NEM 3.0 proposal would cut California’s residential solar market in half by 2024, says WoodMac

Facebook
Twitter
LinkedIn
Reddit
Email
The policy would cause residential PV installs in California to fall 42% between 2022 and 2023, according to Wood Mackenzie. Image: Sunnova.

Proposed changes to California’s net metering (NEM) incentive programme will severely reduce residential PV’s value proposition in the state, cutting its solar market in half by 2024, Wood Mackenzie has warned.

An overhaul of the policy being considered by authorities would result in more than 2.4GWdc of demand destruction in California’s residential solar market by 2026, the research firm said, representing a 36% reduction compared with forecasting it published last month that had already taken into account modest impacts from the proposed changes.

This article requires Premium SubscriptionBasic (FREE) Subscription

Try Premium for just $1

  • Full premium access for the first month at only $1
  • Converts to an annual rate after 30 days unless cancelled
  • Cancel anytime during the trial period

Premium Benefits

  • Expert industry analysis and interviews
  • Digital access to PV Tech Power journal
  • Exclusive event discounts

Or get the full Premium subscription right away

Or continue reading this article for free

Dubbed NEM 3.0 and put forward by California Public Utilities Commission (CPUC) last month, the new scheme would slash solar export credits by about 80% and add a US$57 per month fixed charge for the average residential system that is partially offset by a US$15 per month credit for ten years.

If the policy is approved, Wood Mackenzie expects it will start impacting installations in July or August of this year, meaning installers will spend the first half of the year selling as many residential solar systems as possible and rushing to submit interconnection applications under NEM 2.0 rates.

The firm then forecasts new residential installs would plummet 42% between 2022 and 2023 – the first full year of NEM 3.0 – with the decline continuing into 2024, when annual residential PV deployment would fall to just over 700MWdc – roughly half of last year’s additions and the lowest annual installation level for the state since 2014.

Deployment is also expected to be hit by the decrease in the federal investment tax credit (ITC), which is currently due to drop to 22% next year before fully expiring for residential systems in 2024.

Bryan White, a research analyst at Wood Mackenzie, said the NEM 3.0 proposed decision and the ITC step-down will create a challenging business environment in the near- to mid-term, adding: “Many solar companies will not survive this double whammy of policy headwinds, resulting in significant consolidation in a contracting California residential solar market.”

Under the proposed changes, the typical payback period for solar systems would more than double from between five and six years to between 14 and 15 years, according to Wood Mackenzie’s analysis on Pacific Gas & Electric and Southern California Edison, the state’s two largest utilities.

“For both utilities, the payback periods under NEM 3.0 go way beyond the 10-year threshold,” White said. “Beyond this threshold, customers are less inclined to invest in solar projects and installers are less motivated to sell them.” 

He said installers will most likely need to sell much smaller solar projects to achieve savings for customers, putting immense pressure on margins as installers collect less revenue to cover fixed costs.

The analysis comes after solar workers and climate activists took part in marches to CPUC buildings in Los Angeles and San Francisco to protest the changes earlier this month. Bernadette Del Chiaro, executive director of the California Solar & Storage Association, said at the time that the proposed decision “completely reverses California’s progress on clean energy and green jobs”.

While the CPUC had originally been due to vote on the policy in a meeting tomorrow (27 January), this has been postponed, with a new date for the vote yet to be announced.

7 October 2025
San Francisco Bay Area, USA
PV Tech has been running an annual PV CellTech Conference since 2016. PV CellTech USA, on 7-8 October 2025 is our third PV CellTech conference dedicated to the U.S. manufacturing sector. The events in 2023 and 2024 were a sell out success and 2025 will once again gather the key stakeholders from PV manufacturing, equipment/materials, policy-making and strategy, capital equipment investment and all interested downstream channels and third-party entities. The goal is simple: to map out PV manufacturing in the U.S. out to 2030 and beyond.

Read Next

September 17, 2025
The California State Legislature has passed two bills that aim to reduce energy prices in the state, AB 825 and SB 302.
September 17, 2025
For the third year in a row, self-consumption installs have fallen in Spain, with 611MW of new additions in the first half of 2025, according to a report from trade body APPA Renovables.
Premium
September 16, 2025
At RE+, industry leaders pointed to the resilience of the US solar sector, despite challenges brought by the 'One Big, Beautiful Bill' Act.
September 16, 2025
Two Wisconsin Republicans have introduced legislation to open access to community solar projects in the US state.
Premium
September 15, 2025
The UK government and solar industry have jointly published a long-anticipated roadmap detailing how to maximise the country’s solar potential. Chris Hewett, CEO of Solar Energy UK takes a closer look at the details.
September 15, 2025
Australia has reached 26.8GW of installed rooftop solar at the end of the first half of 2025, according to a report from the Clean Energy Council (CIC).

Subscribe to Newsletter

Upcoming Events

Solar Media Events
September 30, 2025
Seattle, USA
Solar Media Events
October 1, 2025
London, UK
Solar Media Events
October 2, 2025
London,UK
Solar Media Events
October 7, 2025
Manila, Philippines
Solar Media Events
October 7, 2025
San Francisco Bay Area, USA