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.
Matthew is a correspondent at Heatmap. Previously he was an economics reporter at Grid, where he covered macroeconomics and energy, and a business reporter at BuzzFeed News, where he covered finance. He has written for The New York Times, the Guardian, Barron's, and New York Magazine. Read More
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An interview with Dave White, a water expert at Arizona State University, about what a breakthrough along the Colorado River really means
Arizona, California, and Nevada announced a deal on Monday to reduce the amount of Colorado River water they use, ahead of a bigger overhaul planned for 2026. The agreement is crucial, likely keeping the river from reaching dangerously low levels that would have put water supplies for major cities and agricultural regions at risk. But Colorado River water policy is often knotty and confusing, and it can be difficult to wrap one’s head around just what kind of impact deals like this can have.
To that end, I called up Dave White, the director of the Global Institute of Sustainability and Innovation at Arizona State University and chair of the City of Phoenix’s Water/Wastewater Rate Advisory Committee. He explained how things work now, what the deal means, and how he’d like to see things change in the future — particularly in 2026, when the current set of water allocation rules expire and are replaced. Our conversation has been edited for length and clarity.
There are more than 100 years of law policy agreements, which we collectively call the law of the river. But the most relevant is an agreement called the 2007 Interim Operating Guidelines for the Coordinated Operations of Lake Powell and Lake Mead. That’s the long name, but we typically call it the 2007 agreement.
That agreement created a set of rules that, as the name indicates, helped to guide the operations of Lake Powell and Lake Mead. And along with subsequent agreements, particularly the drought contingency plans in 2019, it has guided the management of the reservoir system on the Colorado River and set forth the allocations managing the flow to the lower basin states.
Right now we’re in the time period between when the interim guidelines were established in 2007, updated with drought contingency plans in 2019, and when we’ll hit a deadline for a new set of operating guidelines in 2026. And so all of this is trying to manage the risk from the reduced water supply on the Colorado River and to help reestablish a balance in the supply-demand equation of water in an era of megadrought, climate change, and high agricultural demand and increasing municipal demand.
The first thing that’s important for folks to realize is that this is a proposal. What was announced was essentially an agreement among the lower basin states — California, Nevada and Arizona — to propose a plan to reduce demand in those states. It will need to go through additional steps to identify more specifics, and then this proposal ultimately will need to be adopted by the seven affected states and then endorsed by the Bureau of Reclamation.
What the proposal does is lay out a framework to reduce water demand in the lower basin by about 3 million acre feet. And for context, one acre foot is about 325,000 gallons of water, or the amount of water used by two to four homes in the western United States per year. That reduction would be taken across multiple sectors: agriculture, tribal communities, and some municipal or urban users, most notably the Metropolitan Water District of California, which is the Los Angeles area.
The idea is to reduce demand through voluntary conservation. And then part of the package is compensation for some of that voluntary conservation in the form of funding from the federal government through the Inflation Reduction Act to the tune of about $1.2 billion. That is an absolutely critical part of the of the story: the Inflation Reduction Act has really enabled this breakthrough, because of the federal funding for those voluntary conservation measures.
Another critical part of the story was that recently the Bureau of Reclamation released what’s called a draft environmental impact statement, and it presented a couple of alternatives to the states for consideration. Those proposals gave us kind of a federal government’s perspective on the framework moving forward. It was essentially a classic negotiating tactic, where the Bureau of Reclamation said, “look, you states have yet to reach a consensus agreement, so we’re going to lay out a plan,” and, as is often the case, everybody was unhappy with parts of that plan.
That helped to stimulate additional negotiations and bring California, in particular, more to the table. So it’s a very important moment in time because it represents a turning point in multi-year negotiations between the states. Importantly, it lays out a path forward for a consensus agreement that is driven by the states as opposed to being imposed upon them by the federal government. So, we’re talking about a breakthrough in negotiations that led to a three-state proposal.
Well, that’s what we’re waiting to see. We don’t have all of those details yet.
