Update, December 31: On January 1, 2020, California’s residential solar mandate will go into effect. Here’s our explainer, first published on May 15, 2018.
The California Energy Commission (CEC) recently voted 5-0 to add some new provisions to the state’s building code. Among them is the requirement that as of 2020, all new house and multi-family residences of three stories or fewer, along with all major renovations, must be built with solar panels.
Where solar is not suitable, homeowners must have access to a community solar project or receive efficiency upgrades that compensate. (There are some exceptions for buildings in highly shaded areas.)
California is currently adding 113,000 housing units a year, and that number is rising. Right now only about 15 percent of them are built with solar, so this is a big boost to the residential solar industry.
The CEC also boosted standards for insulation, air conditioning, water heaters, and much more. It’s all part of California’s mandate for new homes to be “net-zero energy” — to produce as much energy as they consume — by 2020, with all commercial construction to follow by 2030.
Solar on most new houses! This might seem like an obviously good thing. Solar is great; solar panels are cool; California is leading the climate resistance.
But among energy nerds, the mandate has caused much wringing of hands and gnashing of teeth. They’ve been debating it all week on Twitter — on one hand, on the other; by now there are so many hands that I must confess to paralyzing ambivalence.
So let’s walk through some of the pros and cons and see if we can draw some kind of conclusion.
On one hand: the case against the mandate
Energy wonks and practitioners have offered a range of arguments against the mandate.
1) Rooftop solar is an extremely expensive way to reduce carbon emissions.
That is the subject of the short but pointed letter that UC Berkeley’s Severin Borenstein sent to CEC Commissioner Robert Weisenmiller, arguing that “residential rooftop solar is a much more expensive way to move towards renewable energy than larger solar and wind installations.” Rooftop solar generates energy anywhere from two to six times the cost of energy from big renewable energy farms.
2) Cheaper emission reductions are easy to find.
They could be had through regulations mandating more urban density, tougher home and vehicle efficiency standards, an increase in the renewable energy mandate, transmission expansion, or almost anything else, really.
3) The mandate will arguably produce no additional emission reductions at all.
California is operating under statewide mandates to reach 50 percent renewable energy, a doubled rate of energy efficiency, and 40 percent carbon reductions by 2030. Mandating one form of renewables doesn’t increase the total amount that will be deployed; it just shuffles the mix around. In this case, the CEC is mandating a more expensive form of renewables, which, all things being equal, will raise the cost of hitting the targets.
4) This rule was rushed into effect without comment from outside energy experts or economists.
The CEC ran an analysis of the mandate’s effect on private homebuyers and found that it would cost them anywhere from $8,000 to $12,000 more upfront, but they would save twice that much over the lifetime of the house through lower energy bills — a roughly $40 monthly payment and roughly $80 monthly savings.
However, to my knowledge, there was no comprehensive analysis of the total social costs and benefits of the policy. There’s no way to know if the policy is a net benefit to Californians at all, much less whether it is more beneficial than other possible changes to the building code.
5) California already struggles with an enormous surge of solar power during the day.
The state already has enough solar that during midday, it can drive wholesale energy prices to zero or below. Solar often must be exported or curtailed. Solar’s effect on energy demand is known as the “duck curve,” which puts a strain on the grid.
As Bloomberg New Energy Finance analyst Ethan Zindler put it, the mandate “has the potential to make the duck curve duckier.” What’s more, much of that rooftop solar cannot be tracked or controlled by the utility (particular smart inverters are required to link a system to the larger grid), so the net effect could be a shakier grid, at least in the short term.
6) Solar eats its own lunch.
Since all solar produces electricity at the same time (when, y’know, the sun is out), each new unit of solar is competing with, and reducing the marginal value of, all the other units. (This price suppression effect, covered in detail in Varun Sivaram’s recent book Taming the Sun, is why falling solar costs are always chasing a receding target.) This is true no matter where the solar is coming from.
It’s possible that by mandating all this new rooftop solar — which must be paid retail rates under the state’s net metering policy, no matter the locational or time-specific value of its power — CEC will not increase the net amount of solar in the state much, or at all. It might just substitute rooftop solar for centralized solar.
