California Warms to Solar Homes; Other States May Give a Cold Shoulder

This story was originally published by Stateline, an initiative of The Pew Charitable Trusts.

California’s first-in-the-nation requirement that all new homes have solar panels is a giant leap toward its goal of a fossil-free future, but the challenge of managing a surge of electricity to the grid could keep other states—even sun-soaked ones—from following suit.

Opposition from utilities and homebuilders, and a slower return on investment, also could stall similar efforts in other states.

With 80,000 houses built in California each year, the mandate that takes effect in 2020 will more than double the amount of solar energy produced in the state by 2025, the state said. California hopes to have 100 percent of its electricity come from carbon emission-free sources by 2045.

But energy experts, even those supportive of renewable energy, say the move could create difficulties for the state’s electric grid as more residents contribute energy to the grid by selling their excess solar power. Utilities will have to manage that increase in energy production to keep it from overwhelming the system.

“Yes, all that solar going on the grid in the middle of the day is undeniably a challenge,” said K Kaufmann, who recently left her job as a communications manager for the Smart Electric Power Alliance to work for Fluence, an energy storage company. “However, there are a range of potential solutions and more will be developed. This is going to spark a lot of innovation.”

Cloudy states may not be tempted to follow California’s lead, but other sunny states, particularly those with ambitious clean energy goals, will be watching to see how its utilities adapt. A few cities in California have within the past few years implemented requirements that all new homes have solar panels, as has the town of South Miami in Florida, but this is the first time a mandate will be rolled out on such a large scale.

“We should recognize this as a pretty historical decision,” said Sean Gallagher, vice president of state affairs for the Solar Energy Industries Association. “This is a further step in solar going from what was a niche product a few years ago to becoming as common as the front door on a home.”

The California Energy Commission, which voted unanimously to add the solar panel requirement to the state building code, said the cost-benefit analysis made it a straightforward decision. Though the measure on average will add about $8,400 to the cost of building a home, that is less than what owners will save on their electric bills.

But the same may not hold true in many other states. Though California’s home builders ultimately supported the measure, their national advocacy group opposes such mandates elsewhere.

“Based on our estimates, we don’t believe it would be cost-effective or in the best interest of consumers to mandate solar panels in other states,” Liz Thompson, director of media relations for the National Association of Home Builders, said in an email. Utility and housing prices in other states may prevent a return on the investment for homeowners, she said.

Other factors could change the financial calculations. Utilities in some states have pushed hard against rooftop solar, since keeping solar production in the hands of utilities ensures they retain their customer base.

And how much utilities in other states would be required to pay homeowners for the electricity they contribute would make a big difference in how quickly homeowners could recoup their costs.

The Path to Net Zero

California regulators discussed a potential solar mandate for the better part of a decade, part of the California Public Utilities Commission’s effort to make new homes “zero net energy,” essentially producing as much energy as they consume over the course of a year.

As technological advances drove down the price of solar panels, California enacted stricter efficiency standards for homes, such as insulation and lighting requirements, California Energy Commission spokeswoman Amber Beck explained, reducing the wattage of solar needed to supply a home. That meant a solar power system would be cheap enough to meet the commission’s strict standard that new rules be cost-effective.

Adding solar panels to a home is expected to boost average monthly mortgage payments by $40, while homeowners would save an average of about $80 a month on their electricity bills, according to the California Energy Commission.

Despite initial concerns over costs, California builders supported the mandate because of flexibility in how they can comply, said Bob Raymer, technical director with the California Building Industry Association.

Solar panels can be placed directly on the roofs of individual homes, or builders can install community solar units that support several homes. Homeowners also have the option of leasing solar panels from a company rather than owning them outright.

Getting it to the Grid

California utilities likewise supported the measure, but trade groups and energy experts have raised concerns about the stability of the grid and how utilities will keep up and pay for electric infrastructure as more customers produce and sell their own energy.

