‘Where California goes, so do other states’

Except there is a big caveat: the installations in these two segments are still under the legacy Net Energy Metering 2 (NEM2.0) and not the newer version in force since 2023, NEM3.0, also known as the Net Billing Tariff (NBT).

“What you see in the monthly and annual installation numbers on the distributed generation side in 2024 and 2025 is actually NEM2.0 contracts still being built out,” explains Bernadette Del Chiaro, senior vice president for California at Environmental Working Group.

Del Chiaro adds that installation figures for the past couple of years for distributed generation in California look better than they actually are, and that the impact will be more noticeable in 2026. Naman Trivedi, group CEO at solar marketplace EnergySage, adds that 2026 will likely be a tough year for installers.

“There’s kind of an inflated number [for 2024 and 2025], and 2026 as a result, is probably going to be a really bad year, because you’ve got the tax credit going away and they’ve pretty much now built out the backlog of NEM2.0 contracts,” says Del Chiaro.

Sachu Constantine, executive director at leading advocacy body Vote Solar, adds that California’s residential market has significantly slowed down compared to other markets.

“We are seeing big upticks in markets that have enabling policy, that have looked at rooftop solar as a path forward. You’ve seen other states with relatively strong growth in their markets, but California remains a huge market, if not the biggest market. It’s just unfortunate to see it reduced by so much right now,” explains Constantine.

California Court of Appeals upholds NBT

And if that slower pace of rooftop installation in the solar industry in California in itself was not enough bad news, it recently received another setback with the Court of Appeals’ decision last month. The California Court of Appeals upheld, for a second time, the current tariff programme under NBT, despite the Supreme Court agreeing with the environmental groups opposed to it.

Trivedi explains that this setback means that the current compensation structure – which was contested by three environmental groups – stays in place and “signals to California homeowners who were holding out for a potential change that change may not be coming”.

The lawsuit was brought forward back in 2023 by the Environmental Working Group, The Center for Biological Diversity and The Protect our Communities Foundation and argued that NBT was inconsistent with section 2827.1, which identifies several key objectives that the California Public Utilities Commission (CPUC) must ensure in developing the new tariff programme.

“They agreed with us that the lower court got it wrong. But as is usually the case with the Supreme Court of California, they don’t get into the weeds on the policy debate. They’re interested in the precedent. They ruled with us on the standard of review for how the courts oversee the PUC.

“The problem is that it sent us back to the exact same court that disagreed with us the first time, in fact, the same three judges on the panel,” explains Del Chiaro, adding that they are still considering appealing the decision to California’s Supreme Court.

If the Supreme Court decides to take on the appeal for a second time, that would mean that it will have to take on the substance of the issue once and for all, says Del Chiaro.

The lawsuit is more than a net metering issue

Even though the lawsuit is centred on problems related to California’s net metering scheme, Del Chiaro says it goes beyond that and is at the heart of who oversees energy regulation in California.

“It’s of huge significance, above and beyond net metering. I’m not trying to diminish net metering, and I care about that a lot. But if you’re the Supreme Court, this will affect all PUC decisions. It’s one of the most powerful state agencies, and right now, they largely operate with impunity,” explains Del Chiaro, adding: “It is so important what we’re fighting for here. It’s just the very heartbeat of energy regulation in California, which is a huge, important issue.”

As mentioned earlier, California has long been a positive trendsetter in the US for clean energy, and what happens in that state often leads others to follow suit. However, depending on the final outcome of this lawsuit and whether the Supreme Court takes the appeal, it could set a precedent, either positive or negative, for other states.

“Almost every other state has the exact same setup and the same dynamics, the same power struggle, and where California goes, typically, not always, but so go other states.

“It’s not quite precedent, because other states will have their own precedent, their own courts, but it will set an example. It’ll embolden PUCs and other states to just keep running roughshod over the law, or it will yank their chain. If we win, other PUCs will suddenly be more cautious,” says Del Chiaro.

But no matter the outcome of that lawsuit, the fact that EWG and other organisations went up against the PUC could still open the door for other states or other companies to do the same in the future.

“Prior to us taking this net metering decision to court, nobody sued the PUC like rarely, rarely, rarely, rarely. And there was this logic in California, and I’m sure in every other state, that because the PUC is a constitutionally created state agency, they weren’t just created by the legislature, but they were created in the Constitution, enshrined in the state constitution, that gives them special status. And they therefore are above the legislature, and that’s just not true,” explains Del Chiaro.

