Data Corner: Does It Still Make Sense To Go Solar?

Over two million California households and businesses have gone solar, taking action to save money and cut global warming pollution by generating their own clean power.

But many of the government incentives to go solar have recently been altered or taken away, including net metering and the main federal tax credit. Plus, California has so much solar—routinely providing 80 percent or more of the state’s power during sunny afternoons—that just adding more solar does little to cut carbon emissions.

This raises the question: Does it still make sense to go solar?

Solar has been caught up in a shifting policy environment in recent years, with some changes helping and some hurting the financial case to go solar.

In 2023, state regulators ended the policy of net metering, where excess solar sent from a home or business to the grid was valued at the full retail rate. New solar customers are now subject to net billing, where customers sell exported power at the wholesale price of 4-5¢ per kilowatt-hour. This can extend the financial payback period for solar systems from 5-6 years under net metering to 14-15 years.

The customer calculus of transitioning to solar will also be impacted by the new fixed charges that state regulators are applying to customer bills. Most Ava customers started paying a base charge of $24 per month in March, paired with a lower delivery charge per kilowatt-hour. This will raise bills for some Ava customers, especially those who buy the least energy, such as smaller households, apartment dwellers, and customers with solar. Meanwhile, other customers who use more electric appliances or consume more electricity will likely see lower bills.

On the national level, Congress voted to phase out a 30% federal tax credit for residential solar that had been on the books since 2005 and was expanded by the Inflation Reduction Act of 2022. Tax credits also ended for home batteries, electric appliances, energy efficiency, and electric vehicles.

While the 30% federal solar tax credit for individuals has ended, it is still available for commercial installers through next year. An installer can install and own the solar on a homeowner’s roof, while the homeowner leases it or buys the power through a power purchase agreement (PPA). Homeowners can even do a prepaid lease or PPA, where they pay an installer up front with the option to take ownership in six years under certain contract terms. The installer can claim the tax credit and pass some of the value along to the homeowner.

Solar equipment prices have also been driven up by tariffs for solar equipment imported from Asia. While many US solar factories have been announced, policies to support their construction have also been weakened (though not repealed) by Congress.

Further complicating all this is the fact that electricity costs in California remain high, as utilities like PG&E spend billions of dollars to reduce the risk of starting wildfires. PG&E delivery rates have risen 25% since 2019, while Ava’s generation rates are actually falling this year. (As a reminder, customers pay Ava for power generation and PG&E for delivery.) Although higher rates pose a challenge for electrification, customers generating their own power with solar can avoid rising prices (though savings are limited by the new Base Services Charge).

Since net billing (the Solar Billing Plan) pays relatively less for power exported to the grid, customers are installing batteries to keep the energy for themselves. Any extra power produced during the day charges the battery, which then powers the home at night. This avoids selling surplus solar power for cheap and buying expensive power from the grid.

Depending on its configuration, a battery system can also provide backup power when the grid goes down or is shut off to prevent wildfires. Reliable power is especially important for households with powered medical equipment. There are programs that provide rebates for batteries and that pay customers to use the batteries for grid support, including Ava’s recently launched SmartHome Battery program.

Ava’s SmartHome Battery program offers customers both an upfront installation rebate and an ongoing incentive to connect their home’s battery to Ava’s virtual power plant (VPP). It’s designed to make it easier for customers to install a new solar and battery system, or add a home battery to their existing solar system, while compensating them for making their excess energy available when the grid is strained.

This helps lower emissions and keep electricity rates stable by reducing the need for costly gas-fired peaker plants. It’s also an effective way to get the most out of a new or existing solar system.

Another way to increase the value of solar panels is to put them to work offsetting not just your electric bill but also your natural gas and gasoline spending—by installing heat pumps in your home and driving an electric car.

Prices for energy of all types have been rising for California households in recent years, both caused by and helping to cause inflation. Figure 1 shows that gasoline and natural gas prices have been quite volatile and have outpaced inflation (the gray line) since 2004. The war in Iran has helped push up both gasoline and natural gas prices in recent weeks. Residential electricity prices grew just slightly faster than inflation until 2020, when they shot up.

Customers who produce their own energy with solar lock in their energy costs over the typical 30-year life of a system. They can then use the solar power stored in their electric car, avoiding gasoline purchases, and in their home, powering electric heat pump appliances instead of natural gas. The average California household spends $3,200 per year on gasoline and about $750 on natural gas. Switching to an electric car and efficient electric heat pumps for space heating and water heating allows solar panels to offset those expenses.

So despite all these changes, are people still going solar?

State data shows that the end of net metering in 2023 slowed solar deployment, but it has revived at a rate of about 150,000 systems per year, comparable to previous rates. Most new systems have batteries to make the most of the Solar Billing Plan (net billing).

While households in Alameda and San Joaquin counties certainly like solar, with about 130,000 systems installed to date, solar is much more popular in Southern California, with twice as many solar homes in San Diego County alone.

Ava’s customers are big adopters of electric vehicles, with rates among the highest in the United States. Almost 40% of new cars sold in Alameda County in the last three years were electric, while EVs made up 20% in San Joaquin.

However, California is lagging in the installation of heat pumps. Only 20% of heating & cooling appliance sales each year are heat pumps, and only 3-5% of water heaters, according to the California Heat Pump Partnership.

The solar data reflects what solar companies are seeing. 

Berkeley-based Sun Light and Power has been installing solar in the East Bay since 1976. Sun Light’s Director of Sales & Marketing Chris Mink says the policy changes have “certainly reshaped our business and our customers’ motivations.”

Mink sees fewer “solar-only” buyers and more combining solar with batteries and planning for EVs, heat pumps, and full electrification. “Battery storage has gone from being a niche add-on to a mainstream request,” he says, rising from less than 20-30% to around 95% of their new residential installs. “Customers today are less interested in selling power back to the grid and more focused on reducing what they buy from it.”

This echoes the experience in Hawaii, where net metering ended in 2015, in favor of policies that encouraged self-consumption. Now, almost half of single-family homes on Oahu have solar, and over 85% of installations have included batteries. 

Electrification is a growing driver for solar. “We estimate that at least one in four residential customers either owns an EV or plans to purchase one soon,” Mink says. “Electrification is no longer a separate conversation; it’s part of the broader move toward clean, self-sufficient energy systems.”

With the end of the federal tax credits, “we’ll see the economics tighten,” he says, but he is still optimistic. “Solar will still make sense in California. Rising utility rates, grid instability, and the growing importance of energy independence all keep driving demand.”