. For example, non-rooftop solar owners paid $5 billion more annually on their bills to homeowners with solar panels, according to the California utility PG&E. Since many of those installing solar panels were wealthy homeowners, people of lesser means were actually subsidizing the energy of their wealthier neighbors.
California reduced the value of the excess electricity provided to the grid by rooftop solar systems by 75 percent in its Net Energy Metering 3.0 policy, which took effect on April 15, 2023, hoping to encourage customers to purchase solar battery storage with their solar system. The change occurred as higher interest rates were making solar systems more expensive and has led to a decrease in overall savings and an increase in the payback period of rooftop solar for homeowners. It has also been a blow to the solar industry and their employees who had been prospering under the old subsidy system.
The California Solar & Storage Association [CSSA] found in a survey that 59 percent of the state’s solar contractors are anticipating further layoffs, with another 11 percent unsure. The organization estimates California could lose 17,000 jobs in the industry, which according to the executive director of the CSSA, is reminiscent of the Great Depression. More than a dozen other states have also scaled back their subsidies because they raise utility rates for other homeowners who cannot afford to purchase solar systems. Between 2019 and 2022, nation-wide rooftop solar installations grew at an average of 32 percent per year, but are now expected to see no more than 5 percent annual growth for the rest of the decade. Clearly, the rooftop solar industry is still heavily reliant on government policy, despite having decades of federal and state government support and a mandate by California that all new homes must have rooftop solar.
The situation could mean bankruptcies to follow for the solar industry. “I’m very concerned about whether or not we’ll make it through winter,” said Ross Williams, CEO of the San Diego-based installer HES Solar. His sales have dropped to about 20 percent of 2022 levels, and the company has laid off more than half of its 75-person staff. Solar equipment-maker Enphase Energy Inc. announced it would cut its workforce 10 percent and close two contract factories. Research firm Ohm Analytics, which tracks the solar marketplace, found sales dropping 67 percent to 85 percent for the California’s private residential installers since the change went into effect in April. Without the huge subsidies, many homeowners have chosen not to install rooftop solar systems.
The impact of slowing sales, both in California and elsewhere, is creating a headwind for the solar industry at a time when many investors hoped it would be surging. Shares of SunPower Corp. dropped 31 percent on December 18 when the company disclosed a breach of a covenant with creditors due to a delay in filing its quarterly report with the U.S. Securities and Exchange Commission. The company said it was trying to reach an agreement with its lenders, but SunPower is likely struggling to raise cash because of California’s weakened market. Last summer, Biden’s Department of Energy gave the company a $6.7 million grant and earlier this year it received a $1.4 million contract from the National Aeronautics and Space Administration. SunPower also received taxpayer money from the Obama administration. At least 36 of Obama’s taxpayer-funded green energy projects went belly up – Solyndra being the largest.
A year after President Joe Biden’s climate law, the Inflation Reduction Act (IRA), promised billions of dollars for companies to switch to “clean” energy, some of the nation’s most ambitious renewable power projects have been shelved including offshore wind projects, electric car sales are fading from their expected targets and investors are fleeing the sector. Soaring costs due to Biden’s inflation, broken supply chains and high interest rates have been detrimental to “clean” energy, which Biden’s climate law cannot fix, even with its enormous subsidies. The result has been a $30 billion collapse in “clean” energy stocks in the second half of 2023—a market many had thought would flourish due to the law’s passage.
More than 56 gigawatts of “clean” power projects have been delayed since late 2021. Solar energy facilities account for two thirds of those delays. U.S. import restrictions are being used to combat the use of forced labor and tariff-dodging in a solar panel supply chain that is dominated by Chinese goods. Permitting gridlock, local disagreements over where to site solar and wind projects and an onerous grid connection process that can take an average of five years are among the industry’s challenges. Despite the IRA incentivizing domestic production of equipment like solar panels and wind turbines, a wave of new Asian capacity is threatening the viability of dozens of planned American factories. Tight supplies and strong government-driven demand for renewables from utilities and corporations have also raised contract prices, which could mean higher costs for consumers. Solar contract prices rose 4 percent to hit $50 per megawatt hour for the first time this decade in the third quarter of 2023.
Conclusion
The solar industry is in trouble as California and other states have slashed their credit for net metering—a policy that credits excess energy from rooftop solar systems supplied to the grid. Since the net metering policy is regressive with non-rooftop solar homeowners subsidizing rooftop solar homeowners, the reduction in credit was a needed improvement. But, now, solar companies are hurting due to lower sales as soaring costs and high interest rates are also affecting purchases. Solar companies are forced to scale back, laying off employees, as the market cannot survive without the government’s intervention. The rooftop solar business remains dependent on government policy, despite decades of subsidization and long after the industry’s backers hoped the industry could thrive on economics alone. For now, more job cuts look likely.
