Death of California Solar? The Impact of Net Metering Policy on Californian Solar Installations

Since 1995, net metering policy has provided a constant incentive for customers of California’s Investor-Owned Utilities (IOUs) to install solar panels. Under the IOUs’ net metering programs, customers with solar systems receive a full retail rate credit for each unit of excess energy they generate and export back to the grid. This has allowed customers with an appropriately sized solar system to zero out their electricity bills, applying credits from hours when they generate excess solar energy towards the cost of non-solar energy use. However, in December 2021, the California Public Utilities Commission (CPUC) announced plans to significantly alter net metering policy beginning April 15, 2023. Under their new policy, colloquially referred to as “NEM3,” export credits are aligned with utilities’ avoided costs rather than customers’ retail rates, resulting in a roughly 80% reduction in excess generation compensation. However, NEM3 only applies to new solar customers; customers who interconnected their system before April 15 were grandfathered into a full retail rate net metering program for 20 years, providing a major incentive to install solar before this date. This paper uses a difference-in-differences model approach to estimate the impact of the CPUC’s announced plans to alter net metering programs on solar installation levels. The results suggest that the CPUC’s plans spurred a statistically significant 0.396% point, or 31%, increase in month-over-month installation growth in the IOUs. This increase implies customers are responsive to changes in net metering policy and suggests decreases in Californian residential solar installations post-implementation of NEM3 are likely.