What’s happened since California cut home solar payments? Demand has plunged 80% 

Weldon Kennedy and his wife make it their business to keep up with California’s fast-changing clean energy landscape. So when the climate-conscious couple began planning to add a solar system to the roof of their Oakland home, they took their time to talk to installers and shop around for the best deal.

But then, last spring, he heard that a neighbor had decided to accelerate their solar project. Other homeowners in the area were rushing to get in line, too.

“I don’t think I fully understood the scope of it, but I had people telling me, ‘You better get going, get your solar now,’ ” Kennedy said. “It seemed like a bunch of tomfoolery was coming down.”Ken Wells runs O&M Solar Services, a small residential solar company in South Los Angeles, where he works with disadvantaged communities. But a new state rate structure for rooftop solar has decimated his business. He had to lay off all 20 employees. (Lauren Justice for CalMatters)

Kennedy’s neighbors and other consumers were reacting to a profound policy shift in California: The state Public Utilities Commission in late 2022 slashed by about 75% the rate that utilities pay homeowners with new solar panels when they sell surplus power to the grid. The rate structure went into effect for solar applicants beginning last April.

The state’s decision has caused consumer demand for residential solar to plummet since the new rate took effect. Solar companies say they’ve been shoved to the edge of a cliff, forcing them to lay off workers or even shut down.

Experts worry that the steep decline could stall the state’s battle against climate change. Solar power is critical to meeting California’s ambitious requirement to switch to 90% carbon-free electricity in 2035 and 100% in 2045. Large-scale and rooftop solar is projected to provide more than half of the grid’s power by 2045.

The imminent change in payments to customers drove a three-month surge in homeowners applying for solar connections leading up to the deadline. But then came a 90% decline last May compared to May of 2022, according to state data for areas served by Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.

In all, about 82% fewer customers applied for solar connections from May through November of last year compared to a year earlier. Fewer than 4,000 customers applied in November, the last month with available data.

Now California’s utilities and solar companies have to wait to see if these declines are short-term or permanent.

Deepak Rajagopal, an energy economist at UCLA’s Institute of Environment and Sustainability, said it’s no surprise that consumers balked at going solar after the reimbursement rate changed from what he called the “generous” system. He said the higher payments were a burden on people who don’t have solar.

“It is a given, demand is going to slow down. The overall effect will be a slowdown in the rate that people will demand rooftop solar. Over time it may come back up, but it’s hard to tell,” he said.

Questions about the impacts remain: How will California meet its climate change goals without a healthy and growing residential solar market?

And can Gov. Gavin Newsom’s vision of making clean energy affordable to disadvantaged communities become a reality with fewer companies and lower reimbursements?

“The  state is betting so strongly on power from rooftop solar. They will have to recalibrate,” Rajagopal said.

Rajagopal intended to install a solar system at his newly purchased house. But like many Californians, he missed the April deadline to get in on the higher payments.

“I just had very few months to decide, and now I’m cursing myself that I didn’t find the time to quickly sign up,” he said, adding that he will wait to see what happens before installing solar.

The new rule’s impact on the solar industry has been immediate. As many as 17,000 solar workers in California might have lost their jobs by the end of last year, according to industry estimates.

“The market is in the gutter,” said Bernadette Del Chiaro, executive director of the California Solar & Storage Association, an industry group. “It should be no surprise to anybody. If you are a business and your market took a 80% nosedive, with great pain you have to lay off. Some companies shut their doors.

“We are talking about the largest solar market in the country,” she said. “This was the most impactful energy decision, easily, for this century so far.”

The utility commission rule was hotly debated and ultimately passed by unanimous vote. Part of the agency’s rationale was about equity: Because solar customers, largely middle class or wealthy, are being paid near-retail prices for their excess power, they are not paying their fair share of fixed costs to maintain the state’s grid, saddling other ratepayers with higher bills. That burden, regulators said, disproportionately falls on low-income households that can’t afford solar panels.

The utilities commission said the high rates paid to solar customers amounted to a subsidy, and that state incentive programs for installing battery storage systems alongside rooftop solar would provide better, longer-term value for ratepayers.

Solar panels on a home in Ladera Heights, a community southeast of Los Angeles. Photo by Lauren Justice for CalMatters

The new rates only apply to new solar installations and only for the customers of PG&E, Southern California Edison and San Diego Gas & Electric.

It’s not just homes: The utilities commission in November voted to expand the lower payment rates to commercial businesses and multi-family homes that install solar panels.

A spokesperson for the Public Utilities Commission did not answer CalMatters’ questions about the impact of the recent steep declines in solar projects or the job losses in the industry, and declined to make anyone available for an interview.

Instead, in a statement, the agency said residential solar installations have increased 16% a year over the last five years, and that 2022 saw an increase because solar customers and companies were rushing to beat the changes in rates.

More than 255,000 applications for new residential solar projects were reported in PG&E, Southern California Edison and San Diego Gas & Electric areas last year.

“California leads the nation in supporting the solar industry, and has provided billions in rebates and incentives since 2006,” the commission said in its statement.

PG&E, the state’s largest utility, said in an email response to CalMatters’ questions that it received a record number of solar connection applications in 2023, a 20% increase from the previous year and “unprecedented volume” in the four months before the rate change. The company spokesperson did not answer questions about the downturn.

‘This is 100% a job killer’

Solar industry executives say California’s rate changes are affecting low and middle income homeowners, where rooftop solar had begun to gain inroads. The Berkeley Lab reported that in 2022 about 45% of solar adopters nationwide were below a threshold used to define low and moderate income. In California, household incomes between $50,000 and 100,000 are the largest segment of solar customers, the report found.

