Is the California Solar Industry in Danger?

For years, California has been a leader in the solar industry, with its percentage of installations steadily rising throughout the state. However, ever since a catalytic tariff was passed in California, there has been a rift in the solar industry in the state and the country overall. In December 2022, the California Public Utilities Commission (CPUC) passed NEM 3.0. This established a new set of regulations for net metering, which is when consumers sell back their solar panels’ excess electricity. Due to NEM 3.0, owners who have not installed battery storage have experienced a drastic loss in value—about 75%. 

NEM 3.0 has been in effect for about a year, but it has already had detrimental effects on California’s solar industry. California is still the largest solar market in the country, but there was about an 80% decrease in the amount of applications for solar installations from May to November in 2023 compared to 2022. Looking forward, research predicts that there will be a 40% decline this year as well. This inevitably has harmful environmental consequences, as solar energy is key to California’s environmental goals. Furthermore, NEM 3.0’s destructive effects on the solar industry is evidenced by the fact that about 17,000 jobs were lost in 2023. These economic effects have been felt particularly sharply by startups or smaller companies within the industry, which are key to driving innovation and growth in solar. For example, Aurora Solar, a startup that creates software targeted towards the solar industry and owners, had to lay off a fifth of their employees. Considering that the company’s size is around 500, this is an incredibly significant portion of their workforce. 

This development in California’s solar industry indicates the drastic influence policy has on industries and economic trends. Given that the CPUC voted unanimously to pass NEM 3.0, it is evident that change was necessary to the old net metering system: expanding the use of battery storage, supporting taxpayer equity, and regulating the public grid are important and unavoidable goals when evaluating the solar industry and broadening electrification in the long run. However, the rapid unraveling from all different angles of the industry demonstrates the highly sensitive nature of the relationship between policy, the environment, and the economy. The data from California’s solar industry in the past year illustrates that perhaps more incremental steps towards NEM 3.0 may have been beneficial in order to reach a balance between the government’s goals and consumers’ desires. While the solar industry is considerably robust overall, green companies, especially startups like Aurora Solar, still experience much more instability and lack of trust from investors in comparison to businesses in other industries. Therefore, it is important for regulators and policymakers to be mindful of their impact before making changes. NEM 3.0 has also discouraged lower-income consumers, whose access to the solar industry was steadily increasing in California, from entering the market. 

In response to the downturn in the industry, California Assembly member Damon Connolly introduced a bill in February 2024 to reverse NEM 3.0. This bill would raise incentives on installing solar panels again in the hopes that undoing NEM 3.0 would help California meet its energy goals. The Solar Energy Industries Association has voiced support for this bill, which has not yet been reviewed by a policy committee at the time of writing. The immediate and dramatic effects of NEM 3.0 and the notably short time period before this bill was introduced raise questions of how consumers and businesses will respond to these rapid changes in the industry.