How the rooftop solar industry is adapting to California's new rulebook

This is part one of a two-part series exploring the fallout from California’s changes to its residential solar policy. Part two examines how energy-storage vendors are seizing the opportunity.

California built the nation’s largest rooftop solar industry over the last decade, and it grew into a leading force pushing the state toward its ambitious clean energy goals. A policy called net metering or net-energy metering (NEM) made that growth possible.

“The NEM-driven market has become California’s No. 1 and fastest growing form of renewable energy,” said Bernadette Del Chiaro, executive director of the California Solar and Storage Association (CALSSA), a trade group representing residential installers.

As of April 15, though, policymakers demolished the NEM payment structure that created this clean energy juggernaut and replaced it with an arcane set of rules that, at best, douse the market in uncertainty. Now rooftop installers large and small are figuring out how to survive in the complicated new landscape without net metering.

Existing rooftop systems built under the old rules will still earn retail-rate compensation for extra power exported to the grid. But going forward, any Californians adding solar to their roofs will earn far less for exported power — 75 percent less, on average. That’s because the value is now determined by a complex administrative metric that reflects the real-time supply-demand balance of the grid. This muddies both the incentive for would-be customers to invest in rooftop solar and the sales pitches that installers have relied on to close deals.

Residential solar companies need to get smart on batteries if they want to survive because the economics of rooftop solar now depend on storing production from sunny hours so it can be consumed or exported after sunset. In theory, the new rules are totally compatible with ongoing growth in California’s distributed solar capacity — as long as solar vendors across the state successfully pivot to battery-centric operations as soon as possible.

But that outcome is by no means guaranteed. Indeed, a bifurcation is already emerging among rooftop solar companies, a division between haves and have-nots.

The bigger players, which have invested in energy-storage products for years, have already rolled out fresh offerings that pair solar and batteries to compete in the new policy regime. In fact, national installers like Sunrun sound cautiously optimistic. CEO Mary Powell told Canary Media that California should have allowed more time for the industry to adapt to the net-metering change, but Sunrun has already launched a new solar-battery service designed to save customers money under the new rules.

On the other end of the spectrum, smaller local installers, often called the “long tail” of the industry, don’t always have the resources to follow suit. They lack the purchasing power to buy bulk orders of increasingly sought-after batteries, which even Sunrun had trouble acquiring as recently as last summer. And the army of independent door-knockers that powers the solar sales cycle largely lacks training for a nuanced battery pitch that reflects the complexity of California’s new rules.

At stake is more than the profitability of a once-favored industry that California policymakers invested years to create.

California, the second-biggest greenhouse-gas-emitting state after Texas, desperately needs all the clean energy it can find to power through the evening hours on hot days. Regulators have called for a staggering 86 gigawatts of new clean capacity to be built by 2035. In the last two years, residential and commercial solar installers added more clean capacity than all the utility-scale solar projects in the state.

Now the businesses that have been collectively building the most new clean energy in the state have been thrown into turmoil.

The rooftop solar industry’s pivot is just beginning

Cogent industrial policy recognizes that sudden shocks aren’t good for business. But when the regulators at the California Public Utilities Commission finalized new rooftop solar rules for the state in mid-December, they only gave the industry until April before the changes kicked in.

That’s hardly enough time to reorient a major industry — 75,712 people worked in solar in California according to a 2021 census, a majority of them in the distributed sector. Plus, the last four months weren’t exactly free for long-term planning.

“The rank and file have not had time to digest what is NEM 3.0,” Del Chiaro noted, using the industry shorthand for the new solar policy regime. Instead, the sales and installation army was hustling “around the clock, seven days a week” to serve as many customers as they could before the previous solar rules went away.

Data from leading solar-software provider Aurora Solar corroborates this: California-based solar installers on the company’s platform generated 264,357 projects in the first two and a half months of 2023, compared to 102,964 projects in that timeframe last year. Some installers quadrupled the number of quotes they generated for customers.

During that all-hands-on-deck scramble, the bigger national and regional players assigned staff to figure out their plans for the next era.

What they know is that the dominant model of selling solar panels to save customers money largely won’t work anymore because, under the new rules, utilities pay so little for exports during sunny hours. If customers want to make money exporting solar power to the grid, they’ll have to do it in the hours deemed valuable by a mercurial regulatory metric called the avoided-cost calculator, which fluctuates by the hour and differs for each of California’s big three regulated utilities. That requires adding batteries to the mix.

Many in the solar industry had already shifted to pitching batteries as a companion to their core product. The CALSSA trade group added “storage” to its name way back in 2017. But despite those prescient pivots, most installers are far from where they feel they need to be to thrive in the new policy regime.

“We don't want to become self-fulfilling prophecies of negativity, but I can't give you this sunny image that predicts a totally smooth transition to NEM 3.0,” said Del Chiaro.

Challenges for long-tail installers

Soaring interest rates had already squeezed solar economics in recent months, ratcheting up the cost of solar loans. It’s also just more expensive to do business in California generally. With new rules making business even tougher, some members of CALSSA told Del Chiaro that they’re closing up shop in California and focusing elsewhere, though she didn’t name specific companies doing so. Others are grappling with how to sell a viable product in the new regime.

