A landmark ruling for California solar homeowners could save them $20,000

The sun is shining brighter for California solar homeowners today.

In a unanimous decision that sent shockwaves through the clean energy industry, the California Supreme Court on Thursday sided with environmental groups challenging the state's controversial Net Energy Metering 3.0 (NEM 3.0) policy, ruling that a lower court must reconsider the policy, which slashed solar compensation for homeowners by about 75%.

While this isn't a final decision overturning NEM 3.0, this landmark ruling could restore more favorable rates for future solar installations, save homeowners thousands of dollars annually, and inject new life into California's battered rooftop solar market by establishing that utilities and their regulators aren't above legal scrutiny.

On Thursday, the state's highest court ordered the Court of Appeals to reconsider its earlier decision upholding NEM 3.0 under a more rigorous legal standard. Justice Leondra Kruger wrote in the decision that the lower court "erred by relying on [a] highly deferential approach" to reviewing decisions by state utility regulators.

The Supreme Court didn't overturn NEM 3.0 outright, but it established a critical precedent: The California Public Utilities Commission (CPUC) isn't above legal scrutiny when making decisions that fundamentally reshape the economics of residential solar energy.

"The California Supreme Court has ruled in our favor that the CPUC is not above the law, and the Court of Appeal must revisit their NEM 3.0 decision, which gutted California's rooftop solar market," Bernadette Del Chiaro, senior vice president for California with the Environmental Working Group, told techxplore.

The decision by the Supreme Court sends the case back to the state Court of Appeal to consider whether the CPUC's policy is unlawfully harming rooftop solar growth, especially in disadvantaged communities.

Environmental groups argue that the CPUC violated state laws requiring that any changes to net metering programs must consider all benefits of rooftop solar to ratepayers, the grid, and environmental goals. Instead, they contend the commission only considered how net metering affects utilities and their business models.

To understand the significance of this ruling, it's essential to grasp what NEM 3.0 changed and why it matters to homeowners' finances.

Under California's previous net metering programs (NEM 1.0 and 2.0), solar homeowners received retail rate credits for excess electricity their panels sent back to the grid. If a utility charged 30 cents per kilowatt-hour (kWh), homeowners received 30 cents in credits for each kWh exported.

NEM 3.0 cut the export rate credited to rooftop solar owners by about 75%. The new rules shifted to an "avoided cost" structure, crediting homeowners only for what utilities saved by not buying that power elsewhere—typically around 8 cents per kWh instead of the full retail rate, dealing homeowners a significant financial blow.

The policy shift increased the average electric bill in California by about $63 per month. For a solar panel system that lasts 25 years, that translates to a loss of nearly $20,000 in savings.

Demand for rooftop solar fell 80% after NEM 3.0

The impact was immediate and severe: More than 17,000 solar jobs were lost according to CALSSA, with demand falling 80% post-implementation and numerous companies filing for bankruptcy.

The solar market contracted 31% year-over-year in 2024, according to the Solar Energy Industries Association (SEIA). This decline threatens California's mandate to achieve 100% carbon-free electric energy by 2045, a goal that requires solar energy to account for more than half of that generation.

"We haven't seen a rebound in the market two years after NEM 3.0 went into effect, so we really need to increase the rate of rooftop solar installation," Brad Heavner, executive director of the California Solar & Storage Association (CALSSA), said in an interview with techxplore after the ruling. "Something has to happen and the environment just got even more challenging."

The Supreme Court's intervention comes at a critical time for California's solar industry, which faces mounting pressure from unfavorable policy changes, the weakening state of the economy, and overall macro-economic headwinds facing the solar industry at large.

Under recently enacted federal legislation, the residential solar industry already faces elimination of the 30% federal solar tax credit after December 31, 2025. This represents a loss of approximately $9,000 in savings for the average homeowner.

The Trump administration is also cutting $7 billion in federal grants for rooftop solar projects serving lower—and middle-income residents.

Despite the challenges, homeowners are adapting to NEM 3.0's new economics. On the EnergySage Marketplace, 73% of solar shoppers expressed interest in energy storage in the second half of 2024, with 45% selecting quotes that included batteries—more than doubling year-over-year.

This surge largely reflects the changing economics under NEM 3.0, where storing solar energy and using it during expensive peak hours delivers better returns than selling it back to utilities at reduced rates.

But were the severe solar export cuts under NEM 3.0 really justified? The answer seems to be no.

Solar saved the grid $1.5 billion in 2024

An independent analysis contradicts utility claims about cost-shifting, finding that rooftop solar provided a $1.5 billion cost savings to the grid in 2024. While utilities argue that rooftop solar creates an unfair cost burden on non-solar customers, research consistently shows the opposite.

"Utilities feel threatened by customer solar and storage because it reduces their profit motive, their ability to rate base grid expansion, which is what drives their profits," Heavner told EnergySage earlier this year.

"In California, there's enough solar that they feel like we're really taking weight off the grid and causing them to build less infrastructure, hurting their profits," he explained.

The numbers support this assessment. According to the CPUC, the state's three largest electric utilities have raised customer rates by 82-110% over the last decade, despite relatively flat electricity usage. Meanwhile, transmission and distribution spending by utilities has increased 300%.

Studies from multiple states—from Mississippi to Maine to Nevada—have found "little or no evidence for a 'cost shift' from rooftop solar customers," according to Solar United Neighbors. A Brookings Institution report also concluded that the economic benefits of solar homeowners not only outweigh the costs but provide a "net benefit" for utilities and non-solar ratepayers.

The Supreme Court's decision has already shifted the conversation around solar policy in California, sending a clear message that dramatic reductions in solar compensation must meet rigorous legal standards and consider the full benefits that rooftop solar provides to the grid and ratepayers alike.

The Court of Appeals must now rehear the case using a more rigorous legal standard. It will determine whether the CPUC had a legal basis to cut solar export rates and whether the commission designed a policy that keeps rooftop solar growing in environmental justice communities, as state law requires. This process could take months or even years, but the outcome could fundamentally change how California approaches solar compensation.

But even under NEM 3.0's reduced compensation, solar delivers substantial long-term value: California homeowners can still save between $40,000 and $100,000 over 25 years with solar energy systems, according to EnergySage data. 

The question isn't whether solar makes sense in California—with the nation's highest electricity rates and abundant sunshine, it absolutely does. The question is whether California will once again embrace policies that make clean, renewable energy accessible and financially attractive for all residents.