California's Push for Rooftop Solar Panels Isn't Going So Well Right Now

(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. 

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.

“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.

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 

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.

toss out the new policy.

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. 

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