The Rooftop Solar Business is Failing…in Sunny SoCal
Without monstrous subsidies and huge wealth transfers to hide their actual costs, “green” energy has very little demand in the market economy.
A rooftop residential solar array in sunny Southern California. Really adds to that curb appeal, right?
Here’s the Economics 101 lesson for today:
Question 1: What happens when a government heavily subsidizes a product or service?
Answer: Demand goes up, sometimes considerably.
Question 2: What happens when government subsidies are pulled from a product or service?
Answer: Demand goes down, sometimes considerably.
In order to stimulate a new push for residential solar, the California Public Utilities Commission (CPUC) established a rate schedule for customers generating excess energy from their solar systems and selling the energy to the state grid. The idea, known as Net Metering, paid owners of residential solar the retail cost of electricity, upwards of $0.26 per kilowatt hour (the statewide average in 2022).
The problem with this scheme is that the retail cost of electricity includes power generation costs, employee salaries, transmission expenses, and local distribution costs, which those solar arrays do not pay for. Those solar homes were getting paid an additional $0.16 per kilowatt hour that they didn’t spend on the fixed costs of maintaining the state’s electrical grid. Guess who pays for that?
Everyone else without residential solar that uses electricity, regardless of income level.
Here is a graphic that explains the economics of the scheme:
The program was meant to financially incentivize residents to take a chance on solar. Today, this program has evolved into a massive wealth transfer from low-income to high-income earners.
Given the technological progression of today’s solar systems making them relatively affordable compared to thirty years ago, it was determined that solar does not need to be so heavily subsidized any longer. A decision in December 2022 by CPUC reduced the value of net metering credits by around 75 percent and placed a mid-April 2023 deadline for residential solar applications to be submitted by customers interested in getting the higher net metering credits grandfathered in before the deadline.
The results were shocking and completely expected: If solar power is not massively subsidized, the demand for it drops sharply, even in sunny California.
The imminent change in payments to customers drove a three-month surge in residential solar applications leading up to the mid-April 2023 deadline. Once those inflated payments were adjusted downward, the demand for residential solar in California, one of the few places in the country where it is even viable, fell 90 percent in May of 2023 compared to May of 2022. Fewer than 4,000 applications were received in November 2023, the last month of available data.
Making matters worse, rising interest rates to finance solar purchases and installations have risen to the point where many people simply cannot afford them. And even if they could, the break-even calculation on solar just got pushed out a few years longer due to the lower rates new customers now receive on the surplus electricity they sell back to the grid.
Un-subsidized solar makes no financial sense. It was never meant to.
In my neighborhood, the proliferation of rooftop solar is abundant. Solar salespeople and their colorful company vans were a common sight every weekend in 2021 and 2022. Clean-cut young men and women in company-logo button-down shirts canvassed up and down my street, carrying tablet computers with the ability to instantly calculate how much energy would be saved (and how much you would be paid for your excess juice), at the different “solar package” levels.
I was pitched a couple of times, with purchase estimates ranging from $40,000 to $50,000. Even considering the lower estimate, at our rate of power consumption it would take well over ten years to pay off the upfront costs. Adding in the cost of battery storage, solar panel replacement within a few years due to weather damage, and possible damage to the roof caused by the solar installation itself, and you end up with a value proposition that clearly does not include saving money.
I have believed for years that solar makes practical sense only if you consume a lot of energy and your goal is to offset some of that energy usage through solar. Some people might feel better about their high energy consumption while others need to make a fashionable statement as to how they are “doing their part to save the planet for their children,” a claim I have heard from many of my neighbors and friends with rooftop solar systems. Yes, their monthly utility bills were lower, however the amortized cost of the system in total far exceeded any energy cost savings.
The solar industry counted on people seeing lower monthly utility bills and deceptively positioning this as a “savings.” This is why the net metering subsidies were so important to drive solar adoption, and why demand completely collapsed when those subsidies were taken away, exposing the true un-subsidized cost of converting to solar.
What about those carbon-free energy goals?
With such a sudden drop off in residential solar, how is California supposed to meet its ambitious requirement of switching to 90 percent carbon-free electricity by 2035? That goal will be modified downward and the timeline extended to reflect the realities of powering a modern economy. Expect the issuing of additional subsidies financed by the purchase of “carbon offsets” that will be passed on to consumers.
California can look to Europe as an example of what happens when you eliminate reliable, carbon- and nuclear-fueled energy in favor of “renewable” solar and wind generated energy. This is not a theory; it is happening in real time. Reality will cause a pullback from this “ambitious” (a euphemism for “reckless”) push into solar and wind as money dries up, energy shortages rise, costs skyrocket, and utilities begin to fail with regularity.
The collapse of rooftop solar in a favorable region such as sunny Southern California demonstrates that without massive subsidies, people are seeing that their financial best interests are not being met by “renewable, green” energy sources. These sources consume much more money to fund them than the value of energy they can ever produce.
Ironically, from a financial standpoint you can say that makes “green” energy…unsustainable.