Rooftop solar companies face gloomy outlook, some sunny states consider subsidies overhaul
The jolt to their share prices is not surprising, as the two rooftop solar companies are yet to turn a profit; Their shares trade at massive growth potential. BloombergNEF expects total installations to be 19% lower than its base-case scenario in 2023 without the rule changes. According to Wood Mackenzie and the Solar Energy Industries Association, California is a leader in rooftop solar adoption and will account for about a third of all new residential solar installations in the US by 2020. According to estimates by RBC Capital Markets, the state’s clients comprise about 40% of Sunrun’s installed base and a quarter of Sunnova’s.
Much of California’s rooftop solar development is fueled by a net metering system, which allows solar customers to sell excess electricity they don’t use back to the grid at a very generous price, the same retail rate that is charged for their home’s electricity. is charged for. This has helped drive solar adoption, but someone else has had to pick up the tab.
Because rooftop solar customers pay less on their utility bills, they contribute less to maintaining the grid they still use. This meant that the burden of cost was shifted to those who did not have rooftop solar, and often those who could not afford it. Various groups have reported changes in costs between $1 billion and $3.4 billion per year.
The new rule will significantly reduce the rate solar customers get for selling their surplus energy. The rate will drop to 3 to 4 cents per kilowatt-hour during the day’s most sunny hours, from 17 to 44 cents per kilowatt-hour earlier, according to estimates by BloombergNEF North America solar analyst Pol Lezcano. It also adds a carrot as a credit for installation and a stick as a “grid charge” for solar users. The bottom line is that it will take about 11 years for new solar customers to make back their upfront investment in their solar panels through lower electricity bills, a substantial jump from the seven years it currently takes, according to BloombergNEF estimates.
Net-metering rules have always been controversial across the country, but an overhaul seemed inevitable in California. Its solar-heavy grid has an abundance of electricity during daylight hours, but it drops drastically as the sun goes down. It creates tension. Hawaii, which had seen a raging growth in rooftop solar before getting rid of net metering in 2015, had to do it largely out of necessity – parts of its grid were overwhelmed by the growth of solar power generated during the day.
There are some silver linings to this. One is that California’s rooftop solar market is no longer at the peak of its growth, which has slowed in recent years. According to the National Renewable Energy Laboratory, about 15% of California homes living in single-family detached structures already have solar systems installed. That means that growth, in part, has to come from selling battery storage to those existing solar customers. According to Mr Lezcano, the new rules create a price incentive for homes to add storage to solar systems. BloombergNEF estimates that with the new rules, the payback period for solar-plus-storage will drop to six years by 2027, from less than eight years now.
For rooftop solar companies, generous incentives were training wheels that had to be taken off at some point. Expect some ups and downs ahead, but not an accident.
Write Jinjoo Lee at [email protected]