As the solar market has matured, costs have come down, allowing homeowners of modest means to adopt solar systems and lower their utility bills.

“Rooftop solar is not just the wealthy homeowners anymore,” said State Sen. Josh Becker, a San Mateo Democrat.  “Central Valley people are suffering from extreme heat. The industry has been making great strides in low-income communities. This (utilities commission decision) makes it harder.”

The utilities commission has $280 million in an “equity fund” to assist low-income consumers. None of the money has been spent yet; the agency said it would soon release a plan for operating the program.

Solar can still make financial sense for homeowners who can afford the upfront costs and wait out the return on their investment. Federal tax credits can cover 30% of the installation cost. And as their use of power from the grid declines and they get paid for excess power, customers generally expect to have their new solar system paid off in six to eight years, according to the utilities commission. It’s faster for installations that include battery storage.

Some solar company owners said the new rules extend the payback period to 10 years or more. One installer said some of his customers would go from being paid 30 cents a watt for selling excess power to 4 or 5 cents a watt.

The job losses are being acutely felt in the small communities where careers in clean energy are a pathway into good-paying jobs for women and people of color. The average salary for a solar installer in California is $70,000, Del Chiaro said.

“These jobs have been a foot in the door for people who have been in the justice system, their lives have changed,” said Adewale OgunBadejo, vice president of workforce development for the Oakland-based non-profit Grid Alternatives, which focuses on underserved communities for clean energy projects.

“This is 100% a job killer.”

Solar energy gave Ken Wells a second chance. Wells was raised amid gangs and few options in South Los Angeles. When his friend was killed by a rival gang, the 15-year-old Wells got a gun, carjacked a vehicle and led authorities on a high-speed chase. He was tried as an adult, found guilty and served six years in prison.

Carrying the indelible tag of a felon, Wells worked his way through bootstrapping programs to gain training in something that might help disadvantaged communities: bringing clean energy and low utility bills to his neighbors.

By 2017, Wells started his own company, O&M Solar Services. He was making a great living and created jobs for 20 employees. They are now all laid off.

“We need to transform our communities not just with clean energy but with these jobs,” said Wells, 35. “When I hear the policies coming out of Sacramento, I am floored. Why? We are talking from both sides of our mouth?

“On the one hand we want to promote clean energy and on the other hand we are shutting it down. We cannot afford years of setting back the solar industry, just cutting it off at the knees with these policies. These policymakers got it wrong.”

Ken Wells of O&M Solar Services in Los Angeles walks outside a home with solar panels in Ladera Heights. Photo by Lauren Justice for CalMatters

Other factors also are at work to stall an industry that had just recovered from COVID-19 shutdowns. Interest rates have made it difficult for small companies to grow and for homeowners to borrow money to pay for systems that can start at $30,000. The extension through 2030 of a federal tax credit, which had been scheduled to be phased out this year, may have removed the urgency for some consumers.

For small companies like Wells’, even small blows land hard. So far his customers are waiting to see if things change.

“I don’t know what the future holds,” he said. “Here in South Central, it’s a solar desert. You are not getting the community excited, looking to transition to clean energy. It’s going to get worse.”

Carlos Beccar, marketing manager for Energy Concepts in Fresno, said the company, which has been in business for 30 years, has recently laid off half of its workforce. Beccar said 60% of the firm’s installations in the last five years have been in ZIP codes where the median household income is lower than the market average.

His service area covers neighborhoods that experience extreme heat, where it’s common to see utility bills averaging $800 in the summer months, he said. “This policy was a bat to the knee, not a soft punch to the gut,” he said.

Susan Stephenson, executive director of California Interfaith Power & Light, an Oakland-based organization that advocates for clean-energy adoption in houses of worship, said the new policy “made it difficult (for some churches) to pencil out,” she said.

“Solar can be a solution that eventually pays for itself. Now with this change, they have to look harder and longer.”

Not all congregations can afford the upfront costs or wait years to recoup their investments, Stephenson said. Until recently, tax-exempt religious organizations couldn’t take advantage of federal solar tax credits, making the state’s reduced payments a real blow, she said. That policy has changed, but many nonprofit organizations have yet to navigate the new rules and even the 30% direct payment may not make up for the reduced reimbursements.

“Ironically, it’s going to make solar less equitable and less accessible,” Stephenson said. “There are good people who work at the PUC who want to do the right thing. It’s unfortunate they made this decision based on information from utilities that perhaps did not give the full picture. We could see the very equity goals they were trying to achieve being harmed. I hope they will reconsider.”

Becker, the state senator, said “where’s the just transition for the laid off solar workers?” noting efforts to create a fund to assist workers in the state’s oil industry who lose their jobs.

Ross Williams has owned HES Solar in San Diego since 2013. After the pricing decision, sales “fell off a cliff,” he said. “We sold 600 deals in the first quarter of the year and in the month of May we made one deal. That’s how dramatic it was, the disruption was so insane.”

LIke many other solar installers, his company now does roofing jobs and is considering expanding into Nevada and Arizona in search of customers.

“We are a small company and we don’t have massive cash reserves we can stand on for years,” said Williams, 41. “I used  to think we could weather this, that demand will come back. So far nothing I thought was going to happen has happened. My crystal ball is way off.”

Asked what his message is for policymakers, Williams said, “Was that your intent for me, to be a roofer and move to Arizona? Thanks, California.”

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