Utilities are doubling their 5-year electricity demand projections—but high interest rates and California's NEM 3.0 have U.S. solar in a holding pattern
Anyone paying a utility bill has certainly noticed that the cost of electricity has risen over the past couple of years—at a rate that has often outpaced recent high inflation. With electricity demand rising due to a number of factors, including everything from electric vehicle (EV) adoption to even cryptocurrencies and artificial intelligence (AI), rates promise to continue going skyward. In fact, some U.S. utilities are doubling their electricity demand projections over the next five years.
Then there’s the fact that the electric grid in the U.S.—which is already antiquated and subject to increasing outages—may be at its limit.
With the need for more and more electricity, and more transmission lines to get that electricity where we need it, utilities will need to build increased capacity. It seems as though higher rates will inevitably fund these projects.
But it doesn’t have to be that way. Now is the time for renewables to provide much-needed relief for an aging grid and support our electricity needs with clean energy. Encouraging the adoption of distributed residential solar and energy storage at the homeowner level is essential since it can provide energy security and cost savings to real families and business owners—in addition to increased local generation capacity.
What will it take to make a solar future for all a reality? There’s no denying the multiple macroeconomic and legislative challenges slowing the growth of residential solar. It’s important to understand these issues and how we can overcome them together.
Interest rates are through the roof
According to Aurora Solar’s 2024 Industry Snapshot, three-quarters of homeowners interested in purchasing solar panels feel that overall system and installation costs are too high. Of these respondents, 54% specifically feel that interest rates are also too high—something that anyone selling a home, a car, or solar has likely heard.
Though there has been some relief recently, high interest rates have been a thorn in solar’s side throughout the past year. Whether homeowners are unable to bear the long-term financial burden of these rates or are waiting for them to drop, many are currently stalled at the interest stage of purchasing solar and struggling to commit.
In fact, our study found that 54% of interested homeowners are choosing to save up and wait for interest rates to drop. However, even if interest rates come down, their long-term plans could be threatened by legislation that is already making its way across the country.
The chilling impact of NEM 3.0
Most states have a net metering program, which allows consumers with solar panels to earn credits for selling any excess solar electricity back to the grid. Last April, the California Public Utilities Commission implemented the state’s third version of net metering, the Net Billing Tariff—also known as NEM 3.0—which significantly reduced compensation rates for new solar customers. For example, under NEM 3.0, compensation for solar energy sent to the grid during the day, when panels are producing the most energy, can be as low as $0.00 per kilowatt-hour in some cases. All told, it’s been estimated that NEM 3.0 cut compensation rates for exporting solar to the grid by 75%.
Whatever the justification, this policy is incredibly short-sighted for a number of reasons—and has had an immediate impact on the industry. Aurora Solar’s platform saw a 35% decrease in California project designs in the six months following NEM 3.0’s implementation compared to the same period in 2022. Policies like NEM 3.0 decrease access to a clean source of electricity, make energy more expensive for homeowners, and constrain the growing Virtual Power Plant (VPP) movement, where homeowners’ solar and battery systems help supply electricity to the grid during times of high demand, especially natural disasters.
When it comes to setting solar policy and influencing other states, California’s impact cannot be overstated. North Carolina, Arkansas, Idaho, Hawai’i, and West Virginia all cut rates in NEM 3.0’s wake. Other states are considering changes to net metering policies in 2025. NEM 3.0’s framework is being adapted and tested around the U.S., which is especially concerning given our survey found that only 16% of homeowners are familiar with the term “net energy metering.”
However, there is a light visible on the horizon. Policymakers in California recently introduced legislation to repeal NEM 3.0 in favor of a better plan for solar adopters. While it’s still too early to know how this will turn out, the resistance is a strong sign that California solar won’t go down without a fight—and other states should be watching closely.
Collaboration is key
Despite the significant barriers, the future of solar is bright for all. Our research showed that 77% of homeowners were interested in purchasing solar panels or already had panels on their homes. This, coupled with recent pushback against legislation like NEM 3.0 from both politicians and environmental groups, is an encouraging sign that Americans aren’t willing to stand by and let solar slip away.
While high interest rates caused a temporary slowdown, solar providers are already finding ways to meet homeowners where they are. When asked what is most important when selecting a solar installer, homeowners’ number one response was the availability of different financing options—so it’s encouraging to see that alternate financing choices are becoming more readily available. Solar professionals who can clearly explain these options and the pros and cons for each use case will be the ones who can turn interest into action in any market.
In the long run, we could even see additional solar incentives emerge as increased energy demand further taxes the grid. Efforts at the federal level, including the Inflation Reduction Act (IRA), have been promising: Our study found two-thirds of solar professionals have already seen an impact on solar interest due to the IRA—but increased local and state incentives will be equally important to help homeowners go solar.
It’s not going to be easy. There are significant roadblocks facing the industry. However, there are even more significant opportunities. Solar companies are innovative and homeowners are resilient. That’s why, when you add it all together, solar’s potential is (still) truly through the roof.
Chris Hopper is the CEO of Aurora Solar.
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