Legally, the Bureau of Reclamation needs to go through this process, weigh the different alternatives, evaluate it, identify what they would call a preferred alternative, and then ultimately make a determination. But the Bureau of Reclamation has certainly indicated there’s initial support for this proposal and that the funding would be made available.
We don’t know who specifically would receive how much of that funding but we do know that it will be agriculturalists (essentially farmers and ranchers), some municipalities such as the Metropolitan Water District of California, and some Native American communities.
We are still engaged in what I would call incremental adaptation. This is adapting to the rapidly changing conditions that are presented by this 22-year-long drought, the so-called megadrought in the region. We are also adapting to the impacts of climate change. If you go back, you know, the 2007 agreement was an incremental update to deal with a very significant risk of shortage on the Colorado River system in 2000 to 2005. We had the drought contingency planning process in 2019 that was another incremental adaptation at that time that was meant to get us to 2026, when the current guidelines expire. Environmental conditions continue to rapidly change, while the demand side continues to stay high. And while we’ve made a number of efficiency gains and voluntary reductions, the river is simply over-allocated for the flow that we have seen, especially since the turn of the millennium.
So we’ve been engaging in a series of incremental adaptations. Now, there’s nothing wrong with that. That’s a very smart strategy as you move along, right? You’re incrementally adapting your policy to reflect the changing environmental and social conditions. This is another important incremental adaptation that will hopefully allow us to keep working towards the 2026 guidelines.
What I and many others argue is that we need a more transformative adaptation, we need a more significant restructuring. Now, it’s difficult to do that right now in the midst of a very short-term risk. But eventually, between now and 2026, we need to address some of the structural imbalance, or deficit, in the river. We have over-allocated the river in this era of increasing drought and climate change.
We’ve got to restructure the demand over the course of the next several years, and that’s going to require more transformational kinds of changes. But I also want to point out that’s not limited to reducing demand, right? You can do that through dramatic increases in efficiency. We can produce the same units of product, whether that be food or microchips or homes or businesses, with significantly less water.
The most effective strategy is efficiency. It’s the cheapest. It does not require significantly new infrastructure or new water augmentation. And there are lots of good stories out there, in creating more efficiencies and creating more flexible policies and more adaptability within the way that we manage water. We’ve got to sort of wring every cool new approach we can out of the system.
One that I think is really important is that the city of Phoenix and several of its regional partners in central Arizona are in the planning stages of moving towards an advanced water-purification process. What that means is it would allow the cities to pool their wastewater resources, their effluent, and then be able to treat that water through advanced water purification so we can reuse that water for municipal use. We call that direct, potable reuse of the water.
Central Arizona is incredibly efficient, we reuse about 90% of all the wastewater that we produce in the central Arizona region for power production, for urban irrigation, for agriculture, etc. But we can actually reuse that water to support households and businesses. We can then use that water again. Some of it is consumed by people, but basically cycling the water through the city as many times as possible reduces the need for new raw water.
So the current proposal that’s in the process of being developed by the City of Phoenix Water Services Department is for advanced water purification that, according to the current estimates, would produce about 60,000 gallons of water a day for City of Phoenix residents from wastewater. And so, that’s one way we can be much more efficient in recycling and reusing our water.
I do think it gets to the need for greater public understanding and then, you know, individual and collective action. In single family residential households, for example, 50% or more, on average, of the water use is outside the home for things like residential landscaping and swimming pools. In the Phoenix area, we’ve seen a really significant trend in reducing water demand inside single family homes, thanks to technologies like low water-use toilets and more efficient washing machines and dishwashers and so on. The next frontier is getting more progressive with the way we manage residential landscaping water. And that's something that every individual household can do.
The Southern Nevada Water Authority, the Las Vegas Regional Authority, has been really at the forefront of these kinds of strategies with turf buyback programs, incentivizing homeowners, and creating all sorts of both incentives and policies to reduce that outdoor residential demand. And that’s something where individual households can be empowered.
