Key takeaways

C

alifornia’s solar market is, like always, the epicenter of change and innovation in the U.S. green energy arena. In just the past year, residential solar has undergone major overhauls here with the introduction of a new Net Billing Tariff, better known as NEM 3.0. This update hasn't only increased solar installations; it has also fueled a huge increase in pairing battery storage with rooftop solar panels, according to the latest report from Lawrence Berkeley National Laboratory (LBNL). Join SunValue as we delve deeper into the changes within California's solar scene.

The Evolution From Net Metering to Net Billing

In 1996, California launched the nation's very first net energy metering (NEM) program. It was created to incentivize clean electricity self-generation by financially crediting electric bills when part of home-produced energy was sent back to the utility. Since then, the NEM program has been changed many times. The latest was 15 December 2022, when the California Public Utilities Commission really shook things up in the most recent revised version of its net metering program for investor-owned utilities (IOUs).

This new policy, called NEM 3.0, replaces the old NEM tariffs with a new Net Billing Tariff structure, paying less for the energy your solar panels feed back into the grid. To soften the impact, the government added temporary bonus credits to the export rates. These credits differ by utility and offer more for low-income customers and disadvantaged communities.

The new tariffs didn't come into effect immediately, so NEM continued to be available to new interconnection applications until April 15, 2023. Since then, new applications had to be under the rules of NBT. A year later, we are able to evaluate the effects on California's residential solar market.

First Market Ripples

The launch of NEM 3.0 sent an enormous rush of applications trying to get in under the old rules before they expired in April 2023. This created a summer peak but gradually fell as the backlog of applications was worked through. By the end of the year, installations under the new NEM 3.0 were picking up and hit an average of 8,000 a month in the first quarter of 2024. However, this number was still below the monthly average under the old NEM system since May 2020.

In the first year of NEM 3.0, there have been about 50,000 PV systems connected to the grid under the new rules, and 200,000 under the old program. In all, that total number of installations is in line with last year but far above any other 12-month period before. Much of this rush was due to the backlog of applications from the earlier program, however, and it's still uncertain how things will ultimately balance out under the market with this new net billing structure.

Monthly PV Installs

Figure 1Source: Lawrence Berkeley National Laboratory (LBNL)

Battery Storage Takes Center Stage

One of the most striking trends since NEM 3.0 began has been this giant leap in battery energy storage adoption. Before NEM 3.0, only about 10% of single-family homes in California with solar panels had batteries for backup storage; today, it is close to 60%. Since November 2023, an average of about 5,000 home energy storage systems have been installed each month, over twice the monthly average of the last three years.

New net billing incentives make it cheaper for a lot of homeowners to add storage systems to their PVs, which collect excess solar energy generated during the day for use at peak hours or when the sun isn't out. Solar batteries let individuals and communities use more of their solar power and less from the grid, which can cut money off peak electricity rates. This is akin to what happened across the Pacific in Hawaii, where a shift to a similar billing system just a few years ago pushed storage use to around 90%.

Monthly Storage Installs

Source: Lawrence Berkeley National Laboratory (LBNL)

What's Driving the Market Changes?

Powering these kinds of market trends is a mixture of rising electricity rates, ongoing debates over fixed charges, and new federal tax breaks. Rollout of net billing also hasn't been similar everywhere in California. Different utilities and community choice aggregators (CCAs) are setting their own different rules and rates for surplus solar sales back to the grid.

More recently, solar installations have been on the rise in California as a result of the state's Title 24 building code, mandating solar on all new homes. Just this past year, there were estimated to have been 45,000 new single-family homes and accessory dwelling units (ADUs) built in the state's investor-owned utility areas along with several thousand multi-family units. And while there could be some exceptions to that rule, the chances are that a lot of those new net billing systems installed in the past year are from these new solar-ready homes.

The Return of Third-Party Solar Deals

One big change with NEM 3.0 is the return to third-party ownership (TPO) models, otherwise known as solar leases and power purchase agreements. These deal structures allow individuals and organizations to go solar for zero dollars down, where a third party installs solar panels on their property.

In the past, third-party ownership rates were decreasing, but they've spiked under the new rules. For solar setups without storage, TPO rates rose from 26% to 39%, and for those with storage, they surged from 11% to 52%. This could be for a host of reasons, including high interest rates squeezing the appeal of solar loans or new federal tax breaks available only for third-party-owned systems.

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Smaller System Sizes and Higher Prices

Another evident trend is that now Californians are going for a lower size of solar setup. The average new solar panel system is about 5.8 kW, whereas it was 6.4 kW under the previous NEM 2.0 rules. This shrinkage, about 15-17% for both standard solar arrays and those with added battery storage, is likely driven by lower payment rates for exported electricity, encouraging an average homeowner to choose the cheapest solar system that better matches their actual energy usage.

The same goes for the price of PV+storage systems under the all-new NEM 3.0, which has gone up. Median prices for installations owned by customers have increased by 17%, and those owned by third parties have risen by 8%. This likely is due to a somewhat sudden spike in demand and availability of equipment and trained installers.

Quite interestingly, though, while the cost of bundled systems shot up over this period, the standalone solar PV system cost remained the same. This clearly shows that heavy incentives for solar did not bump up prices as some critics suggested.

Conclusion: A Market in Transition

NEM 3.0's introduction has caused a major shake-up in California's residential solar landscape. A critical change is the advent of dramatic battery storage adoption—that reflects the changing patterns of how solar energy is used and stored. Yet it is quite possible the market will take another downturn in the next few years after this first wave of new installations is over.

The full effect of NEM 3.0 is still unknown, but early data has some pretty clear trends: big jump for battery storage, more lower-income households going solar, third-party ownership on the rise again, and shrinking system sizes. If anything, the next couple of years look to be pivotal in recalibrating the home solar market in California, potentially setting cascading examples for other states under similar policies in place.

Source:

https://emp.lbl.gov/publications/one-year-tracking-impacts-nem-30

https://docs.cpuc.ca.gov/SearchRes.aspx?DocFormat=ALL&DocID=500043682

Key takeaways

Key Highlights

  • Storage Surge: Battery storage with solar panels in California increased from 10% under NEM to 60% with NEM 3.0.
  • New Tariff: NEM 3.0, or Net Billing Tariff, offers lower compensation for excess energy but includes bonus credits.

Market Trends

  • Initial Rush: A rush to apply under old rules led to a peak in installations, but new NEM 3.0 applications are rising again.
  • Battery Adoption: Home battery installations have doubled, with about 5,000 new systems added monthly.

Driving Factors

  • Rates and Charges: Rising electricity rates and fixed charges are influencing market trends.
  • Title 24: Mandating solar panels on new homes increased installations.
  • Federal Incentives: New tax breaks boosted third-party solar deals and storage adoption.

Third-Party Ownership

  • Rebound: Third-party ownership models like leases and PPAs have surged, with significant increases for both solar and solar-plus-storage systems.

System Size and Costs

  • Smaller Systems: Average system sizes decreased from 6.4 kW to 5.8 kW due to lower export rates.
  • Increased Costs: Median prices for PV+storage systems rose by 17% for customer-owned and 8% for third-party-owned installations.

Conclusion

NEM 3.0 has reshaped California's residential solar market, driving significant battery storage adoption and changing ownership patterns. The long-term impacts remain to be seen, but early data show promising trends toward greater energy independence.

Sources

  • Lawrence Berkeley National Laboratory (LBNL)
  • California Public Utilities Commission (CPUC)
  • Institute for Local Self-Reliance (ILSR)
Posted 
Jun 14, 2024
 in 
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