(File photo by Michael Goulding, Orange County Register/SCNG)
By Roxana Popescu | San Diego Union-Tribune
A little over a year ago, the California Public Utilities Commission overhauled the rules for rooftop solar installations across the state. In its December 2022 decision, the commission added incentives for customers to pair solar with batteries, but the new rules also dramatically reduced net energy metering, or NEM, compensation rates.
New panels can be a hefty investment, costing on average $2.8 per watt, including installation, according to the EnergySage quote comparison tool. “For a 5 (kilowatt-hour) installation, this comes out to about $14,004 before incentives, though prices range from $11,903 to $16,105. After the federal tax credit, the average price drops by 30 percent,” the site says.
NEM 2.0 was phased out in April 2023, leaving the new NEM compensation rates — what solar customers receive when their rooftop systems generate more energy than they consume — as the only option for new solar installations.
Given that today’s export rates — the compensation to solar panel owners for the excess electricity their panels export to the grid — are 75 percent lower under the new rules, the math on new installations has changed.
The payoff point is later and now it is essential to add a battery, which adds more to the upfront cost. Tax incentives take off some of the edge. But other key incentives recently ended or are expected to sunset after this year.
Given all this, does it still make sense to add solar?
Many homeowners say no. Solar installations fell dramatically in 2023.
“Utility interconnection request data shows that solar sales have fallen between 66 percent and 83 percent year-over-year following NEM 3.0,” pv magazine USA, a trade publication, reported in December. “What’s more, there have been massive layoffs industry-wide.” The California Solar & Storage Association, a clean-energy trade group, said over 17,000 solar jobs have been lost in 2023, representing 22 percent of all solar jobs in the industry.
But professionals in the solar industry say adding new panels still makes sense in some cases.
Given this drastically altered landscape, the Union-Tribune asked three experts: Is making a big investment in rooftop solar still a good idea?
The experts
Their answers, lightly edited for flow and length, apply to consumer solar installations in the context of investor-owned utilities such as San Diego Gas & Electric.
The new rules
Q. Given the new rules, is installing solar today worth it for consumers? If so, why?
Teresso: Under (the current billing) rules solar alone, for the majority of homeowners, will make little sense as the return on their investment, i.e. their bill savings, will be negligible. The silver lining is energy storage battery technology. It has evolved to be a better cost-saving benefit. Energy can be stored in the battery until it’s needed — when utility rates are at their highest.
The number of variables and considerations in determining the right solar + battery system have grown exponentially. It’s no longer simply “How much electricity do I use?” but “What time of day do I use it?” also needs to be considered, as well as “What will my future electricity needs look like?” Buying an EV, upgrading to a heat pump heating and air conditioning system, for example.
Hickey: The savings depends on the return on investment analysis, length of stay in the home, total system cost, payment method and what solar incentives are claimed. Can you afford the upfront costs? Do you plan to live in the home long enough? Most homeowners move (on average) after six years. The estimated payoff point for a new solar system until now was approximately seven years. (With) the increased expense of a backup system (battery) and reduction in bill credits for energy given back to SDG&E in the new system, the average payoff point has been estimated to extend to 10 to 12 years.
Many clients do not have the cash to pay for the solar system upfront. Then they must add in the interest rates and cost of the loan for purchasing the system to the overall costs — again extending their payoff point if financing.
The percentage of electricity a home directly uses can also impact long-term savings. San Diego has low net metering rates — if you send excess solar energy to the grid, you only get a small fraction of its retail value back. But if you install a solar battery, you can lessen your grid usage at night and on cloudy days, resulting in higher power bill savings and a faster return on investment.
Del Chiaro: Yes, for most consumers, there is still value in generating your own electricity from rooftop solar. Consumers will have to be more patient in waiting to see their upfront investments pay off or be willing to sign up for a power purchase agreement from a third-party installer, but there are still savings to be had by upgrading your home with solar panels. This is simply because when you have rooftop solar, you are locking in electricity generation for the next 20 to 30 years.
If you sit down and do the math, most consumers will spend $60,000 or more on utility bills over the 20-year life of a solar system. So, when you look at it with a long view, it is still a no-brainer investment. And if you sell your house within that 20-year period, the solar system adds value to the sale.
