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Environment

New California rules are crushing the solar industry

Ross Williams has worked in the San Diego region’s residential solar industry since 2010, and he has never seen a darker business outlook for his firm, HES Solar.

That grim future is tied to the California Public Utilities Commission (CPUC) changing the state’s solar rules a year ago, slashing the value of rooftop generated electricity.

The legislatively mandated review led to changes that cut the value of electricity generated by residential solar panels by 75% in the CPUC ruling, making it harder for residents to recover the cost of installing new systems. Solar arrays can carry price tags in the tens of thousands of dollars.

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The change is pushing sales down and layoffs up as the nation’s largest solar industry shrinks in the face of a cloudy future.

Williams joined San Diego’s HES Solar as a project manager and bought the company in 2015. The residential solar market enjoyed double digit growth for the past decade with what they thought was a bright future.

But when the CPUC adopted new net energy metering (NEM) rules in April, the economics of solar changed dramatically.

So did HES Solar’s sales numbers. Sales are down 20% to 30% of sales numbers from last year

"That's brutal,” Williams said. “I mean, no company can survive where your sales are 30% of what they were last year. Right? It’s just a recipe for disaster.”

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HES Solar had fewer than 10 employees when Williams joined the firm.

The workforce swelled to 75 by the beginning of 2023.

But with the new solar rules taking effect in April, sales cratered.

Williams said he was forced to cut jobs in July and again in August. The San Diego company is down to 35 workers.

“It’s the absolute worst. The absolute worst,” Williams said. “Our culture is family first. And it’s very difficult to tell people that I personally hired with that promise. ‘Hey, we’re going to be a spot for you. You work well for us, we’re going to be there for you.’ — say ‘Hey, sorry. Can’t employ you anymore.’ It’s extremely difficult.”

“Every opportunity we have, regulators need to make it easy to put solar on, not more difficult. And not listen to these naysayers who are trying to make money by outlawing the inexpensive use of solar on people’s homes.”
Mark Jacobson, Stanford University

The local businessman is looking squarely at the CPUC.

“I would ask them why they did that,” Williams said. “Why did they put us in this spot when we told them we would be in this spot very clearly? And they didn’t listen and now here we are.”

The Solar Energy Industries Association said California’s solar-related businesses had more than 78,000 people on the payroll at the beginning of 2023. 67,000 worked in the residential rooftop solar sector.

The California Solar & Storage Association projects 17,000 of those residential jobs will be snuffed out by the first quarter of next year.

And prospects for the solar industry in the rest of 2024 are dim.

“The market, in real time, is 80% below where it was last summer,” said Bernadette Del Chiaro, the executive director of the California Solar & Storage Association.

The job losses are exactly what the industry was warning about when regulators were revising the state’s NEM rules.

The changes slashed the value of electricity produced by rooftop solar and that has crushed demand.

“What the 80% is, is sales. And it’s measured by sales data collected in the aggregate across the industry, as well as interconnection applications. That’s the first step of the interconnection process. That happens very soon after a sale,” Del Chiaro said. “Data shows us a pretty devastating view.”

Critics of the new rules blasted what they say is a cozy relationship regulators have with California’s investor-owned utilities (IOU).

San Diego Gas & Electric, Pacific Gas & Electric and Southern California Edison did not succeed in their bid to charge solar customers a monthly grid connection fee which critics called a solar tax.

But all the IOU’s backed the changes which cut the value of electricity sold back to the grid.

“They’ve been building toward this for a long time. They’ve been essentially trying to knock the competition out of the marketplace,” Del Chiaro said. “This is sort of a pending decision in a sort of a long line of public utilities commission decisions that sort of follow that same pattern.”

The decline will have economic impacts as the job losses are felt.

Many of the state’s 1,100 installers and developers could be forced to reconsider their business model. They may have to offer other services or consider going out of business. Williams said he is considering moving San Diego-based HES Solar’s operations to another state.

But the biggest hit may come to California’s ambitious climate goals, which require the state to be carbon neutral by 2045. The state’s Renewables Portfolio Standard requires 60% of the state’s energy be from clean, renewable sources by 2030.

That means the state needs to slash greenhouse gas emissions, cut air pollution and dramatically reduce fossil fuel consumption.

Stanford University researcher Mark Jacobson said rooftop solar was expected to account for about a quarter of that clean energy production, but this year’s rules change combined with slowing sales may put the state’s goals out of reach.

“Slowing that down with hostile regulations making it more expensive for people to put up rooftop solar is just going to slow down a transition, cause more air pollution deaths and morbidities in California and raise prices as well,” Jacobson said.

Jacobson has studied pathways for California to electrify the state’s economy, a transition that will require greatly expanding wind energy, utility-scale solar, geothermal energy, battery storage and solar from rooftops.

Regulators will play a key role, he said.

“Every opportunity we have, regulators need to make it easy to put solar on, not more difficult,” Jacobson said. “And not listen to these naysayers who are trying to make money by outlawing the inexpensive use of solar on people’s homes.”

The rule changes causing so much upheaval are being challenged in court.

The San Diego-based Protect Our Communities Foundation, the Center for Biological Diversity and the Environmental Working Group asked the 1st District Court of Appeal in San Francisco to force regulators to reconsider the changes.

The challenge argues the CPUC failed to support solar in disadvantaged communities, failed to account for all the benefits of rooftop solar, and failed to make sure the solar industry grows sustainably.

“All three of those things are statutory requirements in the Public Utilities Code and the commission’s decision doesn’t meet those requirements,” said Aaron Stanton, a member of the legal team challenging the CPUC.

In a legal filing last summer, state utility regulators asked the court to reject the challenge.

The court will hear oral arguments on Dec. 13.

It is unclear when a decision might be rendered.

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