24 Aug 2023
By Amir Cohen
California has embraced limitless possibilities in recent years, particularly in sustainable living, with solar energy at the forefront. The state's solar market has flourished, driven by the attractive incentives offered under the previous net energy metering (NEM) regulations. However, the third iteration of the net metering regulations (NEM 3.0) introduced in April this year has brought about a significant change in net metering rates, projected to reduce the profitability of selling excess energy to the grid by around 70 percent. This shift has led to market uncertainties, with concerns about potential declines in demand.
Energy storage as a solution
The cost of buying energy from the grid is increasing simultaneously as selling energy back to the grid becomes less profitable. This creates an energy landscape where self-production is the most profitable option. However, to ensure self-produced energy is properly utilized, even when the sun is no longer shining, energy storage is needed. With so many solutions on the market, it can be difficult to know where to start. Installers, as the experts, need to evaluate the battery options available, but importantly, they must take into account the factors contributing to simplified battery installation, as well as benefits to the customer.
For installers, there are many benefits to consider. For example, DC batteries, unlike AC-coupled batteries, do not require additional breakers to be installed in the home’s load center. In many cases, this eliminates the need for main panel upgrades (MPUs), which are time-consuming for the installer and expensive for the homeowner. Without these, installers can complete jobs and move on to the next job much quicker.
Batteries with wireless communication and an intuitive installer app can also greatly help installers to spend less time commissioning a job and move on to the next. While many batteries can take up to a full day to commission due to the long process of uploading firmware to the battery bank, those with wireless communication and an accompanying app can be completed in under sixty minutes. Moreover, commissioning can also be carried out in parallel with the installation process, streamlining the procedure and eliminating the need to complete commissioning post-installation.
Additional to this, DC-coupled batteries are also much more efficient, as they eliminate the “triple conversion penalty”, allowing energy produced by the panel to be stored as is, rather than flowing from DC-AC-DC, losing valuable energy on the way. Through this, a DC-coupled battery can provide homeowners with as much as ten days of additional saved energy per year. With escalating energy prices, homeowners are easily able to understand that this equates to substantial value.
Empowering homeowners in the self-consumption market
For homeowners, a solar array with accompanying storage represents a much larger, long-term investment. As a result, they’ll want to ensure they are investing in a high-quality system; it’s up to installers to add as much value as possible to maintain sales. Advising homeowners on ways to reduce the initial investment is a great place to start. Under the Reduction Act of 2022, single-family homes can receive rebates for energy efficiency retrofits of up to $4,000, and multifamily buildings can receive up to $400,000, representing a huge reduction in price.
Another simple way to take different budgets into account is to offer a range of solutions. While most batteries in the US are purchased with a back-up unit, this is not essential for those looking to increase their self-consumption. To offer this flexibility, look for a storage-only solution which reduces battery system costs for homeowners.
A solar + storage solution will also be a more appealing investment to homeowners educated on time of use (ToU) savings. Under NEM 3.0, export rates for solar energy will differ from hour to hour, which can make it difficult to determine the revenue homeowners can generate by selling energy back to the grid. On average, homeowners will receive about 5 cents/kWh. The exception is that during September, between 6:00pm and 8:00pm, the rate will increase to $3/kWh. With careful management of the process, this means that homeowners could receive a potential paycheck of $750-$850 for September. Here, product selection is key, as some systems use algorithms which will ensure the battery is automatically fully charged prior to these times, maximizing profitability for homeowners.
Another way to add value for customers is to talk to them about the role that load shifting can play in increasing solar energy self-consumption. Scheduling heavier electrical loads such as EV chargers, heat pumps, pool pumps and air conditioners, to run at times when solar production is at its highest will help customers use much more of the energy produced by their home. As EV charging increases the amount of energy required in homes this functionality will become even more important. Therefore, offering a complete end-to-end smart energy management system within the home that automates this process will become a major selling point under NEM 3.0.
Oversizing PV arrays also becomes a more important consideration in a self-consumption market. Oversizing the array (in comparison to the inverter’s AC power) ensures that PV systems produce more power more of the time, even during low light conditions. The result is higher energy yield for the home and a faster return on investment for the homeowner through greater ToU savings and load shifting.
Forecasting Californian Solar: insights from international net metering transitions
Similar net metering changes have occurred in many other countries across Europe, allowing us to analyze the following changes to the solar market and predict likely similar changes in California. If energy becomes more expensive to buy than it is profitable to sell, it is more cost-effective to store your energy for personal use when the sun goes down. This results in a net metering market shifting to a self-consumption market, with battery attachment becoming the norm.
We’ve seen the same pattern emerge in multiple countries. For example, both Belgium and Germany saw demand for solar increase significantly in the run-up to the tariff change, and then dip slightly afterwards. However, in both countries this proved to be a blip rather than a trend. Germany has seen incredible market growth since net metering ended in January 2021, with a big increase in PV installations now including a home battery. This substantial increase in demand for solar + storage installations has made the market very profitable for German installers.
What’s the verdict for Californian solar?
With the California Public Utilities Commission recently confirming they will not be holding another hearing on NEM 3.0, it’s clear that the controversial net metering changes are here to stay. However, this presents a huge opportunity for installers. As we’ve seen in other self-consumption markets that have experienced a similar shift, the likely outcome is a short-term dip in sales, followed by a resurgence in demand driven by solar + storage installations. The market that emerges will be more mature, stronger and resilient, and installers who understand how to best implement batteries into their sales mix, will be well positioned to become more profitable than ever.
Amir Cohen is General Manager for North America Solar Business Unit at SolarEdge. SolarEdge works to decarbonize and electrify energy behavior – improving the way we generate, store, use and manage power in every aspect of our lives.
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