She adds that an “inordinate number of cases” against the PUC have been brought to the Court of Appeals since August and that will embolden the public to change their viewpoints on whether they can or cannot go against the PUC on its decisions. Not only in California but in other states, too.

Bringing it back to the impact on rooftop solar, the negative impacts resulting from California decisions have already been seen in the past. For example, as Constantine points out, when the state moved “to curtail the growth of rooftop solar and commercial solar, other states moved that way too by shrinking their net metering tariffs or installing caps. And quite frankly, that is moving us in the wrong direction as a country.”

However, Constantine adds that conceptually, NBT is not the problem and keeping the ruling in place prevents many possibilities in the future. “It’s just that it was so drastic, and that makes it more difficult to go solar; it sort of suppresses that deployment.”

VPPs as the short-term solution to meet demand growth

Constantine mentions that one of the ways to help boost the growth of rooftop solar could be through virtual power plant (VPP) programmes, such as the Demand Side Grid Support (DSGS) programme that is run by the California Energy Commission.

In essence, the DSGS programme helps support VPPs through guidelines that set which resources qualify for it.

However, in a similar negative fate as with the net metering programme, funding for DSGS is scarce at the moment and its fate is pending.

“There’s a bill right now to try to push all existing and new funding into a PUC-run programme that the investor-owned utilities implement. But that programme has produced scant megawatts for enormous cost. It is nowhere near as cost-effective as the DSGS programme, and it’s a question as to whether it can be effective,” explains Constantine. The PUC programme Constantine refers to is the Emergency Load Reduction Program.

Despite that, Constantine explains the importance of VPPs in a grid where the load will grow in the coming years, driven by the increased demand from data centres, AI and the electrification of vehicles and homes too.

“The question that we have to ask ourselves is, how can we do it in the most cost-effective, least cost [way] and those two things are not necessarily synonymous. You can have a very cost-effective, but very expensive programme, and we’d like to find the optimal path forward, and we know that eventually we’re going to have to build more bulk power. We’re going to have to improve our transmission lines, and we’re going to need these large sources of clean energy ready out there. But we also know it’s going to take ten years,” says Constantine.

In the short term, Constantine says the solution comes through using VPPs instead of restarting coal plants or building gas peaker plants to supply data centres. Constantine mentions the possibility of subsidising low-income communities and other residential and small businesses to install solar and storage, which could both help reduce their personal bills and provide resources to the grid.

“That’s the vision we have for the next five years or so: build more of that VPP capacity as much as possible,” says Constantine.

And when one mentions VPP, energy storage also enters into the discussion, and for EnergySage’s Naman Trivedi, batteries are one of the biggest stories in home energy at the moment.

“The value of a home battery has changed—it’s not just backup power anymore. Virtual power plant programmes are paying homeowners to let utilities draw on their stored energy during peak demand, turning a battery into an income-generating asset,” Trivedi says.

“Our marketplace data shows that homeowners want storage for three distinct reasons: bill savings, self-supply, and backup power, in almost equal measure. That’s a meaningful signal.”

Balcony solar, the entry point to rooftop systems

Another development that could help kickstart interest in rooftop solar, particularly on the residential side, is plug-in solar, also known as balcony solar. A new legislation (SB 868) is currently in the works in California and would make balcony solar a reality in one of the leading solar PV states in the US.

“Balcony solar is opening people’s minds again, and it’s breaking this negative perspective attached to net metering that is inaccurate, but it has stuck. And net metering has become kind of a dirty word. What I’m enjoying about balcony solar is that it feels like, once again, it’s unleashing the excitement. And people are excited about solar again,” explains Del Chiaro.

She adds that plug-in solar is in itself not different from rooftop solar from a public policy point of view or from a management perspective of people’s energy supply. And even though balcony solar is unlikely going to replace the importance of the rooftop solar market, Del Chiaro says that this could help attract people’s interest in solar PV and interact with the technology and become a starting point for people to then consider adding rooftop solar.

“The silver lining in all of this, at the end of the day, is that Californians are still very pro solar. They’re very pro-tech solutions that work for them. They’re very open to new technologies. That is still the core of this state,” concludes Del Chiaro.