The world of renewable energy was blindsided today by proposed rules for residential solar in California. Net metering is being changed, which isn't a surprise, but the rules may make it hard for anything but the most expensive rooftop solar projects to be economical.
Solar energy stocks were hurt the most, with Enphase Energy (ENPH 5.97%) dropping as much as 9.1% and SunPower (SPWR 5.74%) falling 11.9%. The two stocks were down 6% and 11.6% respectively at 2:55 p.m. ET. Bloom Energy (BE 1.05%), which makes fuel cells for commercial buildings, was also down as much as 7.2% today.
States adjust how net metering and grid access works on a regular basis, but California is by far the largest solar and renewable energy market in the country, so it gets a vast majority of the attention. Late on Monday, the California Public Utilities Commission issued a proposal that could be extremely damaging to solar energy projects.
The biggest contention is an $8-per-kilowatt (kW) monthly grid participation fee for homes with rooftop solar. This would cost an average homeowner around $700 per year and undermine the financial viability of solar-only installations. What the commission wants to do is give homeowners an incentive to store energy in batteries during peak hours to reduce strain on the grid. But this will likely make solar-only projects uneconomical altogether.
Solar plus storage projects get even more complicated. They may be economical, but only if they don't export any electricity to the grid at all and instead offset evening and night electricity consumption with power stored during the day. This is what Sunrun's (RUN 2.48%) Edward Fenster argued in a public letter this morning.
To make matters even worse, two previous versions of net metering will be sunset 15 years after installation, which could make projects financed for 20 or 30 years uneconomical. As the project owners, companies like Sunrun and SunPower have a lot of financial risks if projects are no longer as economical as planned.
If passed as planned, this could be a huge blow to California's solar business. And most companies that operate in the U.S. are highly dependent on California to grow installations.
While Sunrun and SunPower will be directly impacted by this bill, Enphase and Bloom Energy are downstream in their impact. Enphase could see less demand for its microinverters while Bloom's investors may see less favorable policies coming for fuel cell projects.
Keep in mind that these rules aren't final and the public and renewable energy companies will have time to comment. But right now the policy landscape doesn't seem favorable for rooftop solar, whether that's the intention or not.