I should note that if you go for a power purchase agreement, where a third-party company owns your solar and storage system, the upfront cost is irrelevant.
Q. Are certain types of solar installation more suitable or advantageous under the new rules?
Del Chiaro: The simple answer is there is no cookie-cutter consumer or profile for a good solar user. The key is to have a south or west facing roof free of shade, or property that can host a ground-mounted array. The more electricity you use, the higher your savings can be from going solar, but solar works for all different types of consumers. That said, the CPUC has recently made solar for multi-meter properties, like apartments, even worse than it is for single-meter properties like single-family homes. Some apartments can still go solar and benefit, but the commission just made it a lot harder, unfortunately. This goes for schools, farms, strip malls and other multi-meter consumers.
Q. Is it better to upsize from the start or add more as your needs grow?
Teresso: Our experience has been homeowners increase their electrical energy usage after going solar. Because they can now afford to run their AC in the summer, upgrade to a heat pump, or purchase an EV — because the cost to charge that vehicle at home is a small fraction of what it would cost to fuel a gas-powered vehicle.
Del Chiaro: It is best to anticipate your increased electricity usage and size the system for that future. A consumer can size a solar system up to 150 percent of their electricity usage over the previous 12 months. (The 150 percent is a regulatory rule.) While solar systems are modular, meaning you can easily add components — like a Lego set — there are inefficiencies in cost by doing so. You might not have the correctly sized inverter if you upsize, which can cost $5,000 plus installation.
You can also add a battery after the fact without any penalties, but sometimes that also requires a new battery-compatible inverter — which can add extra costs. So, the short answer is, you can always make changes and with solar, it is relatively easy to do so. But it is far more efficient, time and money-wise, to have a good sense of what you want and build your solar system accordingly from the get-go.
That said, I sometimes see consumers overthinking the decision, and that indecision leads to years of foot-dragging. Years in which they could have been saving hundreds of dollars every year.
Batteries, storage, etc.
Q. Can you get away without storage or does that negate the benefits of adding solar?
Hickey: Storing surplus solar energy in a battery, instead of selling it at low prices back to SDG&E, helps to improve the return on investment earlier for clients. If you store electricity in a battery and use it later, you save the full value of each kilowatt-hour of energy.
Without a battery, if you sell excess energy under (today’s) tariffs, you only earn a few pennies per kilowatt-hour of electricity. The current policy pays around 75 percent less for surplus solar energy than (the one before).
Teresso: Today the optimal way to go includes solar plus battery. It’s a larger initial investment and lengthens the return on investment payback period. However, it provides similar utility cost savings benefits to the homeowner as compared to a solar-only system today. The battery can perform additional functions such as backup power when the grid goes down and help create a more resilient California grid through innovative programs such as virtual power plants.
Homeowners under the old net metering compensation system are grandfathered into their agreements for 20 years from the time the system was installed. Beware, the CPUC and some members of the California Legislature have been trying to limit or change those agreements with homeowners. Under the old systems, homeowners would utilize the battery largely for backup power only when the grid goes down.
However, as virtual power plants become more common and the stored energy in the battery more valuable to the grid, customers under the earlier compensation systems will understand and recognize that adding a battery can create additional savings for them versus solar only. Additionally, as the utilities change the time of use, or TOU, rate structures within NEM 2.0, batteries will begin to make greater sense over time as they will receive greater value for offsetting consumption during peak hours over exporting to the grid for NEM credits.
Del Chiaro: If you are a consumer who’s looking at going solar today, under the (current) policy, the amount of time it takes for your solar + storage system to pay for itself is shorter than the amount of time it takes for a stand-alone solar system to pay for itself. So, it is a better deal when you add a battery. That’s all because of high evening rates that batteries help you avoid. However, the downside is that the upfront cost is higher when you add a battery.
While that higher upfront cost will pay for itself eventually, and is therefore still a valuable investment in your home, it is still something that a lot of consumers can’t quite finance or feel comfortable doing. This is why we are having such a hard time selling systems right now. The CPUC, in designing NEM 3.0, thought too simply about the consumer experience. Just because you make the combined technology (solar + battery) a better deal for the consumer doesn’t mean the consumer will be motivated to spend more money. Things that cost more money are often of higher value to a consumer but if you are middle or working class you can’t always spend more. Hence the drop-off in our market.