That starts with the foot soldiers of the solar industry, the door-to-door sales reps. Many of them work independently, securing customers and then handing the deals to companies to do the actual installations. It’s a division of labor that worked for the industry when net metering was the economic driver but now is under pressure from the new rules.

“Most salespeople literally don’t know what to do,” said Brittany Mullen, an independent solar sales professional based in Southern California. “We don't get real training on battery storage. I have to do my own research.”

Batteries add far more complexity to a deal. There is a growing roster of competing yet similar products to choose from. Sizing the right power capacity to perform particular tasks isn’t obvious, nor is calculating how much storage capacity a particular household should have. Batteries also make permitting harder and require more extensive electrical work; installations need a residential electrician who has trained on the particular battery product, which wasn’t necessary for solar-only jobs.

Stand-alone solar can be sold based on aerial rooftop photos, which makes it possible to identify prospects from afar. But for batteries, salespeople need to get inside the house to look at the electrical panel and figure out where battery packs can fit with appropriate setbacks, according to Barry Cinnamon, who runs a vertically integrated residential solar outfit in the Bay Area.

In the independent realm, Mullen never earned a commission on battery sales. She sold them to wealthy customers who specifically asked for battery backup, but it wasn’t a regular part of her deal flow.

“Most people just get generators; it’s a lot cheaper,” she said.

Motivating the sales workforce to promote batteries will be a crucial factor for success going forward. Cinnamon, who committed his company Cinnamon Energy Systems to mastering battery expertise five years ago, recommends that companies put money behind it.

“We give our salespeople a very big incentive to sell batteries and a small incentive to sell solar, so we sell a lot of batteries,” Cinnamon said. His company was already pairing storage with more than half its solar deals before the new rules took effect.

“It was pretty easy picking there for a dozen years; now it's going to be much tougher,” Cinnamon said. But, he added, “People in the business are inherently optimistic, or else they'd go do something else.”

CALSSA has planned webinars in the coming weeks to educate members about the new sales dynamics.

But even if that knowledge reaches the tens of thousands of people in the workforce, success requires stable access to affordable battery products. And that’s far from guaranteed.

In the early days of the modern home battery industry, the product often smacked of luxury. Mill Valley tech aficionados could slap a few boxes on the garage wall next to their Teslas and brag about clean backup power to their cycling buddies over a cortado. The products were costly and didn’t have a real means of monetization or payback. Supply-chain shortages and monthslong waits were commonplace as the niche market grew.

“The giant piece of all this is, are the battery manufacturers going to be able to step up and step in and supply the increased demand in batteries?” Del Chiaro said.

Many more suppliers have joined the fray over the last decade, and costs have fallen precipitously. But even Sunrun, the largest rooftop solar installer and a major buyer of home battery packs, reported last August that battery supply was constraining its ability to meet consumer demand. The company told Canary Media that “supply conditions have improved considerably” since that time.

Sunrun and Sunnova launch new battery deals

The larger, better-resourced solar companies are projecting more confidence about the future.

Market leader Sunrun has championed battery-equipped solar for years under its BrightBox branding. On April 3, it started selling a new package for Californians called Shift. It pairs rooftop solar with a modestly sized battery, typically from LG Chem; customers can subscribe for no money down or buy the system outright.

The goal was to find the right configuration to deliver stability and energy-bill savings to the mass-market audience that otherwise might struggle to access solar under the new rules, said Sunrun’s Powell.

“It’s enough storage that it gives the customer all the benefits of the new rate structure, but it's not geared toward whole-home backup,” she said.

Whole-home backup allows a house to ride through grid outages without any loss of power, at least for as long as the battery lasts. But that requires significant battery capacity and often involves overhauling the main electrical panel, both of which add cost, Powell noted. The Shift package avoids those extra costs while still storing enough power so customers can participate in grid-services programs that could earn them extra money.

“This product innovation is allowing us to sell at a value that California customers are used to,” Powell said. “There’s still significant savings under what many customers in California are paying to their utility.”

Another national solar company, Sunnova, launched a deal where California customers get a free battery if they lease solar from the company. The deal promises utility-bill savings and secure backup power, with choices of batteries from Tesla, Enphase, Generac, SolarEdge and FranklinWH.

“While some may view California's NEM 3.0 policy as a misguided attempt to prop up the failing utility industry and undermine consumer choice, Sunnova sees it as a chance to seize the market and offer real solutions to our customers,” said Sunnova CEO John Berger in a statement.

Likewise, Sunrun isn't scaling back operations in California as a result of the net-metering policy change. This is notably different from what transpired in Nevada after it demolished net metering in 2015, prompting leading solar companies to shut down operations in the state until regulators reversed course.

“We have no plans around any kind of significant go-to-market strategy change in California,” Powell said. But she recognized that Sunrun has certain advantages going into the new era. “I do think you're going to see companies that haven’t had any expertise in storage being very challenged by this new environment.”

Read part two about how home battery companies are poised to thrive in a post-net-metering future.