Why NEM 3.0's battery bump isn't guaranteed beyond California

In the wake of the 2023 overhaul of net metering in California, storage surged. 

That’s according to a recent report from Lawrence Berkeley National Laboratory, which found that battery attachments to residential solar systems grew by 50%. 

• The top line: This boost in battery attachments mirrors the one seen in Hawaii after its own net billing overhaul. But market conditions suggest that those results aren’t something that the pipeline of states poised to make similar cuts to solar incentives should count on. That’s in large part because of key features of both California and Hawaii — like high solar adoption and legacy storage programs — that aren’t present elsewhere.
• The market grounding: The move to net billing in California (where the state has dubbed it net metering 3.0) and elsewhere has been highly controversial, and early indicators show precipitous drops in solar installations — in California the first few months of NEM 3.0 saw mass layoffs and an 80% decrease in installations. It is still unclear what the long-term impact of net metering reform will be, although some in the solar industry believe the market will continue to suffer. 
• The current take: Latitude Intelligence analyst Daisy Dunlap said that these reports are just snapshots of the net billing transition, and other states may fare differently. “There’s a lot of excitement around the potential for more batteries,” she said, “but some states’ markets are less ready for net billing.” 

Both Hawaii and California possessed a few key (and relatively rare) market conditions before making their respective transitions from traditional net metering to a net billing structure, Dunlap said, which greatly reduces the financial benefits for consumers selling power back to the grid, by valuing excess energy at lower rates.

For one, their solar penetrations pre-transition dwarfed the national average, making up 27.5% of California’s energy mix in 2022, and 5.9% of Hawaii’s in 2014. (National penetration in those years was 4.8% and less than 1%, respectively.) 

And both California and Hawaii had battery incentive programs that were already up and running, rather than standing up new programs as net billing came into effect. The latter is a strategy that has already led to failure in Arizona, whose move to net billing in 2016 had some “serious holes,” Dunlap said. 

One of Arizona’s attempts at post-net billing battery connection programs failed to garner enough consumer interest and was canceled mid-2023,  after only eight customers signed up to offer flexible capacity accreditation, frequency regulation, and ancillary services. This was in part because of a misalignment between what the batteries were designed for — grid services, in this case — and the back-up power that customers thought they were getting, she added. That desire to provide back-up to, for instance, AC units largely drove purchasing decisions.

Meanwhile, California and Hawaii were already crediting batteries for their ability to act both as resilience resources for customers and as revenue-generating assets on the grid.

The net billing pipeline

Analyses from LBNL and Schneider Electric’s EnergySage  do not project future installation figures— though some in the solar industry say they will crush rooftop solar by doubling the time it takes for installations to pencil out. 

The latest state to transition to a net billing structure is Idaho, which approved the move in December. Though the state’s net billing tariff went into effect in January, the move faced immense criticism in regards to how it impacts consumers, with some finding that in the wake of the change, it would take consumers up to 30 years for their rooftop investments to pay themselves back.

The long-term implications of net billing remain to be seen, Dunlap said. And the string of states also considering net metering reform — Connecticut, Arkansas, Illinois, Washington, South Carolina, and New Hampshire — shouldn’t expect the same outcomes that have been touted as storage successes in California.

“Customers are already worried about paying off their rooftop solar investments,” Dunlap said. “If they feel like they’re just being pushed to buy yet another asset, many aren’t going to put themselves at greater risk.”