A battery adds roughly $15,000 to $25,000 to the cost of going solar. That’s a steep upfront cost increase, but the federal tax credit lowers that by 30 percent if you have sufficient tax liability.
Q. What’s a virtual power plant?
Teresso: Virtual power plant programs create a revenue source for the homeowner from the stored energy in their battery. Right now we have about 400 homeowners participating in the program. They’re all getting small dollars for how that battery is used, but this is going to become a bigger and bigger part of disaggregated energy generation, storage and now management.
Getting a better deal
Q. What can a consumer do to get the best deal on a solar installation? Do companies ever run promotions? Do panels go on clearance?
Teresso: All solar companies run promotions from time to time. The best time to invest in a Solar Home Energy Management System tends to be in the “off-season” — toward the end of summer and during winter — as demand tends to fall and contractors look to keep crews busy. If you wait till summer when big electricity bills hit homeowners, demand is usually naturally very high.
Hickey: Installing solar in a year where client tax liability is high is recommended. Examine current federal, state and local incentives. The Federal Tax Credit or Investment Tax Credit, or ITC, is currently 30 percent through 2034 (note: cost of new roof not included). This federal incentive includes costs of panels, wiring, inverter and storage solutions. Adding a storage solution in a later year will also be eligible for tax credit. The excess tax credit is not refunded. Also, (note) that this is not a federal rebate, but instead reduces any tax liability they have in the year that the installation is made. So, if tax liability is low, this will not provide much of an incentive.
Q. What are some metrics or diagnostic questions people can ask as they evaluate contractors and bids?
Del Chiaro: First, check they are properly licensed and confirm there are no complaints or actions taken against the contractor at the Contractor State License Board. The next litmus test is to see if they are members of a trade association like the California Solar & Storage Association. The best companies in any business are the ones who value the information and quality control offered by trade groups. Lastly, the best decisions are informed decisions based on personalized interactions. You can find just about anything on the internet these days, so I would caution consumers from putting too much stock in the sometimes random but fever-pitch reviews online. The products themselves have extremely low failure rates, are warrantied for long periods of time, and all California contractors must warranty their installation work for 10 years.
Teresso: (A red flag) is if they’re not actually analyzing the homeowners consumption data. If they’re not doing that, then they are not proposing a system for the homeowner that’s actually going to provide value.
Q. What non-obvious mistakes do people make when buying solar?
Del Chiaro: The biggest mistake is not getting three competitive bids from properly licensed and well-informed contractors. From there, the other important thing is to check on how up-to-date your electrical service panel is. Many older homes need to upgrade their service panel before adding solar and storage.
Investing in energy efficiency measures is also important, as the electron not used is by far the cheapest electron. But the flip side of the coin is also true: have a sense of whether you are going to be adding an EV or an electric stove or heat pump in the near future. It is harder, though not impossible, to enlarge your system after it is built.
Teresso: Homeowners tend to overlook the condition of the roof where the solar is going to be installed. If the roof is already old and weathered, it will mean sometime during the 25+ year useful life of the solar system, that roof will need to be replaced. It’s best to make improvements to the roof before the panels are installed, incurring less significant costs later to pay for those panels to be temporarily removed and reinstalled to make way for a new roof in few years.
Q. Anything else consumers should consider?
Del Chiaro: In today’s uncertain public policy market, it is a good idea to consider getting solar insurance added to your purchase. This can give you the peace of mind that you’ll be taken care of even if the contractor goes out of business. Beyond that, I highly recommend all consumers to check out the Solar Rights Alliance, a nonprofit advocacy group dedicated to protecting the interests of solar consumers.
Hickey: At a state level, California offered many solar incentives in the past, but most programs have ended as of 2023. As we understand currently, the only remaining incentive at the state level is the solar property tax exclusion, which ends after 2024. After 2024 (unless the state makes changes legislatively) a solar system addition would increase the value of the home and initiate a reassessment of property tax status.
California also offers the Disadvantaged Communities — Single-family Solar Homes, or DAC-SASH, program. It is only available for specific communities. The other California incentive program is the Self-Generating Incentive Program, or SGIP, that covers energy storage but not solar panels. The SGIP has a “residential storage equity” category for low-income households, medically vulnerable users and communities at risk of fire.
Staff writer Rob Nikolewski contributed to this report.