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A mere seven weeks into California’s bold mandate to require solar panels on the roofs of new homes in 2020, the California Energy Commission (CEC) approved an application to allow an off-site “community solar” project to power single-family homes as well, effectively nullifying the edict for builders to install solar on each house.

The decision means a large solar panel array, located within the service area of the Sacramento Municipal Utility District (SMUD), which serves 1.5 million residents in the state’s capital region, will now provide another option for home builders and their customers to meet the solar mandate in that territory.

They can still go with rooftop solar, or choose to participate in SMUD’s SolarShares program, powered by a larger scale array located off-site and delivered over SMUD’s existing transmission lines. As part of the approval, participating builders must offer home buyers a choice between rooftop or community solar.

The move has been hailed by the home building industry and affordable housing advocates as an additional, cost-effective way to fulfill California’s overall goal of building net-zero homes—ones that produce as much energy as they consume—in a state facing a housing affordability crisis. But environmentalists, solar panel providers, and others in California are deriding the decision as a precedent-setting power grab by utilities that guts the spirit of the original mandate, while promoting grid dependence in a state ravaged by wildfires, and the power outages that come with them.

Opposing Perspectives
From the point of view of the California Building Industry Association (CBIA), which lobbied on behalf of the approval, community solar is a win for builders and home buyers in the Golden State.

“We always favor choice over mandates, and if you can provide a choice that brings in lower-cost solar, more people are going to be able to afford that home,” says Dan Dunmoyer, president and CEO of the CBIA. “Until you can give everybody a free Tesla, it’s kind of hard to say you have to drive one.”

Likewise, affordable housing advocates say the decision is a unique example of California creating regulatory allowances that actually make homes less costly.

“It’s a rare positive for housing in California,” says Chuck Reed, former mayor of San Jose and a long-time housing affordability advocate who now serves as special counsel for Silicon Valley–based law firm Hopkins & Carley. “This is a rather pragmatic decision by a California state agency that’s actually helpful for home builders.”

But others see it as a way to do an end run around the spirit of the original mandate, by conducting business as usual and making more homes dependent on the state’s increasingly antiquated power grid, since community solar arrays would deliver their electricity to homes via existing transmission lines.

“It doesn’t really benefit the homeowner as much as it does the utility,” says Brett Joerger, CEO of Yuba City, Calif.–based Westhaven Solar, a purveyor of rooftop solar systems to new and existing homes. “Homeowners will still have an electric bill. They’ll still be tied to the utility, and its infrastructure. That’s not the trend we really want to see happen. We want to get away from the big grid. We want to be less reliant on the utility.”

The Los Angeles Department of Water and Power, whose $3.6 billion in annual revenues makes it the largest municipal utility in the country, supported the proposal, as did San Francisco–based Pacific Gas and Electric (PG&E), the investor-owned utility that’s been at the center of the firestorm surrounding California’s energy grid.

What Happened?
California’s solar mandate, which went into effect on Jan. 1, called for most new single-family homes or low-rise apartments to install solar panels on roofs. Those panels could be owned by the homeowner—at an added cost of $7,500 to $15,000 per home—or leased from a solar company, who would sell the generated electricity back to the homeowner at a discounted rate. Leasing panels increases the price tag of a home by $2,500 to $3,000, according to CBIA.

But the mandate also always allowed for “community shared solar” as needed, such as at denser apartment buildings and infill projects that have more residents, and hence, require more electricity, than their roof space can generate, or where structures were in the sun shadow of other buildings.

Now, the approval by the CEC expands the community solar allowance to single-family homes, even if they otherwise have plenty of roof area to support panels. Choosing that route adds as little as $1,200 in costs per home, according to the CBIA. “As we saw it, it was always one of the options that was available,” says Dunmoyer.

Choice or Caveat?
CR Herro, vice president of innovation at Scottsdale, Ariz.–based Meritage Homes, which builds throughout California, highlights the move as a way to get more homes on solar faster, at a lower price.

“The allowance to expand the solar compliance methodology to include off-site solar is smart,” says Herro, one of the industry’s most outspoken advocates for energy-efficient and environmentally conscious building methods. “It should lead to lower cost compliance, and the ability for consumers to still get access to renewable energy in a way that’s more cost effective than having it placed on their own home.”

For solar stalwarts, however, who saw California’s mandate not only as a path toward energy independence, but also as an example for the country and the world, the new allowance is seen as a retreat from the march toward making California homes nonreliant on the larger energy grid.