Correct. More rooftop solar will further depress market prices at the times when wholesale solar projects are producing their most output. Will drive down economic value. Unless subsidies rise for utility PV, could see nearly 1 for 1 substitution of rooftop for wholesale solar.
— JesseJenkins (@JesseJenkins) May 11, 2018
7) There’s a housing crisis in California.
And finally, some would argue that it’s ill-advised to raise the upfront cost of housing in a state gripped by a housing crisis. Upfront costs are a particular challenge for middle- and low-income homebuyers, which are being brutalized in the state already.
In short, California’s new rooftop solar mandate might make it more expensive for the state to hit its renewable energy and carbon targets without yielding any net new solar build or emission reductions.
On the other hand: the case for the mandate
Energy wonks and practitioners have also offered a variety of arguments in support of the mandate.
1) Political will is not fungible.
It is an eternal verity of politics that any new policy is met by wonks explaining why other policies would have been better. But California advocates and policymakers do not get to pick and choose policies like they’re shopping at a supermarket. There was a coalition for this.
As the Washington Examiner writes, “the change had broad support from home builders, state political leaders, and solar advocates.” Also, the CEC was able to make the change without legislative approval. And the costs are concentrated on builders and homeowners rather than the broad public.
All of that is true of an extremely limited set of policies. The right question isn’t whether this change is better than some fantasy wonk bill, but whether it’s better than other policies that actually could have passed or, more likely, the status quo.
2) The CEC probably overestimated costs.
The CEC drew its cost estimates from a comprehensive, top-down report on global clean energy trends from BNEF. But there are many reasons to believe that it is substantially overstating what rooftop solar will cost Californians. BNEF’s report includes the solar rooftop retrofit market, but costs are much lower for new construction, especially as it scales up.
When building solar into new construction, there are no customer acquisition costs and no sales commissions, permitting costs are much lower, financing costs are much lower, there’s already an electrician on site, there are no interconnection applications, etc. Plus, solar panels are cheaper when bought in bulk, and California builders frequently build subdivisions all at once.
“With all these categories added up,” Arizona State University researcher Wesley Herche and John Weaver write in a close analysis in PV Magazine, “this eliminates more than half the cost of a residential system, bringing down the total to $1.12 per watt. From there, the elusive $1/watt is only a few years away in terms of system cost declines.”
This policy moves rooftop PV from a niche product with high markups to a standard product with low markups. It drives costs down by eliminating unnecessary friction and unproductive steps in the install process. And it allows the industry to scale up and eliminate soft costs.
— Jonathan Koomey (@jgkoomey) May 11, 2018
3) Scale will bring innovation.
Tesla’s solar roof tiles look expensive now, but when the choice is between building a roof with a rooftop solar system on top of it or building a roof with a solar system built in, the cost calculus will look different. Increasing demand for building-integrated solar products will allow that industry to scale up and bring costs down as well.
4) Cost reductions bleed over.
All of these cost and operational improvements in the solar rooftop industry will bleed over into areas outside the mandate — into the retrofit market, and into other states — making rooftop solar more attractive even in places it isn’t required.
5) Time-of-use rates mean new rooftop solar could drive new storage and demand shifting.
California’s three big utilities are shifting to time-of-use rates for residential customers — meaning ratepayers will be charged more for electricity when it is more valuable. This will also affect net metering; if retail rates are lower during the midday solar surge, net metering compensation will be lower too.
That will give homeowners incentive to shift some of their solar energy around, which they can do with home energy storage — and helpfully, under the new building code, storage counts as compliance with efficiency mandates. That should get a lot of storage, and with it a lot of responsive demand, into California homes, which should help stabilize the grid.
Underappreciated part of the @CalEnergy standards requiring solar PV on new homes for net zero: battery & thermal #energystorage counts toward compliance (“Demand Flexibility Design Rating”). More demand flexibility will be hugely valuable for CA grid, esp. as autoDR takes hold
— Jason Burwen (@jburwen) May 11, 2018
6) Jamming new distributed solar onto the grid forces utilities to make needed changes.