Many utilities operate on “a traditional grid where the generation is in one place and electrons are going to the home and nothing is coming back, where you have a one-way, centralized system,” Kaufmann said.

A two-way system creates complications. Beyond the fear of frying infrastructure with excess electricity, utilities are concerned that the cost of maintaining infrastructure might shift too heavily toward ratepayers who do not have solar panels.

California hopes to resolve grid stability issues by pushing homebuilders to include battery storage along with the solar panels.

Though battery storage technology is still being developed for larger scale projects, said Gallagher of the solar association, battery storage for the home market is becoming more efficient and cost-effective each year.

California will switch to “time-of-use” pricing in March. That means consumers will be charged less for electricity during the day, as solar contributes to the grid, and charged more in the evening when solar production decreases, but people returning home from work put more demand on the grid.

Regulators hope batteries could be used to store excess energy created during the sunniest times and later power the home on a cloudy day or when prices for electricity are higher.

But the issue of who pays for infrastructure remains a concern. If homeowners with solar panels become less reliant on utilities, customers without solar panels may be stuck with a greater share of the cost of maintaining the grid. In some cases, solar panel users are charged a fee for remaining connected to the grid, but utilities worry as their customer base changes, that fee may not be enough.

“It’s not that we don’t want customers generating solar,” said Paul Zummo, director of policy research and analysis with the American Public Power Association, which represents nonprofit utilities. “It’s just that we want that cost to be recovered in an equitable manner. We don’t want one class of customer subsidizing another.”

Other States, Other Issues

It’s not yet clear that the math would work in other states, where electricity rates might be lower than California’s average of 16 to 19 cents per kilowatt hour, and labor and other solar installation costs could be higher.

“I think it’s replicable,” Zummo said. “But it might be that in a state where the electric rate is five or six cents a kilowatt hour it takes longer to recoup that value.”

Such issues might stop other states from considering a mandate like California’s—especially those that pay customers less for the energy they contribute. Under net metering policies, customers are compensated for the excess solar electricity they contribute to the grid. Selling electricity back to the utility, especially at favorable rates, is part of what makes the solar panels a financial win for homeowners.

Net metering can be the key to the cost-effectiveness of solar panels, Zummo said. Some states pay market rates for electricity sold back to the grid, while others pay the cheaper wholesale rate.

“This kind of [solar panel] mandate works best with full-scale net metering,” Gallagher said, where consumers are credited for the solar they contribute at the same price they pay when drawing electricity from the grid. “If a state has different regulatory structures then the economics might look different for… whether customers start saving money right up front.”

Other states, under pressure from utilities, have rules that make it less desirable for homeowners to install their own panels. Utilities generally prefer large-scale solar projects that guarantee them a customer base and limit the complexities of dealing with excess energy on the grid and compensating those who produce it.

Bryan Jacob, solar program director for the Southern Alliance for Clean Energy, said even though many states in the Southeast have solar potential, he doesn’t think a mandate would gain much traction there.

“We’re still a very conservative ilk. I think we like more capitalist solutions, more market-based mechanisms, than a top-down heavy-handed mandate. That’s just my read of the politics,” he said.

Many utilities in the Sunbelt have resisted roof top solar. Alabama Power is being sued over a fee it charges customers with solar panels, which “effectively makes it cost you money to put solar on your roof,” Jacob said.

“Utilities dig in to protect the revenue streams they currently have,” he said.

But in some places the tide is beginning to turn. Florida has long grappled with whether to allow homeowners to lease solar panels from private companies. The solar industry association ranks Florida as eighth in the nation for solar, despite being ranked second for solar industry potential.

States with more generous compensation rates for solar panel owners, such as Hawaii, will be keeping an eye on California.

“You’ll see other states start to recognize that solar is cost-effective for their citizens and their grids. The lesson is it takes time. It didn’t happen overnight in California,” said Gallagher with the solar industry association.

“I’m excited about other states recognizing that this kind of requirement is feasible and assisting them in taking steps in that direction.”