Utilities are doubling their 5-year electricity demand projections—but high interest rates and California's NEM 3.0 have U.S. solar in a holding pattern (2024)

Anyone paying a utility bill has certainly noticed that the cost of electricity has risen over the past couple of years—at a rate that has often outpaced recent high inflation. With electricity demand rising due to a number of factors, including everything from electric vehicle (EV) adoption to even cryptocurrencies and artificial intelligence (AI), rates promise to continue going skyward. In fact, some U.S. utilities are doubling their electricity demand projections over the next five years.

Then there’s the fact that the electric grid in the U.S.—which is already antiquated and subject to increasing outages—may be at its limit.

With the need for more and more electricity, and more transmission lines to get that electricity where we need it, utilities will need to build increased capacity. It seems as though higher rates will inevitably fund these projects.

But it doesn’t have to be that way. Now is the time for renewables to provide much-needed relief for an aging grid and support our electricity needs with clean energy. Encouraging the adoption of distributed residential solar and energy storage at the homeowner level is essential since it can provide energy security and cost savings to real families and business owners—in addition to increased local generation capacity.

What will it take to make a solar future for all a reality? There’s no denying the multiple macroeconomic and legislative challenges slowing the growth of residential solar. It’s important to understand these issues and how we can overcome them together.

Interest rates are through the roof

According to Aurora Solar’s 2024 Industry Snapshot, three-quarters of homeowners interested in purchasing solar panels feel that overall system and installation costs are too high. Of these respondents, 54% specifically feel that interest rates are also too high—something that anyone selling a home, a car, or solar has likely heard.

Though there has been some relief recently, high interest rates have been a thorn in solar’s side throughout the past year. Whether homeowners are unable to bear the long-term financial burden of these rates or are waiting for them to drop, many are currently stalled at the interest stage of purchasing solar and struggling to commit.

In fact, our study found that 54% of interested homeowners are choosing to save up and wait for interest rates to drop. However, even if interest rates come down, their long-term plans could be threatened by legislation that is already making its way across the country.

The chilling impact of NEM 3.0

Most states have a net metering program, which allows consumers with solar panels to earn credits for selling any excess solar electricity back to the grid. Last April, the California Public Utilities Commission implemented the state’s third version of net metering, the Net Billing Tariff—also known as NEM 3.0—which significantly reduced compensation rates for new solar customers. For example, under NEM 3.0, compensation for solar energy sent to the grid during the day, when panels are producing the most energy, can be as low as $0.00 per kilowatt-hour in some cases. All told, it’s been estimated that NEM 3.0 cut compensation rates for exporting solar to the grid by 75%.

Whatever the justification, this policy is incredibly short-sighted for a number of reasons—and has had an immediate impact on the industry. Aurora Solar’s platform saw a 35% decrease in California project designs in the six months following NEM 3.0’s implementation compared to the same period in 2022. Policies like NEM 3.0 decrease access to a clean source of electricity, make energy more expensive for homeowners, and constrain the growing Virtual Power Plant (VPP) movement, where homeowners’ solar and battery systems help supply electricity to the grid during times of high demand, especially natural disasters.

When it comes to setting solar policy and influencing other states, California’s impact cannot be overstated. North Carolina, Arkansas, Idaho, Hawai’i, and West Virginia all cut rates in NEM 3.0’s wake. Other states are considering changes to net metering policies in 2025. NEM 3.0’s framework is being adapted and tested around the U.S., which is especially concerning given our survey found that only 16% of homeowners are familiar with the term “net energy metering.”

However, there is a light visible on the horizon. Policymakers in California recently introduced legislation to repeal NEM 3.0 in favor of a better plan for solar adopters. While it’s still too early to know how this will turn out, the resistance is a strong sign that California solar won’t go down without a fight—and other states should be watching closely.

Collaboration is key

Despite the significant barriers, the future of solar is bright for all. Our research showed that 77% of homeowners were interested in purchasing solar panels or already had panels on their homes. This, coupled with recent pushback against legislation like NEM 3.0 from both politicians and environmental groups, is an encouraging sign that Americans aren’t willing to stand by and let solar slip away.

While high interest rates caused a temporary slowdown, solar providers are already finding ways to meet homeowners where they are. When asked what is most important when selecting a solar installer, homeowners’ number one response was the availability of different financing options—so it’s encouraging to see that alternate financing choices are becoming more readily available. Solar professionals who can clearly explain these options and the pros and cons for each use case will be the ones who can turn interest into action in any market.

In the long run, we could even see additional solar incentives emerge as increased energy demand further taxes the grid. Efforts at the federal level, including the Inflation Reduction Act (IRA), have been promising: Our study found two-thirds of solar professionals have already seen an impact on solar interest due to the IRA—but increased local and state incentives will be equally important to help homeowners go solar.

It’s not going to be easy. There are significant roadblocks facing the industry. However, there are even more significant opportunities. Solar companies are innovative and homeowners are resilient. That’s why, when you add it all together, solar’s potential is (still) truly through the roof.

Chris Hopper is the CEO of Aurora Solar.

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The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs ofFortune.

Utilities are doubling their 5-year electricity demand projections—but high interest rates and California's NEM 3.0 have U.S. solar in a holding pattern (2024)


Utilities are doubling their 5-year electricity demand projections—but high interest rates and California's NEM 3.0 have U.S. solar in a holding pattern? ›

Utilities are doubling their 5-year electricity demand projections—but high interest rates and California's NEM 3.0 have U.S. solar in a holding pattern. California's NEM 3.0 and high interest rates have had a chilling effect on homeowners' plans to invest in solar energy.

