May 28–Moments before the California Energy Commission (CEC) voted to adopt new energy efficiency standards that included a requirement that all new homes in the state be equipped with rooftop solar, commissioner Andrew McAllister lightheartedly invoked the words of Neil Armstrong, the first human to step on the moon.
“Really happy to be getting this to the finish line and one big step for mankind, I guess,” said McAllister, who took the lead in helping draft the solar mandate that passed 5-0 on May 9.
But the new solar rule has generated a less sunny outlook from others.
Besides generating complaints about raising the cost of new homes in an already expensive housing market in California, the mandate has been criticized by some energy wonks who say the rule does not make economic sense and does nothing to reduce the glut of electricity already generated in the state in the middle of the day.
“All of my colleagues are saying, what the hell is going on in California?” said Severin Borenstein, professor of Business Administration and Public Policy at the Haas School of Business at UC Berkeley.
And within days of the vote, UC Davis economics professor James Bushnell posted a blog at Cal’s Energy Institute calling the mandate a symptom of “regulatory groupthink.”
A columnist for the Chicago Tribune called the new rule “boneheaded.”
McAllister admits he’s been taken aback, saying some of the broadsides take “the ivory tower approach” and “ignores where the marketplace is and where the electric sector is going.”
What the solar mandate does
Every three years the CEC revises California’s Building Efficiency Standards. This year’s iteration included the usual upgrades to the code — for appliances, windows, walls, attics, lighting, etc. — but for the first time added a solar component.
Beginning in 2020, photovoltaic (PV) systems will be installed on every house that receives a building permit, as well as condominiums and apartments up to three stories high. Homes shaded by trees or taller buildings, as well as houses with roofs too small to accommodate a PV system, will be eligible for exceptions or alternatives to the mandate.
The rule does not need to be approved by the state Legislature or the California Public Utilities Commission.
It has just one more hurdle to clear — approval from the California Building Standards Commission (CBSC), which will vote on the code’s update sometime in the fourth quarter of this year. The CBSC usually accepts CEC recommendations without change.
According to CEC estimates, the new standards will reduce greenhouse gas emissions by 700,000 metric tons during the course of the three-year cycle, equivalent to taking 115,000 gasoline-powered cars off the road.
The commission said the solar mandate will increase the average cost of constructing a single-family house by about $9,500 but estimated that savings on energy bills will more than exceed the increased up-front costs during the life of the home.
Representatives of the California Building Industry Association eventually supported the rule but other home builders have criticized it, saying it will hurt lower and middle-income home buyers who are already stretched in California’s high-priced real estate market.
But critics like Bushnell and Borenstein are more focused on how solar is deployed in the state.
First, rooftop solar systems generate electricity that is anywhere from two to six times more costly than large renewable sources like utility-scale solar farms.
“Rooftop solar is an extremely expensive way to move to zero-carbon energy,” Borenstein said. “It costs a lot more than grid-scale solar. It is not cost-effective for the system as a whole.”
That, Bushnell argues, raises the question about whether a mandate was really needed.
“It is a blunt instrument,” Bushnell said. “If you’re building a new home, you have a bunch of choices to make about exactly how energy-efficient you want it to be … And installing solar is now in the ‘you gotta do it’ category.”
Critics worry the new rule could crowd out lower-cost, more efficient renewable energy sources in the future.
And if the CEC is mandating a more expensive form of renewable energy, that may lead to higher costs when it comes to the state reaching its lofty renewable energy targets — such as deriving at least 50 percent of California’s electricity from clean-energy sources by 2030.
The new solar rule “is an inappropriate use of a mandate,” Borenstein said.
Too much of a solar thing
It may surprise some, but while California is racing to use more renewables, there are actually times when the state has too much solar on its power grid.
Solar and wind power have a problem with intermittency — that is, wind wanes when the breezes don’t blow and solar slacks off when the sun doesn’t shine.
But when the sun is out, solar generates so many megawatt-hours of electricity that wholesale energy prices can drop to zero or into negative territory. That puts strain on the grid, and the California Independent System Operator (the organization which oversees the operation of about 80 percent of the state’s electric power system) often has to send the excess solar to neighboring states like Arizona or curtail it altogether.
In economic terms, that means each succeeding megawatt of solar capacity takes on diminishing value.
“Does it make sense to require this solution (the CEC’s rooftop solar mandate) for almost every new home?” Bushnell said. “It’s not like we’ve been in a wasteland of solar. There’s been plenty of solar being installed.”
Then there’s the entire issue surrounding net energy metering — the billing mechanism in which utilities pay rooftop solar customers for the excess electricity their systems send back to the grid.
Net metering supporters say solar-powered systems cut greenhouse gas emissions, reduce the need to build expensive power plants to meet peak demand and promote energy self-sufficiency.
In California, rooftop solar customers get credited by the state’s utilities at the retail rate of electricity (priced today at more than 20 cents per kilowatt-hour), not the wholesale rate (priced at about 5 to 6 cents a kilowatt-hour, when factoring in the state’s cap-and-trade program).
By statute, utilities are guaranteed full cost recovery by the California Public Utilities Commission (CPUC) through the rates they are allowed to charge all customers.
