Is it still worth investing in SOLAR PANELS?
The arithmetic on new installations has changed, but it rarely breaks even without a battery system
A little over a year ago, the California Public Utilities Commission overhauled the rules for rooftop solar installations across the state. In its December 2022 decision, the commission added incentives for customers to pair solar with batteries, but the new rules also dramatically reduced net energy metering, or NEM, compensation rates.
New panels can be a hefty investment, costing on average $2.8 per watt, including installation, according to the EnergySage quote comparison tool. “For a 5 (kilowatt-hour) installation, this comes out to about $14,004 before incentives, though prices range from $11,903 to $16,105. After the federal tax credit, the average price drops by 30%,” the site says.
NEM 2.0 was phased out in April, leaving the new NEM compensation rates — what solar customers receive when their rooftop systems generate more energy than they consume — as the only option for new solar installations.
Given that today's export rates — the compensation to solar panel owners for the excess electricity their panels export to the grid — are 75% lower under the new rules, the math on new installations has changed.
The payoff point is later and now it's essential to add a battery, which adds more to the upfront cost. Tax incentives take off some of the edge. But other key incentives recently ended or are expected to sunset after this year.
Given all this, does it still make sense to add solar?
Many homeowners say no. Solar installations fell dramatically in 2023.
“Utility interconnection request data shows that solar sales have fallen between 66% and 83% year-over-year following NEM 3.0,” pv magazine USA, a trade publication, reported in December. “What's more, there have been massive layoffs industrywide.”
The California Solar & Storage Association, a clean-energy trade group, said more than 17,000 solar jobs have been lost in 2023, representing 22% of all solar jobs in the industry.
But professionals in the solar industry say adding new panels still makes sense in some cases.
Given this drastically altered landscape, three expert were asked: Is making a big investment in rooftop solar still a good idea?
The experts
▪ Bernadette Del Chiaro, executive director of the Sacramento-based California Solar & Storage Association.
▪ Steve Hickey, owner of The Solar Inspector, a San Diego consulting company not affiliated with any solar company.
▪ Mike Teresso, president of Baker Home Energy, a San Diego County solar, roofing and HVAC company.
Their answers, lightly edited for flow and length, apply to consumer solar installations.
Q
Given the new rules, is installing solar today worth it for consumers? If so, why?
Under (the current billing) rules, solar alone, for the majority of homeowners, will make little sense as the return on their investment, i.e. their bill savings, will be negligible. The silver lining is energy storage battery technology. It has evolved to be a better costsaving benefit. Energy can be stored in the battery until it's needed: When utility rates are at their highest.
The savings depends on the return on investment analysis, length of stay in the home, total system cost, payment method and what solar incentives are claimed. Can you afford the upfront costs? Do you plan to live in the home long enough? Most homeowners move (on average) after six years. The estimated payoff point for a new solar system until now was approximately seven years.
Many clients do not have the cash to pay for the solar system upfront. Then they must add in the interest rates and cost of the loan for purchasing the system to the overall costs, again extending their payoff point if financing.
Yes, for most consumers, there is still value in generating your own electricity from rooftop solar.
If you sit down and do the math, most consumers will spend $60,000 or more on utility bills over the 20-year life of a solar system. So, when you look at it with a long view, it is still a no-brainer investment. And if you sell your house within that 20-year period, the solar system adds value to the sale.
I should note that if you go for a power purchase agreement, where a thirdparty company owns your solar and storage system, the upfront cost is irrelevant.
Q
Are certain types of solar installation more suitable or advantageous under the new rules?
The simple answer is there is no cookie-cutter consumer or profile for a good solar user. The key is to have a south or west facing roof free of shade, or property that can host a groundmounted array. The more electricity you use, the higher your savings can be from going solar, but solar works for all different types of consumers.
Q
Is it better to upsize from the start or add more as your needs grow?
Our experience has been homeowners increase their electrical energy usage after going solar. Because they can now afford to run their AC in the summer, upgrade to a heat pump, or purchase an EV — because the cost to charge that vehicle at home is a small fraction of what it would cost to fuel a gas-powered vehicle.
It is best to anticipate your increased electricity usage and size the system for that future.
Q
Can you get away without storage or does that negate the benefits of adding solar?
Storing surplus solar energy in a battery, instead of selling it at low prices back to (a utility), helps to improve the return on investment earlier for clients. If you store electricity in a battery and use it later, you save the full value of each kilowatthour of energy.
Without a battery, if you sell excess energy under (today's) tariffs, you only earn a few pennies per kilowatt-hour of electricity. The current policy pays around 75% less for surplus solar energy than (the one before).
If you are a consumer who's looking at going solar today, under the (current) policy, the amount of time it takes for your solar/storage system to pay for itself is shorter than the amount of time it takes for a stand-alone solar system to pay for itself. So, it is a better deal when you add a battery. That's all because of high evening rates that batteries help you avoid. However, the downside is that the upfront cost is higher when you add a battery.
While that higher upfront cost will pay for itself eventually and is therefore still a valuable investment in your home, it is still something that a lot of consumers can't quite finance or feel comfortable doing.
Q
What can a consumer do to get the best deal on a solar installation? Do companies ever run promotions? Do panels go on clearance?
All solar companies run promotions from time to time. The best time to invest in a Solar Home Energy Management System tends to be in the “off-season” — toward the end of summer and during winter — as demand tends to fall and contractors look to keep crews busy. If you wait till summer when big electricity bills hit homeowners, demand is usually naturally very high.
Installing solar in a year where client tax liability is high is recommended.
Q
What are some metrics or diagnostic questions people can ask as they evaluate contractors and bids?
First, check they are properly licensed and confirm there are no complaints or actions taken against the contractor at the Contractor State License Board. The next litmus test is to see if they are members of a trade association like the California Solar & Storage Association.
(A red flag) is if they're not actually analyzing the homeowners consumption data. If they're not doing that, then they are not proposing a system for the homeowner that's actually going to provide value.
Q
What non-obvious mistakes do people make when buying solar?
The biggest mistake is not getting three competitive bids from properly licensed and well-informed contractors. From there, the other important thing is to check on how up to date your electrical service panel is. Many older homes need to upgrade their service panel before adding solar and storage.
Investing in energy efficiency measures is also important, as the electron not used is by far the cheapest electron. But the flip side of the coin is also true: Have a sense of whether you are going to be adding an EV or an electric stove or heat pump in the near future. It is harder, though not impossible, to enlarge your system after it is built.
Q
Anything else consumers should consider?
At a state level, California offered many solar incentives in the past, but most programs have ended as of 2023. As we understand currently, the only remaining incentive at the state level is the solar property tax exclusion, which ends after 2024. After 2024 (unless the state makes changes legislatively), a solar system addition would increase the value of the home and initiate a reassessment of property tax status.
California also offers the Disadvantaged Communities — Single-family Solar Homes, or DAC-SASH, program. It is only available for specific communities. The other California incentive program is the Self-Generating Incentive Program, or SGIP, that covers energy storage but not solar panels. The SGIP has a “residential storage equity” category for lowincome households, medically vulnerable users and communities at risk of fire.