If there is one state that has led the charge towards a renewable energy future in America, it’s California. The state not only installed the nation’s first large-scale solar and wind installations in the 1980s and 1990s, but has led in terms of proactive policies to support the growth of solar and other forms of renewable energy.

As such, it was no surprise when California’s changes to net metering in January 2016, dubbed “Net Metering 2.0”, were less severe than those in other states. However, while the basic features of retail-rate net metering were preserved, in the utility areas where Net Metering 2.0 has been implemented the effect on the residential market has been a distinct chill.

Statistics provided by the State of California show an average of 11 MW of residential solar installed each month in the service area of San Diego Gas & Electric Company in the second half of 2016, compared to 16.9 MW each month for the first half of the year. This decline of more than a third (35%) came after the utility hit program caps and transitioned to the Net Metering 2.0 program in late June.

“The market has had to adjust to the new rules,” Daniel Sullivan, the founder and president of San Diego-based Sullivan Solar Power told pv magazine. “I don’t think the majority of companies know how to sell under the new policy.”

In December, Pacific Gas & Electric Company also hit its program cap and switched to the new program, however state data for January and February 2017 is not yet available.

Erratic policy behavior

California Solar Energy Industries Association (CalSEIA) says that the impacts came even before the policy was implemented and notes that the changes to net metering are only the latest in a series of changes that have had negative effects on California’s solar market.

“We saw a 2% increase in the number of people going solar in 2016 over 2015,” CalSEIA Executive Director Bernadette Del Chiaro told pv magazine. “The last time California saw that little growth in the market was 2008.”

Del Chiaro blames the slowing of the market on the combination of rate design changes in 2015, Net Metering 2.0 and “the combined ‘solarcoaster’ brought about by erratic policy behavior” around the federal Investment Tax Credit (ITC) and net metering.

One of the more potentially damning aspects of the change to Net Metering 2.0 is the move to time-of-use (TOU) rates. As California’s significant solar generation has more than compensated for mid-day peak demand and daytime prices have fallen, the electricity exported to the grid by behind-the-meter solar installations will be credited at a lower rate than the electricity such customers purchase in the evening.

Del Chiaro says that the California Public Utilities Commission (CPUC) has the ability to manage the impact of TOU rates by ensuring that rate changes are gradual. “It remains to be seen whether CPUC will take a cautious and more protective approach,” she muses. “It’s clear that the legislature wants the solar market to continue to grow sustainably, but it is unclear just how much of that directive the CPUC will heed and steward.”

Customer acquisition

GTM Research says that there are more than policy issues leading to a slowdown in California’s residential market. GTM Research Associate Director of U.S. Solar Cory Honeyman describes the decline in compensation from Net Metering 2.0 as “relatively manageable”, and says that there are other problems, including in the territory of utilities which are still on the original net metering program.

“Most importantly, the challenge of customer acquisition becoming costlier and longer has been the primary driver of the residential solar slowdown in SCE and PG&E,” Honeyman told pv magazine. “As customers in certain neighborhoods remain flooded with door-to-door sales, and some installers rely too heavily on low-quality leads from third-party originators, California is the prime example of a market where inefficient customer-acquisition strategies have slowed down the market.”

Honeyman says that such customer-acquisition issues are becoming more critical in California, where solar is already deployed on 8% of the available residential roofs.

Daniel Sullivan of Sullivan Solar Power says that part of the problem is the approach being used by many installers, which he calls “used-car sales tactics at its best”. He says that this is having an impact on potential customers. “People are confused, and they are suffering from buyer’s fatigue,” Sullivan notes.

Energy storage to the rescue?

Much of the hope for the future of California’s residential solar market is in battery storage, and CalSEIA’s Del Chiaro notes that behind-the-meter storage is the most important tool that customers have to manage and control their own energy usage.

Daniel Sullivan agrees that TOU rates are increasing the importance of battery storage. “People need batteries to keep their investments protected,” he observes.

In this regard, the policy momentum is good. Though the first two rounds of available subsidies will likely not last long, last week a commissioner at CPUC issued a proposed decision that would double funding for the state’s Self Generation Incentive Program (SGIP). Del Chiaro notes that there are also two bills in the California Assembly to further support behind-the-meter energy storage.

It remains to be seen if California’s residential storage market can ramp quickly enough. In July, Southern California Edison will transition to Net Metering 2.0, as the third and final of the state’s investor-owned utilities to do so.