As more solar customers get credited at the retail price, there is upward pressure on rates to cover the utilities’ costs (provided the CPUC approves those rate increases).
Borenstein says that leads to costs moving from those who have rooftop solar on their homes to those who do not.
“The CEC says individual homeowners will save money,” Borenstein said. “But they’re only going to save money because they are essentially shifting costs to other consumers, other ratepayers.”
Considering that 700,000 homes in the state are equipped with rooftop solar, one of Borenstein’s colleagues at UC Berkeley estimated the cost-shift comes to $65 a year for the average household in California.
The CEC’s response to all this
The solar mandate is the first of its kind in the country but the CEC’s McAllister said the PV systems required in the rule are not large — 2.5 kilowatts for many residences while the average size in the state is 2.8 kilowatts.
“I think there’s probably some sort of knee jerk reaction out there that, ‘Oh my gosh, they’re forcing everybody to go net-zero with these big systems,'” McAllister said. “It’s not that at all.”
The CEC used “conservative assumptions all around,” McAllister said, when it crafted the rule.
The estimation that the rule will add about $9,500 to the price of a new home “is a good number,” McAllister said, “but I would predict by 2020 when the effective date comes up, we’re going to see much lower prices on new rooftop solar and new construction.”
The price of installations has been dropping and with the new rule estimated to result in an additional 65,000 new homes getting solar across the state, McAllister anticipates more cost reductions in areas like permitting and transaction fees.
As for critiques that rooftop solar is a more expensive way to acheive renewable energy goals than larger scale solar and wind, McAllister said the price difference is going down. Also, each home site will essentially be used as a platform for solar and other technologies that can decrease the impact on the distribution grid.
“Most of the energy coming from these systems is going to be consumed on site,” McAllister said. “It’s not going to have to flow through the transmission grid.”
The updated code also includes an option to promote solar paired with battery storage systems — a feature rewewable energy supporters have long promoted.
A homeowner’s battery can be programmed to turn on when solar energy is peaking. The stored-up electricity can then be used later in the day, which is especially beneficial as the CPUC transitions utility customers to time-of-use rates.
“I think solar plus storage is going to be the way we’ll make sure our sun shines at night — that’s the expression we’ve been using,” said Kelly Knutsen, the director of technology advancement at the California Solar and Storage Association.
As for the net metering issue, McAllister acknowledged “there is some policy work that needs to happen over at the PUC on the rate-making front” but the solar mandate is just a small part of a larger trend toward a more varied energy world.
“That would have needed to happen anyway, whether or not we made this move in the building code,” he said.
The rule was made on the assumption that current net metering rules stay in place but McAllister said even if the value of solar is at “a trash wholesale value” in the middle of the day, the values at other times in the day more than make up for it.
“Even under the worst case scenario … the solar was still cost-effective” for customers, McAllister said.
The rule’s defenders say there is no perfect policy and the solar mandate moves California — and possibly other states that may adopt similar measures — closer to a cleaner energy future.
“It’s a well-considered, multi-faceted building code update,” McAllister said. “It does a lot of things that all complement one another and in the broader energy space, I am very confident it is appropriate for where we will be in 2020 and even more so as marketplaces and options for clean energy proliferate going beyond that.”
With nearly two more years to go before the solar mandate kicks in, it may be hard to predict its long-term effects but in the short term, solar installers look like clear winners.
The clean energy consulting firm GTM Research published a new analysis right after the rule was passed, boosting the state’s residential solar PV forecast by 14 percent between 2020 and 2023.
Bloomberg New Energy Finance has estimated solar deployment in California growing by 200 to 300 megawatts in 2020.
But McAllister said the CEC was not looking to stimulate the solar economy.
“I’m not a shill for the solar industry; I’m updating the building code,” he said. “What makes sense to do in this day and age to take advantage of market trends, that can clean our energy systems — that’s where this falls.
“So it’s not that there are no remaining challenges or that solar is going to solve our problems. Absolutely not. But this a moment where this was the appropriate thing to do.”
For Bushnell, the adoption of the solar mandate could result in missed opportunities somewhere else.
“Yes, we could install solar on every residential rooftop home and it would reduce greenhouse gases,” he said. “But what if, for example, we could install the same amount of solar capacity at grid scale and, by reasonable estimates, it would cost half as much?
“We could take that surplus and put it into yet another greenhouse gas-reducing technology or better schools or healthcare … It starts to matter whether the choices we’re making are the most efficient and least-cost (choices) or whether they’re just the most convenient ones.”
The new rule goes into effect the same year the federal government’s Investment Tax Credit for solar begins to wind down.
Currently offering a 30 percent reduction in the cost of installing solar, the credit is scheduled to fall to 26 percent in 2020, 22 percent in 2021 and 10 percent from 2022 and beyond.
McAllister said the CEC accounted for the reductions in the tax credit when it formulated the solar mandate, as well as the tariffs imposed by the Trump administration in January of up to 30 percent on solar panels made abroad. About 80 percent of U.S. solar companies rely on imported parts.
This article provided by NewsEdge.