The authors are analysts of NH Investment & Securities. They can be reached at ys.jung@nhqv.com. — Ed.
California’s introduction of NEM 3.0 is to reduce the electricity export rate (the selling price of surplus solar power resold to California utility companies). Upon going into effect in Apr 2023, NEM 3.0 should lead to both a sharp drop in residential solar power demand and a decrease in residential solar module prices. But, we believe that US solar power growth momentum will sustain on rising utility demand.
California passes NEM 3.0
On Dec 15, 2022, the California Public Utilities Commission (CPUC) passed Net Energy Metering (NEM) 3.0—the new rules are to be implemented from Apr 15, 2023.
NEM is a rate offset system that reduces electricity costs by selling surplus electricity generated by solar power at home to a power company. The background of this revision to NEM 3.0 is to offset the increased power grid operating costs of utility companies, such as the need for additional reserve power as the load variability of the power grid increases. With the introduction of NEM 3.0, the export rate (the price of electricity generated at home sold to utility companies) is likely to drop by 78% from the previous range of US$0.23~0.35 to US$0.05~0.08 per kWh. As a result, residential solar users’ benefit from selling surplus electricity will likely decrease.
Negative for residential solar power demand, but US solar power growth momentum to sustain
The introduction of NEM 3.0 is inevitably to have a negative impact on residential solar power demand in California. Looking at past California cases, after subsidy (or export rate) cuts, residential solar installations have dived by about 70% on average. As users who have installed solar power at home before the effective date of NEM 3.0 (Apr 2023) are given the electricity sales price based upon the existing NEM 2.0, demand could temporarily boost before Apr 2023. Falls in module demand and prices are likely after the effective date.
In the future, it is expected that the demand for residential solar power installation will be in form of residential solar module combined with small-sized Energy Storage Systems (ESSs), with the aim of increasing self-consumption rather than electricity sales by home solar users. Residential solar inverter companies are already selling ESS-combined products.
As the price of solar power products has decreased as of late (especially in China), it is predicted that the price of solar products will also shrink globally. But, as a result, demand for large-scale utility-grade solar power should remain strong amid price drops. As slow demand for residential solar power is compensated by utilities, global solar power demand, including in the US, should remain on an upward trajectory.