“As an environmentalist and home builder, there was a lot of momentum leading up to this that made it exciting when the regulations went into effect,” says Brandon Weiss, chief innovation officer at San Diego–based Dvele, a high-end modular home builder that includes roof-mounted solar panels and battery storage as standard in all of its homes, which enables complete disintegration from the grid when needed. “It was a little disheartening to see this other layer added to it.”

Suvi Sharma, CEO at Oakland, Calif.–based solar panel manufacturer Solaria, puts it more bluntly: “The way I see it, it created a caveat, or even an out, for the mandate.”

Off-Site and Out of Mind?
On-site solar proponents claim rooftop solar is more efficient than community solar, because of the inevitable loss of energy as it travels through transmission lines, and that community solar doesn’t save homeowners anywhere near as much over in long run. For example, through SMUD’s SolarShares program, homeowners are projected to save $40 per year, compared with standard electric utility rates.

That’s a fraction of the long-term savings generated by rooftop solar. Electricity rates from leased rooftop solar panels in California typically start at a 20% discount to prevailing utility rates, and are locked in place, even when future grid utility rates, such as those charged by PG&E or SMUD, increase.

But for homeowners who buy rooftop solar outright with their house, the savings are even bigger. Once a rooftop solar system has reached its payback point—usually in about seven years—it continues to generate electricity, for free, for the remainder of its 25 to 30 year lifespan. That can result in tens of thousands of dollars in electricity bill savings, while adding appraised value to the home.

Beyond those advantages, however, rooftop proponents say the absence of panels on California rooftops sends the wrong message.

“One argument is that you’re replacing the same amount of energy with sustainable solar power using a community array,” says Chris Williams, chief customer officer at Salt Lake City–based Woodside Homes, which offers rooftop solar as standard on all of its California homes. “On the other hand, if you can’t see it on roofs in the neighborhoods, even if the government is committed to it, how much are you moving people in that direction?”

The Reality at the State Level
For years, the ambitiousness of California’s solar mandate led many observers to take a wait-and-see approach as the 2020 deadline drew near. Many in the broader home building industry scoffed that the mandate was unrealistic and added an additional cost burden on California home buyers, who already pay some of the highest median home prices in the U.S. You could make an argument that there was even some schadenfreude among industry onlookers waiting for the mandate to fail.

So it shouldn’t be a surprise that builders on the ground in California were already taking steps to work their way around the new mandate, or at least push their need to comply with it out as far as possible, even as it took effect.

“The mandate for solar only applies if you pulled your permit after Jan. 1, 2020,” Dunmoyer says. “So we saw a lot of our builders pull their permits for 2020 back in December 2019, with the plan of not using many of them until the latter half of the year, or possibly even the following year. One of our builders pulled 500 permits in December alone.”

The bottom line is that the change in the mandate at the state level likely won’t have material impacts for builders’ 2020 plans. Either they pulled permits early, or because the broader inclusion of community solar in the mandate doesn’t preclude moving forward with rooftop solar, they’ll simply continue with those builds.

“When I talked to my teams, they were pretty happy with their decentralized, rooftop solar approach, because they’d already solved the problem,” says Herro. “You’re going to see more off-site community solar approaches, especially in compact neighborhoods where it’s difficult to get a big enough array on each roof. But I don’t think you’ll see the shift from rooftop to community solar until 2021.”

There are other reasons why builders may stick to rooftop solar for at least the remainder of 2020, and perhaps even beyond.

“Today, this basically affects one county in the state of California, around the Sacramento area,” says Matt Brost, senior director of sales for new homes at San Jose–based SunPower Corp., which provides solar solutions to home builders. “So, if you’re a builder who’s doing 15 subdivisions, and four of them are in SMUD’s area, but 11 of them are in PG&E’s service territory, which doesn’t have a program like this yet, are you going to complicate your business by doing one thing in one area, and something different in the others? I don’t think so. These guys are all about operations.”

At Woodside Homes, Williams says his plans haven’t changed, in part because California’s energy code has already incentivized him to build with solar on his roofs for years.

“The reality in California for most residential home builders is that the 2016 code was already heavily weighted toward choosing rooftop solar,” Williams says. “From the standpoint of a home builder, it would have to be a significant financial benefit to want to go through the added effort to implement community solar. Not only have we figured out rooftop solar, but in most cases, our homeowners really like it.”

Reed, the former San Jose mayor, says it will take time to see which approach is most beneficial for both builders and buyers. But he emphasizes that both now have more ways to comply with California’s solar mandate.

“Builders will have to do the analysis of figuring out what the most cost-effective way is to provide solar, either on the roof or via community arrays,” Reed says. “But home buyers are now going to get that choice.”