California is slashing solar financial incentives in April. Now it might not meet climate goals.

The country’s most solar-friendly state, California, could now be in jeopardy of missing its ambitious environmental goals after the state’s public utilities commission slashed the financial incentives offered to future customers who send surplus solar power to the electricity grid.

Critics of the cut, which could be as much as 75%, say the move will not only reduce net metering for Californians to install pricey rooftop solar panels, it will seriously hinder many of the state’s environmental targets, including 95% clean electricity by 2035, growing to 100% a decade later.

“California has been leading the country in driving down the cost of solar and making it possible for more people to afford to do it,” said Laura Deehan, state director of Environment California, a nonprofit political lobbying group. “And that’s been great, but to achieve California’s environmental goals, we need to quadruple the amount of rooftop solar we have in the state and that’s going to be much harder because of this decision.”

Net metering is a system where utility companies pay homes and businesses for the excess energy they contribute to the power grid.

The California Public Utilities Commission’s ruling, known as NEM 3.0, comes a few months after Governor Gavin Newsom signed into law a series of challenging environmental targets aimed at maintaining the state’s position as a national leader in clean energy and the fight against climate change.

Alongside clean electricity goals by 2035 and 2045, the new law’s other goals could also be at risk. Those include cutting air pollution by 60%, reducing state oil consumption by 91%, reducing fossil fuels by 92% and cutting refinery pollution by 94%. Overall, the plan is expected to save the state $23 billion by avoiding damage caused by pollution.

However, when the rates change in mid-April, utility companies are also expected to make huge savings.

The current net metered rate will drop from 30 cents per kilowatt hour, the highest in the country, to 8 cents.

Critics say the move is purely about profit and politics.

“The utility commission did it because they are a captive agency and appointed by the Governor,” said Dave Rosenfeld, the executive director of the Solar Rights Alliance, a statewide nonprofit association of California solar users. “And the governor is influenced by the utility companies, but also, importantly, influenced by the PG&E labor union, which gave him a million and half dollars during his recall campaign.”

Under the current rate, homeowners could recoup the cost of their solar panels and be electrical bill-free within six years, said Rosenfeld, who added that from April it will take over a decade and could have other serious impacts on communities and businesses.

“Fewer people will go solar, let’s start right there,” he said. “That means more people are going to be stuck under crushing, never-ending electricity bills. Then clean energy progress will slow down, followed by layoffs and bankruptcies in the industry.”

Broken promises

Over the last decade, solar has seen ceaseless growth in California. Its overall solar capacity is up by 3400%, while residential rooftop solar can now generate 13,500 megawatts, enough to power just over 10 million homes – six times more power than the Diablo Canyon nuclear power plant, which is the state’s largest single source of electricity.

That growth has been made possible because of generous state and federal incentives and because the price of buying residential solar panels and installation has dropped 69% over two decades.

The federal government, for example, offers a 30% tax credit that could save someone as much as $6,580 on the average cost of installing a rooftop solar system in California. The state also offers several incentives based on income, property tax, sales tax and energy storage methods.

The combination of incentives was so successful at getting people to buy solar panels that in 2018 California scaled back 20 power line projects, saving the state around $2.8 billion, according to the Desert Report, a quarterly environmental report by the Sierra Club California/Nevada Desert Committee.

Should California miss its legally-binding targets in 2035 and 2045, there won’t be any political consequences because the law has no teeth, according to Rosenfeld.

“What are usually the consequences when the government doesn’t hit a goal that it set for itself?” said Rosenfeld. “The government will just change the goal.”He added: “It just becomes a broken promise to itself and to the people of California that will ensure future human suffering under the consequences of climate change.”

Why?

Utility companies have pushed for net metering changes for years, claiming that the system was no longer required to incentivize solar panels and was unfair to middle and low-income customers, who pay more due to net metering.

“These changes will help meet California’s climate goals and increase reliability while promoting affordability across all income levels,” noted a final report by the state’s utility commission.

The report argued that California’s rooftop solar program was unfair and that utilities are being forced to pass along the cost of paying subsidies to customers with solar panels, creating higher bills for non-solar customers and those least able to pay for electricity costs.

In short, customers without solar panels were making up the difference.

However, environmentalists claim the argument is flawed because it doesn’t account for the huge benefits brought by solar panels. They say that solar panels reduce infrastructure costs for utility companies, create far less pollution in low-income and other neighborhoods and protect against power outages.

“The real reason this happened is the electric utility industry has understood for a long time that if net metered solar really took off, it represents competition for them,” said Bill Powers, a board member of the Protect our Communities Foundation environmental group in Southern California and energy expert. “They are using the same basic playbook across the country, that net metering systems are just white people living off lower to middle-income people of color. It’s a nasty and divisive playbook.”

The new rates in California will begin in mid-April and will only affect new customers. This deadline will likely see a rush of new solar customers who want to be locked in at the old rate.

However, while those short-term consequences are good for the environment, Deehan says the change will contribute to what’s known as a solar cliff – far fewer people buying solar panels.

And it’s happened before.

“When utility companies reduced rates in other jurisdictions, it cut the demand for rooftop solar by half year-on-year,” she said. “That happened in Nevada and it led to a really loud public outcry that eventually forced legislators to overturn the decision and solar adoption started going back up.”

Nevada cut net metering by 75% in 2015, which caused a 47% decrease in rooftop installations compared with the previous year. After statewide complaints, the decision was reversed in Sept. 2017 and adoption rates returned to earlier levels.

Researchers in Arizona estimated that solar adoption fell by between 50% and 95% when net metering was replaced by a new system that significantly reduced payments to customers and only offered credit on their bills, according to a Sept. 2022 report. The same happened in Hawaii, where between 2015 and 2018, around half as much rooftop solar was installed.

Deehan also said that she is hopeful there will be a public outcry in California that could help reverse the latest changes and use the existing infrastructure to create power.

“I hope people will mobilize and maybe this can be reversed,” she said. “In the meantime, it could mean large-scale solar in the desert or more offshore wind to make up the expected loss of rooftop solar, and we support all of that, but we should be taking advantage of the existing built environment – rooftops. If we don’t, it will much more difficult to reach the state’s tough targets.”

What’s next?

While environmental groups and protesters wait for a potential rehearing with the state’s utilities commission, there are some ways you can vent frustration.

Save California Solar is currently running a petition that is being sent to the Governor and the board members of the CPUC. Rallies were held ahead of the Dec. 15 decision to reduce the net metering rates and more are expected ahead of the change in mid-April.

For information on how to get involved, you can follow the Solar Rights Alliance, Environment California, Protect our Communities Foundation and the California Solar and Storage Assocaition.