By Michelle Ma and Tope Alake | Bloomberg
California helped create the US solar industry, subsidizing rooftop panels at a time when the federal fight against climate change had barely begun. Now, it’s leading a sharp sales slowdown that’s threatening widespread adoption.
Installers are slashing jobs. Bankruptcies are mounting. And it’s not just mom & pops feeling the pinch.
Solar equipment-maker Enphase Energy Inc., long considered a bellwether for the sector, announced this week it would cut its workforce 10% and close two contract factories, with Chief Executive Officer Badri Kothandaraman citing California’s woes in a letter to staff.
The shakeout follows a change in California regulations that scaled back the amount of money solar homeowners earn when they sell excess electricity to the grid — a shift that hit just as higher interest rates were making the systems more expensive.
Research firm Ohm Analytics, which tracks the solar marketplace, found sales dropping 67% to 85% for the state’s private residential installers since the change went into effect in April.
Also see: Factsheet on changes from the CPUC
The plunging sales in a state that accounts for the largest share of US solar installations is a setback for a key source of green power just as President Joe Biden is trying to accelerate the nation’s transition toward clean energy. And it’s not just California. More than a dozen other states have trimmed their own subsidies, saying they raise utility rates for other homeowners who can’t afford to go solar.
As a result, rooftop solar’s rapid nationwide growth in recent years will likely slow. Residential solar installations across the US rose an average of 32% per year from 2019 to 2022, according to BloombergNEF. Now, the research firm forecasts 5% annual growth for the rest of the decade.
Also see: California less likely to have blackouts thanks to solar, big batteries
“I’m very concerned about whether or not we’ll make it through winter,” said Ross Williams, CEO of the San Diego-based installer HES Solar. His sales have plummeted to about 20% of 2022 levels, and he’s laid off more than half of his 75-person staff. “It’s been pretty dramatic for us going through this process.”
Some hope the downturn is temporary. Sunnova Energy International Inc. CEO John Berger this month told Bloomberg TV “we are through the worst side of things,” predicting growth would return either in this quarter or the next as the industry adjusts to selling in a changed environment.
More on utilities: Middle or upper income? Brace for higher electric bills
But the current slump shows that the rooftop solar business remains dependent on government policy, long after its backers hoped it could thrive on economics alone. For now, more job cuts look likely. The California Solar & Storage Association found in a survey that 59% of the state’s solar contractors are anticipating further layoffs, with another 11% unsure. The organization estimates California is on the brink of losing 17,000 jobs in the industry.
“We are shedding jobs at a level that is reminiscent of the Great Depression,” said Bernadette Del Chiaro, executive director of the trade group, which fought changing the incentives for solar homeowners.
And the impact of slowing sales, both in California and elsewhere, is creating a headwind for the solar industry at a time when many investors hoped it would be surging. Shares of SunPower Corp. plunged 31% on Dec. 18 when the company disclosed a breach of a covenant with creditors due to a delay in filing its quarterly report with the US Securities and Exchange Commission. The company said it was trying to reach an agreement with its lenders, but Guggenheim warned SunPower would struggle to raise cash, citing California’s weakened market as one of the reasons.
California went all-in on solar early, with former Governor Arnold Schwarzenegger in 2006 launching an effort to blanket one million rooftops with panels. The industry responded, as the state became home both to large companies such as SunPower and Enphase and installers like HES. Williams, having heard of Schwarzenegger’s goal, quit his job in Washington, DC, and moved to San Diego to jump into what he saw as a growing business that could help the world.
“It had all the attributes of what I wanted to do with my life,” he said. “Doing something that matters for future generations, and then doing something good in the community.”
California regulators discussed scaling back payments for excess power sent to the grid — a system known as net energy metering — for years, with the changes finally taking effect this spring. Electric utilities pushed for the shift, saying the incentives had increased bills for non-solar households. California customers without solar are paying $5 billion more annually in their electric bills because of net metering, said Mike Gazda, a spokesman for PG&E Corp., the state’s largest utility.
And a spokesman for the California Public Utilities Commission, which made the change, said the new, lower incentives better reflect “the actual value” of the solar energy exported to the grid, while bringing subsidies in line with those of other states. The commission’s president, Alice Busching Reynolds, declined to comment for this story.
Installers and some environmental advocates have criticized the shift as a power play by the utilities and regulators who side with them to block competition, making the adoption of solar less affordable, although some consumer advocates backed the move. In Nevada, net metering was phased out in 2015 and then brought back two years later after a public outcry triggered by mass layoffs and installers fleeing the state. California appeals court judges are already hearing arguments to toss out the new policy.
Under the new rules, a battery system is a near prerequisite for homeowners if they want to save money on their utility bills through solar. Instead of selling their excess electricity back to the grid, it now makes more financial sense for homeowners to use that electricity themselves during peak demand hours in the late afternoon and evening. The utilities commission designed its new net energy metering rules to encourage such systems, seeing them as a way to ease the strain on California’s energy grid after the sun sets in the evening. But an average battery costs about $18,000, and in most states the payback period for a solar system with storage averages 12 to 15 years compared to five to eight years for panels alone, according to BNEF. The utilities commission estimates that battery-equipped solar systems will pay for themselves in 9 years.
Some installers are relying on batteries to help them adjust to the new incentives. Baker Home Energy, based in Escondido, has seen overall sales drop by half compared to the same time last year, said Ian Lochore, vice president and general manager of Baker’s solar division. While the company is selling fewer systems, however, they now all include batteries, so the blow to revenue has been cushioned, he said.
“People who haven’t read the tea leaves and become proficient at installing and servicing batteries” will struggle, Lochore said.
–With assistance from Mark Chediak.
More stories like this are available on bloomberg.com
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