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Earnings calls by rooftop solar companies reveal that the battery business is booming.
The solar industry has been sounding the alarm about California’s new rooftop solar billing rules basically since the day they were first proposed in late 2021. The market for residential solar panels in the state — the country’s largest — could contract by 40 percent in 2024, the industry warned, if rules governing the price of energy generated by those panels were changed. A coalition of environmental groups even sued the state earlier this month to stop the changes.
But now that the new billing rules are in effect, it’s becoming clear they may actually open up new opportunities for the solar industry, shifting its business away from trying to throw up as many panels on as many rooftops as possible to selling more complex and dynamic solar-and-storage systems that fluidly work with the state’s whole grid. While the industry at times has marketed residential solar as a way to escape the grid, the new rules recognize that every panel affects everyone else who uses electricity in California, and that for decarbonization to work, more than solar panels are needed.
That being said, the logic of the industry and the environmental groups is pretty straightforward. The old rules, which still apply to existing solar systems as well as those that applied for interconnection before the April 15 deadline, were deliberately generous to encourage mass adoption. The new system has changed how utilities pay for electricity that rooftop solar users sell back to the grid. Instead of paying (California’s quite high) retail price of electricity, the payments are now based on a formula that’s supposed to reflect how much electricity generation the utilities can avoid by buying up rooftop solar supply. While overall payments would be cut by around three quarters for many of those who install rooftop solar after the deadline, the value of energy that could be sold back to the grid when it’s most needed — like on a hot summer evening — could go up.
These rules are then naturally meant to encourage the installation of batteries along with solar panels. If Californians can store the energy they generate, they can functionally shift some of the sunshine from the middle of the day, when demand is low, to the end of it, when demand spikes.
“Battery storage is now a required component for rooftop solar economics in [California],” Morgan Stanley analysts wrote in note to clients.
The industry is putting a brave face on the changes, noting in some cases that they were able to sell a bunch of systems before the April 15 changes as customers presumably raced to lock in the old rules. But now that the new rules are in effect, companies are more than happy to include a battery with a residential solar system. And Californians at least seem to be taking them up on the offer.
“While still early, we are seeing signs of a meaningful acceleration in battery storage adoption in California. This is not too surprising, in our view, given the need for battery storage to arbitrage the varying power prices and export rate differentials under NEM 3.0,” the Morgan Stanley analysts wrote.
Peter Faricy, the chief executive of SunPower, one of the country's largest residential solar companies, told analysts on a May 3 earnings call that business notably picked up in anticipation of the April 15 changes. He also noted how the rules have changed the game for batteries: “For customers in California, I think [batteries will] almost be a standard part of the package now. It just makes a lot of sense to include a battery in the system." Faricy also said about half of SunPower’s direct California customers have bought batteries in recent weeks, up from about 20 percent earlier this year.
For another solar giant, Sunrun, California sales jumped 80 percent in the first quarter in anticipation of the new rules going into effect in April. The company also said it launched a new program called Shift, which allows its customers to store solar power generated in the middle of the day for use during peak cost hours when utility rates are higher. “We are seeing over 85 percent of customers select Shift or battery backup since launch,” the company’s chief revenue officer Paul Dickson said in its May earnings call.
William Berger, chief executive of Sunnova, another big solar company, told analysts in late April there was “a fairly steep drop” following the changes on April 15, but that the portion of new customers getting batteries was “something like north of 60, 70 percent.”
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“So I know some others have talked about, hey, as NEM 3.0 goes, it's going to be great for storage, equipment sales, and, obviously, our service,” Berger said. “I wouldn't extrapolate too much on this, but very early days shows that that's proving itself out very quickly. So we do expect to see a very high attachment rate in California.”
In other words, despite the grousing of the industry, NEM 3.0 may very well be working as it’s intended to.
It’s all part of California’s overall shift in how it thinks about its electricity generation, moving beyond simply deploying as much renewable energy as possible to crafting a renewable-heavy system that actually keeps the lights on 24 hours a day, 365 days a year and serves everyone who needs electricity, not just those who have the financial wherewithal or hobbyist interest to install solar panels. (The old net metering system, the California Public Utilities Commission said, led to $67 to $128 in higher utility costs for low-income households.)
While California is by no means decarbonized — about a third of its electricity comes from renewables, less than what it gets from natural gas — it is the state that has most aggressively attempted to transform how it powers itself, and could thus be a model for what a more mature energy transition looks like in the United States.
Precisely because California has so much solar already installed, the solution’s predictable intermittency issues are an increasing challenge for the grid as a whole. With almost 25 gigawatts of solar installed, the so-called “duck curve” — the graphical representation of the mismatch between solar generation’s daytime peak with demand later in the early evening — has become a “canyon curve,” with net demand crashing quickly sometimes to zero and then rising again at the end of the day.
