California NEM change proposal projected to cut home solar market in half by 2024

California’s residential solar market would be reduced to half its current volume by 2024 as a result of the state’s proposed net metering changes, or NEM 3.0, Wood Mackenzie has forecast.

With NEM 3.0’s new monthly fixed charges and lower export rates, solar project payback periods would more than double, according to Bryan White, research analyst and co-author of the report.

“Our analysis for the two largest utilities – Pacific Gas & Electric (PG&E) and Southern California Edison (SCE) – reveals payback periods for typical residential solar projects built this year will increase from five to six years under current net metering to 14-15 years, depending on the utility,” said White.

Energy storage and financial products provide limited hedges against NEM 3.0, the analyst added.

Wood Mackenzie currently assumes that, if approved, the proposal will begin affecting installations in July or August 2022 and lead to a rush of interconnection applications under NEM 2.0 rates in the first half of the year.

Installations in California are forecast to fall 42% year-on-year in 2023. In 2024, the new residential installed capacity is expected to drop to slightly more than 700 MW DC, which is roughly half of the 2021 market.

The current NEM 3.0 proposed decision is estimated to cause more than 2.4 GW DC of demand destruction in the state's residential solar market through 2026.

The analyst firm anticipates significant consolidation in California's residential solar market due to a double blow from the NEM 3.0 proposal and the stepdown of the investment tax credit (ITC).

The California Public Utilities Commission (CPUC) presented its NEM 3.0 proposal in December 2021.

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