On Wednesday, the California Supreme Court heard critical arguments regarding the future of rooftop solar panels in the state, a decision that could significantly impact solar energy adoption in California.
The case, brought forward by several environmental and consumer advocacy groups, aims to overturn a 2022 ruling by state regulators that drastically reduced compensation rates for customers with solar installations. This policy change slashed payments by approximately 75% for excess energy generated by solar-equipped homes, leading to a steep decline in new solar hook-ups.
The advocates for the lawsuit, including the Center for Biological Diversity, The Protect Our Communities Foundation, and the Environmental Working Group, argue that the California Public Utilities Commission (CPUC) failed to adequately consider the benefits provided to customers and disadvantaged communities when it implemented this significant adjustment.
In opposition, the CPUC maintains that the modified compensation structure strikes a necessary balance between making energy affordable for all customers while promoting renewable energy options.
At the heart of the debate is the net energy metering compensation program designed to incentivize renewable energy adoption, which allows solar customers to sell back the excess power they generate to the grid. Traditionally, under the previous programs known as “NEM 1.0” and “NEM 2.0,” customers received retail rates – the price charged to other customers for their electricity – for the energy they supplied back to the grid. However, the current program, labeled “NEM 3.0,” switched this model to a compensation framework based on the utility’s avoided cost—essentially the savings the utility experiences by purchasing less energy from external sources.
Regulators argue that this shift was necessary to address a perceived cost shift, which they claim unfairly burdened non-solar customers with the maintenance costs associated with the electrical system. This revised program specifically affects only those customers who installed solar panels after mid-April 2023. Existing solar customers under prior net metering versions are still entitled to receive the higher retail rates for the duration of their contracts.
The transition to NEM 3.0 has sparked considerable backlash from the rooftop solar industry, ratepayers, and environmental advocacy groups. Following the CPUC’s decision, the groups behind the lawsuit sought an opportunity to present their concerns but were declined a rehearing. They subsequently appealed to a state court, which sided with the CPUC, prompting the groups to escalate their case to the California Supreme Court.
During Wednesday’s court proceedings, representatives for the environmental groups downplayed the issue of cost-shifting, suggesting it was merely a distraction from the crux of the matter. Conversely, the CPUC asserted that the cost shift is a genuine concern. The commission’s attorney, Mica Moore, emphasized that the previous net metering arrangement was unsustainable due to the financial pressures it placed on non-solar customers.
The legal implications could be profound for California’s solar sector, which has already experienced drastic changes following the 2022 ruling. Industry forecasts predict that the first year under NEM 3.0 could lead to job losses exceeding 17,000 within the roofing solar market.
State statistics indicate an alarming 82% decline in new solar connection requests in 2023 compared to the previous year, and some reports estimate a drop in rooftop solar installations by as much as 45% since the NEM 3.0 rollout.
These declines bring into question California’s aspirations of achieving 100% carbon-free energy by the year 2045, given that solar energy is projected to contribute more than half of that energy mix.
In a related legislative development, the California Assembly has approved a bill that seeks to further amend contracts for existing solar customers. This bill aims to eradicate the transfer of older, higher compensation rates for customers selling homes with solar installed. Supporters of the bill argue that it is essential for controlling overall energy costs. However, critics warn it could create further challenges for current ratepayers.
Brad Heavner, the executive director of the California Solar & Storage Association, expressed strong disapproval of the proposed legislation. He believes lawmakers should address skyrocketing utility expenditures instead of casting blame on solar users.
The California Supreme Court’s ruling, expected within the next month, could prove pivotal for renewable energy policies moving forward and the ability of California to meet its ambitious environmental goals.
As the state grapples with the complex challenges of expanding renewable resources while ensuring cost fairness for all customers, the decision will likely shape the trajectory of the rooftop solar industry for years to come.
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