This effect is difficult to quantify or fully predict, but by forcing so much rooftop solar into the market, the mandate could have the effect of forcing changes that need to be made anyway, like standardizing the use of smart inverters that give utilities visibility into home solar systems and properly incentivizing demand response.
Utilities are often loath to make life easier for distributed energy (they don’t like what they don’t own), but this mandate could force the issue, taking power out of utilities’ hands and putting it into consumers’.
— Dylan Gasperik (@CoastalUrban) May 10, 2018
7) Solar will become more visible, familiar, and contagious.
Also difficult to quantify: By making rooftop solar so much more common and familiar, like just another home appliance, the mandate will help answer consumer questions and ease consumer fears. As Abigail Ross Hopper, head of the Solar Energy Industries Association, told GTM, “I can’t overstate how strongly I feel about normalizing the solar experience so it feels less risky to the consumer.”
Researchers have already shown that solar panels are contagious — when people see them, they want them. And that effect could redound beyond solar, helping normalize renewable energy (and carbon policy) more generally. (Though, if we’re being honest, it’s already pretty normal in California.)
8) Rooftop solar and efficiency could help displace natural gas.
California now burns as much natural gas in buildings as it does in power plants. Reducing that means increasing efficiency and electrifying heating and cooling. (The state has a natural gas utility that is opposing electrification efforts; it remains very difficult for the average California homeowner to fully electrify.) Solar on every new home, plus mandates for highly efficient appliances, could drive electrification and displace natural gas.
— Charly Kleissner (@CharlyKleissner) February 4, 2018
9) The housing market will be fine.
The additional upfront costs to homeowners from the mandate are relatively small (again, probably much smaller than CEC estimated), especially compared to the thicket of other charges and barriers facing them in California — and the general effect of skyrocketing prices.
And remember, only the initial homebuyer pays the upfront costs, while every subsequent owner benefits from the energy savings. And, who knows, if the mandate does affect home prices on the margin, it might shift incentives toward building taller residences, which god knows California could use.
In short, California’s rooftop solar mandate will radically expand the rooftop solar market, drive down residential solar costs in other markets and states, shift more power into consumer hands, stimulate demand response and storage that will help grid flexibility, push technological innovation, and create jobs. It’s not a first-best policy, but given the urgency of the problem, it’s a good enough one.
On the third hand: how does it all balance out?
There are lots of ins and outs here. I didn’t even list all of them. Distributed generation like rooftop solar can also reduce the need for grid upgrades, saving utilities money. But then they only do that in areas of grid congestion, which this policy does not specifically target. There’s also the chance they could increase distribution costs on some parts of the grid.
I certainly agree with the common wonk sentiment that there are lots of other, better policies out there. This mandate wouldn’t have been my first choice, even in terms of changes to the housing code. If the state wants homes to be net-zero energy, it should first ramp up efficiency standards to make sure every building envelope is fully sealed; efficiency is almost always cheaper than rooftop solar.
California’s greatest needs — its housing crisis, its transportation emissions, the carbon intensity of its economy — would all be well-served by greater urban density. That means infill and building up; the requirement for solar panels should never stand in the way of densifying. I wish SB 827, which was density on steroids, hadn’t died in committee.
Still, as my granddad Hugh used to say, try wishing in one hand and pissing in the other; see which one fills up first. The politics and circumstances were right for this to happen, not some other thing.
As a general matter, when it comes to action on climate and clean energy, I’m inclined to think just about anything is better than nothing. But climate hawks should remain sensitive to the possibility that more solar is not always and everywhere better — that in some circumstances, more mandated solar could be worse than nothing, insofar as it crowds out cheaper low-carbon alternatives and raises costs without improving outcomes.
On that score, a little intellectual humility is called for. We simply don’t know yet what the full effects of the mandate will be. Not all of them are predictable; not all will be quantifiable.
Either way, it’s best not to get too hung up on any particular technology or technique for reducing carbon. There’s no substitute for taking a holistic view of the energy system, balancing its various needs against the various technologies capable of meeting them. Always, it is outcomes that matter.
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