This means that California needs to figure out how to make its non-carbon generation more flexible, through some combination of storage, demand management, and flexible non-carbon generation like hydrogen.
The California Public Utilities Commission was very explicit about this when they laid out the rationale for the rule changes. “By modernizing NEM, California can incentivize distributed storage and promote electrification, which will provide more value to the electric grid and help California meet its ambitious climate goals even faster,” the Commission said.
And while that may not help solar companies sell as many panels as they like, it sure will help their battery business.
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A conversation with Mary King, a vice president handling venture strategy at Aligned Capital
Today’s conversation is with Mary King, a vice president handling venture strategy at Aligned Capital, which has invested in developers like Summit Ridge and Brightnight. I reached out to Mary as a part of the broader range of conversations I’ve had with industry professionals since it has become clear Republicans in Congress will be taking a chainsaw to the Inflation Reduction Act. I wanted to ask her about investment philosophies in this trying time and how the landscape for putting capital into renewable energy has shifted. But Mary’s quite open with her view: these technologies aren’t going anywhere.
The following conversation has been lightly edited and abridged for clarity.
How do you approach working in this field given all the macro uncertainties?
It’s a really fair question. One, macro uncertainties aside, when you look at the levelized cost of energy report Lazard releases it is clear that there are forms of clean energy that are by far the cheapest to deploy. There are all kinds of reasons to do decarbonizing projects that aren’t clean energy generation: storage, resiliency, energy efficiency – this is massively cost saving. Like, a lot of the methane industry [exists] because there’s value in not leaking methane. There’s all sorts of stuff you can do that you don’t need policy incentives for.
That said, the policy questions are unavoidable. You can’t really ignore them and I don’t want to say they don’t matter to the industry – they do. It’s just, my belief in this being an investable asset class and incredibly important from a humanity perspective is unwavering. That’s the perspective I’ve been taking. This maybe isn’t going to be the most fun market, investing in decarbonizing things, but the sense of purpose and the belief in the underlying drivers of the industry outweigh that.
With respect to clean energy development, and the investment class working in development, how have things changed since January and the introduction of these bills that would pare back the IRA?
Both investors and companies are worried. There’s a lot more political and policy engagement. We’re seeing a lot of firms and organizations getting involved. I think companies are really trying to find ways to structure around the incentives. Companies and developers, I think everybody is trying to – for lack of a better term – future-proof themselves against the worst eventuality.
One of the things I’ve been personally thinking about is that the way developers generally make money is, you have a financier that’s going to buy a project from them, and the financier is going to have a certain investment rate of return, or IRR. So ITC [investment tax credit] or no ITC, that IRR is going to be the same. And the developer captures the difference.
My guess – and I’m not incredibly confident yet – but I think the industry just focuses on being less ITC dependent. Finding the projects that are juicier regardless of the ITC.
The other thing is that as drafts come out for what we’re expecting to see, it’s gone from bad to terrible to a little bit better. We’ll see what else happens as we see other iterations.
How are you evaluating companies and projects differently today, compared to how you were maybe before it was clear the IRA would be targeted?
Let’s say that we’re looking at a project developer and they have a series of projects. Right now we’re thinking about a few things. First, what assets are these? It’s not all ITC and PTC. A lot of it is other credits. Going through and asking, how at risk are these credits? And then, once we know how at risk those credits are we apply it at a project level.
This also raises a question of whether you’re going to be able to find as many projects. Is there going to be as much demand if you’re not able to get to an IRR? Is the industry going to pay that?
What gives you optimism in this moment?
I’ll just look at the levelized cost of energy and looking at the unsubsidized tables say these are the projects that make sense and will still get built. Utility-scale solar? Really attractive. Some of these next-gen geothermal projects, I think those are going to be cost effective.
The other thing is that the cost of battery storage is just declining so rapidly and it’s continuing to decline. We are as a country expected to compare the current price of these technologies in perpetuity to the current price of oil and gas, which is challenging and where the technologies have not changed materially. So we’re not going to see the cost decline we’re going to see in renewables.
And more news around renewable energy conflicts.
1. Nantucket County, Massachusetts – The SouthCoast offshore wind project will be forced to abandon its existing power purchase agreements with Massachusetts and Rhode Island if the Trump administration’s wind permitting freeze continues, according to court filings submitted last week.
2. Tippacanoe County, Indiana – This county has now passed a full solar moratorium but is looking at grandfathering one large utility-scale project: RWE and Geenex’s Rainbow Trout solar farm.
3. Columbia County, Wisconsin – An Alliant wind farm named after this county is facing its own pushback as the developer begins the state permitting process and is seeking community buy-in through public info hearings.