No, I really don’t. It’s about a sort of risk management in the short term, and then crafting new policy approaches and new management strategies over the long term. So I don’t think these get in the way of each other. The 2019 agreement essentially bought us some time, and this round of proposals and anticipated agreements will continue to buy us some time.
Do I think we need more adaptation, and more significant changes? Absolutely. But I would never criticize these incremental plans, because they’re absolutely necessary to manage short-term risk.
Without these actions, there was a plausible scenario where levels in the reservoirs could drop below the minimum power pool, meaning we wouldn’t be able to create power out of the Hoover Dam. In [the Bureau of Reclamation’s] 24-month studies, we began to see scenarios in which the lake levels dropped below the intakes, meaning we wouldn’t be able to deliver Colorado River water whatsoever to the states.
When you start to see these highly undesirable scenarios where you lose the ability to produce power, you potentially even lose the ability to deliver any water at all from the Colorado system to Arizona, California, or Nevada, you know you’ve got to act and engage in short-term risk management.
The risk that we’ve always seen is that you get some relief from the kind of very strong winter precipitation in the Rocky Mountains and in California that we had this year. But as a colleague says, we cannot let one good winter take the pressure off. I never want to root against good news, and the winter precipitation and the new proposal and potential agreements are good news. But you got to keep the pressure on and keep the emphasis on the long-term strategies.
[Laughs] Yes.
Well, I think you can look at it both ways. Yes, there was the intention that the 2019 plans would get us to 2026. Turns out the 2019 plans got us through 2022. That’s just the reality we’re in. Do I wish the 2019 plans would have gotten us to 2026? Yes. But without the 2019 plans, we would have been at risk of minimum power pool levels even earlier.
I was hopeful the 2007 plans would get us to 2026. But the reality is that the climate is changing, the drought has just been incredibly persistent. I mean, we now know from looking at reconstructions of the past climate that this 22-year period is the driest period in our region in the last 800 years for certain, and very likely in the last 1,200 years. That’s an exceptional period of drought. And so, by some measures, you know, it’s pretty remarkable what the water management community has done to manage the risk without significant disruption to the region. So in some ways, it’s a success story.
The single most important thing everyone recognizes is that we really need to chart a new path forward for agriculture. Particularly for agriculture in the lower basin, and even more specifically for non-food forage crops in the lower basin.
We still use two-thirds or more of our water in the lower basin for agriculture, and most of that is used for forage crops, like alfalfa, which feed livestock. So we very much need to restructure the agricultural sector in the lower basin and think about prioritization of certain types of agriculture in certain locations. And importantly, we need to work with agricultural communities, with landowners and businesses, to help them transition to a future that recognizes there’s less water available. And, you know, this is the challenge that we face: How do we make an intentional, thoughtful, supportive transition to a new, more efficient, and more appropriate type of agriculture in the West?
This region is in an amazing region to grow alfalfa if you have water. And so, there’s lots of rational choices that were made along the way. But in an era of significantly reduced water availability, it is simply not sustainable for us to continue to use that much of our available water for agriculture, and in particular for forage crops mostly to support cattle. And so this has to change.
I fully recognize, though, that these are private property rights, and there needs to be a process for this. We can’t just simply have a situation like what we saw in the Midwest where we just move all of our manufacturing overseas and abandon entire swaths of the country. We have to think about how we can help, whether it’s through compensation, community planning, capacity building, job transitions, etc. But that’s the biggest part of the solution. We need to be very thoughtful about that.
I think one of the key things we really need to get into the planning process [for 2026] is greater adaptability and greater flexibility so we’re able to respond to changing conditions. Under the current guidelines there is a priority rights process where we would have [hypothetically] seen the reduction of essentially all — 100% — of Arizona’s allocation of the Colorado River, before any of California’s rights were reduced. But it seems implausible to eliminate the Colorado River water supply to Phoenix, which is the fifth largest city in the country. These are the third rails of water politics. We have to rethink the way that these water allocation decisions are made, and we’ve got to be much more flexible, much more adaptable, and really think about how we can respond to climate and water conditions.