What does NEM 3.0 mean for solar? ›

NEM 3.0 Cuts The Value Of Customer-Generated Solar Power

So, if the utility company charged 25 cents per kilowatt-hour (kWh), the company would credit the homeowner 25 cents for each kWh they generated. Starting in the late 1990s, these policies were major drivers of solar adoption in California.

What is the difference between NEM 2.0 and NEM 3.0 rates? ›

With NEM 2.0, customers received a full retail rate for any excess electricity they exported to the grid. This allowed them to pay off their solar system more quickly. Under the new NEM 3.0 rules, export rates are being reduced by about 75%.

Will NEM 3.0 be overturned? ›

The lawsuit asks the California Court of Appeals to overturn the CPUC's NEM 3.0 decision and devise a new policy from scratch. After hearing oral arguments on December 13, 2023, the Court of Appeal of the First Appellate District decided to uphold the NEM 3.0 decision and leave the policy in place.

Is NEM 2.0 worth it? ›

Should I still go solar in 2023? While NEM 2.0 slightly reduces the benefits of going solar, it retains the crucial incentive of net metering. This means that besides meeting your energy needs during the day, the excess energy produced by your solar panels will offset your energy consumption at night.

How long will NEM 2.0 be grandfathered? ›

Grandfathering for the current NEM tariff (NEM 2.0) is extended to customers for 20 years. In the event of a new NEM tariff, NEM 2.0 customers are grandfathered to their tariff for 20 years from their PTO date. The 20-year NEM tariff grandfathering does not include grandfathering for your Time-of-Use rate.

How much is a Tesla Powerwall? ›

Purchasing one Powerwall with installation through Tesla costs $11,500. You can also order a Powerwall without installation through the Tesla website for $9,200. The total cost of your Tesla Powerwall system depends on how many units you buy, your solar installer and where you live.

Is NEM3 worth it? ›

Research using the Enact platform found the payback period under NEM 3.0 for residential solar in California is 4.8 years in 2024. This means that homeowners who invest in solar panels under NEM 3.0 can expect to recoup their initial investment in less than five years through savings on their utility bills.

Does NEM 2.0 transfer to a new owner? ›

Yes, NEM 2.0 rates are transferable to a new owner for 20 years from the date of original Permission to Operate.

Is Nem 1 better than Nem 2? ›

In conclusion, NEM 1.0 is most beneficial to homeowners, while NEM 3.0 is most beneficial to utility companies. NEM 2.0 is a middle ground between the two. Homeowners should be aware of their state's net metering policies, as they can significantly affect the financial returns of a solar panel installation.

How does solar NEM work? ›

Net metering is a billing method that measures your excess energy production in exchange for credits to subtract from your next monthly bill. In other words, you can sell surplus solar energy to the local electric company. Net metering is also known as solar buyback, net billing and net energy metering (NEM).

What is the solar rule in California? ›

The California Solar Mandate states that most new residential buildings, including single-family houses and multi-family buildings up to three stories, have solar energy systems, but there are some exceptions for vacation homes, houses with small roofs, and shaded properties.

Has NEM 3 been approved? ›

NEM 3.0 has been approved and implemented.

The newly passed NEM 3.0 alters net billing rates for future customers going solar, ultimately reducing how much money solar customers will save on their monthly energy bills.

What is the solar law in California 2024? ›

Solar Panel Law in California Starting in 2024

In California, solar panels are required on all new homes to reduce carbon emissions and support renewable energy sources. Homeowners receive energy loans at a reduced rate of 75% compared to their previous payments.

Why did California end net metering? ›

Why is Pacific Power ending the Net Energy Metering (NEM) program? Customers' generating systems that interconnect with Pacific Power have exceeded the amount of capacity that shall be available per California statute.

Is NEM 2 better than NEM 3? ›

The most notable difference between NEM 2.0 and NEM 3.0 is the value of export rates–which will be much lower under NEM 3.0. For existing NEM customers and customers with NEM 2.0 agreements in place by April 14, 2023, NEM 3.0 will have no impact.

What will NEM 3 do to solar prices? ›

Under NEM 3.0, all exports to the grid (i.e. excess solar) will be priced using an Avoided Cost Calculator (ACC). In a nutshell, every hour, day, week, and year, the avoided-cost rate changes in price, averaging around 4 to 8 cents/kWh. It can range from as high as $3.50/kWh to as low as $0/kWh.

Does NEM 3.0 require a battery? ›

Do I have to install a battery for NEM 3.0? Homeowners can choose not to install a battery with their system under NEM 3.0, but overall savings drastically decrease without one.

Is NEM 3 retroactive? ›

Is NEM 3.0 retroactive? No, NEM 3.0 is not retroactive. Solar customers enrolled in NEM 1.0 or NEM 2.0 are grandfathered in and will not be affected by the change in policy throughout the duration of their original net metering agreement.

How long does it take PG&E to approve solar? ›

After PG&E receives the required paperwork from your contractor, permission to operate your system typically takes 5 to 10 business days, up to a maximum of 30 business days. You can receive approval faster by email if you include your email address on the Interconnection Application.

What is the difference between NEM 1, 2 and 3? ›

In conclusion, NEM 1.0 is most beneficial to homeowners, while NEM 3.0 is most beneficial to utility companies. NEM 2.0 is a middle ground between the two. Homeowners should be aware of their state's net metering policies, as they can significantly affect the financial returns of a solar panel installation.

How much is NEM 3.0 grid connection? ›

The CPUC (California Public Utilities Commission) has unanimously voted to approve NEM 3.0. Electricity export rates (the power you don't use and send to the utility co.) will go down from and average of $0.30/kWh to $0.08/kWh. The grid access fee will be $10-15/month flat for being interconnected.

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