Rooftop solar companies aren't exactly starting out the new year with the sun shining on their faces.
The shares of residential solar companies Sunrun and Sunnova have fallen 19% and 14% since the California Public Utilities Commission put subsidies for rooftop solar — known as net metering — on the chopping block in December. The commission plans to vote on January 27 after taking public comments. Florida is considering legislation that would cut such subsidies.
The shock to their share prices isn't surprising, given that the two rooftop solar companies don't yet generate a profit, their shares trade largely on growth prospects. The total installations of BloombergNEF will be 19% less than under its base-case scenario in 2023, according to BloombergNEF. California is a leader in rooftop solar adoption and is responsible for about a third of all new residential solar installations in the US, according to Wood Mackenzie and the Solar Energy Industries Association. According to estimates from RBC Capital Markets, the state s customers comprise approximately 40% of Sunrun's installed base and a quarter of Sunnova s.
Solar growth in California has been fueled by the net metering system, which allows solar customers to sell excess electricity they don't use back to the grid at a relatively generous value, the same retail rate they are charged for their home electricity. That has helped spur solar adoption as intended, but someone else has had to pick up the tab.
Since rooftop solar customers pay less on their utility bills, they end up contributing less towards maintaining the grid, which they still use. The cost burden has been shifted to those without rooftop solar, and often those who can't afford it. Various groups peg the cost shift at between $1 billion and $3.4 billion a year.
The new rule would cut the rate that solar customers get for selling excess energy by a fa.
The rate will drop to 3 to 4 cents per kilowatt-hour during most sunny hours of the day, a decline from 17 to 44 cents per kWh previously, according to estimates from Pol Lezcano, North America solar analyst at BloombergNEF. A carrot is added in the form of a credit for installations and a stick in the form of a grid charge for solar users. It will take about 11 years for new solar customers to make back their investment in their solar panels through reduced electricity bills, a significant jump from the seven years it currently takes, according to BloombergNEF estimates.
Net metering rules have always been contentious across the country, but an overhaul seemed inevitable in California. Its solar-heavy grid has an abundance of electricity during daylight hours but a steep drop once the sun sets. That creates strains. Hawaii, which saw a lot of growth in rooftop solar before getting rid of net metering in 2015, had to do so largely out of necessity - parts of its grid were overwhelmed by the surge of solar electricity 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, solar systems are already installed in about 15% of California households living in single-family detached structures. That means that growth has to come from selling battery storage to existing solar customers. According to Mr. Lezcano, the new rules create a price incentive for households to add storage to solar systems. By the end of the year 2027, the payback period for solar-plus storage will decline to six years, down from eight years now, according to BloombergNEF.
For rooftop solar companies, generous incentives were the training wheels that had to come off at some point.