Sustaining the market: As the leading solar state in America, California’s behind-the-meter solar markets are seeing challenges as they explore new terrain. CALSEIA’s Bernadette Del Chiaro explains how the industry is navigating these changes, and what to expect in the future.
By CHRISTIAN ROSELUND, PV Magazine
California’s residential solar market obviously suffered during Q1. Can you talk about what you are seeing in Q2 and beyond in the residential sector, and what this says about the viability of the market under Net Metering 2.0?
Bernadette Del Chiaro: We definitely saw in Q1 – and it is looking like in Q2 as well – a slowdown in the residential market in California. At the same time as that, we saw an uptick in the C&I market. I think there are a couple of things happening, but ultimately, to answer your question directly: Distributed solar is absolutely viable under Net Metering 2.0, but we need to start pairing storage with every single solar system, and we need the policies in place to make that possible.
Otherwise we are concerned that the viability of the market under Net Metering (NEM) 3.0 isn’t going to be there. NEM 3.0 is going to be upon us before we know it, and it is critical that we get storage deployed. CALSEIA has prioritized spending the bulk of our time this year working on creating incentives to make storage available and affordable to all customers. Right now our storage market is really limited to one segment within the C&I sector, and completely dependent upon incentives. And that’s not sustainable. That’s just like how PV was 12 years ago before the California Solar Initiative.
Let me also just say that there are a variety of factors on the slowdown. I think NEM 2.0 had its effect. I think rate changes for residential – those had their effect – and those started as you remember back in 2015. But the rain was legitimately a factor: We had twice as many rainy days in the winter of 2017 as there were in 2016. When you have that many rainy days, it really does cut down on your ability to go out and install. And more importantly, it cuts down on your thought process about getting solar. When it is cloudy and rainy and cold, people don’t pick up the phone.
The third factor is that our sales folks had for years these built-in deadlines to sell against. One of them was expiration of the ITC, expiration of NEM 2.0 being the other. It was easier to sell a system when you had this built-in urgency. Because the residential solar market isn’t an absolute necessity for the consumer, you need built-in urgency to get people to jump. Without that, it makes it harder.
I think that played another role, and I think we will be able to start to sort that out. People will be able to figure out how to motivate consumers to jump and make the purchase or sign the contract within a more stable policy environment.
To get away from residential for a moment, the C&I market in California has grown, despite the fact that C&I installations are also under Net Metering 2.0. So what is going on here?
The C&I market is different because you have bigger projects – longer time lines. Going back to that previous thing about deadlines driving sales – that is a little bit less of a factor. You are going to spend six months to a year having a conversation with your customer anyway, so these annual deadlines don’t play as big of a role in motivating them to act.
The other is that they are a little more motivated by demand charges, and they have been on time-of-use rates (TOU) already. The economics of C&I solar installations are really strong – they’ve always been strong. The commercial market has just not suffered those same blows.
I think a residential homeowner hears in the press that solar is under attack and hears about these changes in net metering and thinks, “I’ll wait a while.” A C&I decision maker is going to be a little less influenced by daily media, and is going to be more influenced by the one-on-one conversation and thinking about the bottom line.
That being said, even though the C&I sector has been under time-of-use already, the changes to TOU rates that are unknown right now are going to have a big impact on the C&I market – and already are. I think we are going to be seeing some dips in the latter half of this year. It’s just a delayed response but for different reasons.
That’s the next thing that I want to talk with you about. Obviously the move to TOU rates for residential customers is a huge component of NM 2.0. Another issue is that they are changing. Can you talk about what the current state is of the negotiations over TOU rates, and what this looks like for the market?
TOU is critical. We have been working a lot on this issue. We are basically going to see a massive shift towards evening peak pricing. And everyone who has a solar system is going to move in that direction.
There is some grandfathering for existing customers, but the California regulators are eager to move as many people as they can in that direction.
What remains to be seen is what the differential is, and the price differential between peak and non-peak, and how dramatic in the early stages that is. And we hope that regulators understand that this needs to be a gentle transition.
But going back to C&I, the uncertainty there about what those rates are going to be is causing problems. And even with a solar paired with storage project it is holding people up from making decisions right now.
The California solar industry doesn’t have a problem with TOU rates per se. The key is having the transition be smooth and gentle, and making sure that as we let our foot off of one pedal, we are pushing down on storage. That is the key to giving consumers a tool to manage under a true TOU pricing structure.
If the California regulators and policymakers don’t give consumers that tool, there is going to be a major backlash from consumers when they realize that they are paying three times the price when they get home, and find that they have no way to truly lower their energy usage.
California has been interesting as a place where high levels of renewable energy have been deployed and the grid operator has to grapple with these high levels. We are already seeing curtailment and negative prices. At what point do these integration issues begin to affect the distributed solar market?
It’s already hitting the distributed generation (DG) market. Embedded in NEM 2.0 is the challenge of all of the large-scale solar, and what impact that is having on the grid, and the value of behind-the-meter. That is already a natural tension there, and already impacting the value of DG in Public Utility Commission (PUC) proceedings and deliberations on this, and it will be a factor in NEM 3.0.
At the end of the day, if we get storage deployed in a way in which everyone in the marketplace can participate with storage, and we continue on our path to electrify the transportation sector, and we really bring the grid into the 21st century and truly embrace the internet of things, there is more than enough need for all forms of renewable energy. But it all hinges so much on getting storage right.