4. Washington County, Arkansas – It turns out even mere exploration for a wind project out in this stretch of northwest Arkansas can get you in trouble with locals.
5. Wagoner County, Oklahoma – A large NextEra solar project has been blocked by county officials despite support from some Republican politicians in the Sooner state.
6. Skagit County, Washington – If you’re looking for a ray of developer sunshine on a cloudy day, look no further than this Washington State county that’s bucking opposition to a BESS facility.
7. Orange County, California – A progressive Democratic congressman is now opposing a large battery storage project in his district and talking about battery fire risks, the latest sign of a populist revolt in California against BESS facilities.
Permitting delays and missed deadlines are bedeviling solar developers and activist groups alike. What’s going on?
It’s no longer possible to say the Trump administration is moving solar projects along as one of the nation’s largest solar farms is being quietly delayed and even observers fighting the project aren’t sure why.
Months ago, it looked like Trump was going to start greenlighting large-scale solar with an emphasis out West. Agency spokespeople told me Trump’s 60-day pause on permitting solar projects had been lifted and then the Bureau of Land Management formally approved its first utility-scale project under this administration, Leeward Renewable Energy’s Elisabeth solar project in Arizona, and BLM also unveiled other solar projects it “reasonably” expected would be developed in the area surrounding Elisabeth.
But the biggest indicator of Trump’s thinking on solar out west was Esmeralda 7, a compilation of solar project proposals in western Nevada from NextEra, Invenergy, Arevia, ConnectGen, and other developers that would, if constructed, produce at least 6 gigawatts of power. My colleague Matthew Zeitlin was first to report that BLM officials updated the timetable for fully permitting the expansive project to say it would complete its environmental review by late April and be completely finished with the federal bureaucratic process by mid-July. BLM told Matthew that the final environmental impact statement – the official study completing the environmental review – would be published “in the coming days or week or so.”
More than two months later, it’s crickets from BLM on Esmeralda 7. BLM never released the study that its website as of today still says should’ve come out in late April. I asked BLM for comment on this and a spokesperson simply told me the agency “does not have any updates to share on this project at this time.”
This state of quiet stasis is not unique to Esmeralda; for example, Leeward has yet to receive a final environmental impact statement for its 700 mega-watt Copper Rays solar project in Nevada’s Pahrump Valley that BLM records state was to be published in early May. Earlier this month, BLM updated the project timeline for another Nevada solar project – EDF’s Bonanza – to say it would come out imminently, too, but nothing’s been released.
Delays happen in the federal government and timelines aren’t always met. But on its face, it is hard for stakeholders I speak with out in Nevada to take these months-long stutters as simply good faith bureaucratic hold-ups. And it’s even making work fighting solar for activists out in the desert much more confusing.
For Shaaron Netherton, executive director of the conservation group Friends of the Nevada Wilderness, these solar project permitting delays mean an uncertain future. Friends of the Nevada Wilderness is a volunteer group of ecology protection activists that is opposing Esmeralda 7 and filed its first lawsuit against Greenlink West, a transmission project that will connect the massive solar constellation to the energy grid. Netherton told me her group may sue against the approval of Esmeralda 7… but that the next phase of their battle against the project is a hazy unknown.
“It’s just kind of a black hole,” she told me of the Esmeralda 7 permitting process. “We will litigate Esmeralda 7 if we have to, and we were hoping that with this administration there would be a little bit of a pause. There may be. That’s still up in the air.”
I’d like to note that Netherton’s organization has different reasons for opposition than I normally write about in The Fight. Instead of concerns about property values or conspiracies about battery fires, her organization and a multitude of other desert ecosystem advocates are trying to avoid a future where large industries of any type harm or damage one of the nation’s most biodiverse and undeveloped areas.
This concern for nature has historically motivated environmental activism. But it’s also precisely the sort of advocacy that Trump officials have opposed tooth-and-nail, dating back to the president’s previous term, when advocates successfully opposed his rewrite of Endangered Species Act regulations. This reason – a motivation to hippie-punch, so to speak – is a reason why I hardly expect species protection to be enough of a concern to stop solar projects in their tracks under Trump, at least for now. There’s also the whole “energy dominance” thing, though Trump has been wishy-washy on adhering to that goal.
Patrick Donnelly, great basin director at the Center for Biological Diversity, agrees that this is a period of confusion but not necessarily an end to solar permitting on BLM land.
“[Solar] is moving a lot slower than it was six months ago, when it was coming at a breakneck pace,” said Patrick Donnelly of the Center for Biological Diversity. “How much of that is ideological versus 15-20% of the agencies taking early retirement and utter chaos inside the agencies? I’m not sure. But my feeling is it’s less ideological. I really don’t think Trump’s going to just start saying no to these energy projects.”