California’s Solar Mandate

Has California Put the Proper Mechanisms In Place to Succeed With Solar Mandate?
by Sara Gutterman

California just passed a mandate that will require solar panels on all new homes beginning in 2020. The California Energy Commission projects that the requirement will substantially decrease the state’s greenhouse gas emissions and save homeowners millions of dollars on utility bills in the long-term.

But has the state put in place the proper mechanisms to position the mandate for success? The Golden State made history last week by passing a mandate that requires all newhomes to have solar beginning in January, 2020. The ruling applies to most single-family homes, as well as multifamily buildings up to three stories (including condos and
apartment complexes.) Homes that are not suitable for solar (for example, those surrounded by large shade trees) will be exempt.

Solar
Green Builder Media guest columnist Pierre Delforge wrote that California’s updated 2020 code “will combine rooftop solar panels with enough energy efficiency measure like insulation and better windows that all new single-family homes and low-rise apartments will use net-zero electricity. This means that their solar array should offset all electricity use for cooling, plug-in equipment, and lighting on an annual basis.”

“A modestly-sized system will do,” Delforge continues, “Because builders must first meet energy efficiency standards, using highly efficient attics and walls, better windows and doors, and properly installed insulation, to ensure that new homes require little heating and cooling to keep them comfortable. The code also encourages builders to install energy storage, such as home batteries or flexible electric water heating, which allow residents to use more of their own clean energy solar electricity at home as needed instead of automatically sending it to the grid. This helps integrate renewable energy on the grid by storing solar electricity when it is abundant for later use in the evening when demand is higher and solar is no longer generating.”

The solar mandate has received plenty of support and criticism. Pundits celebrate the decision, proclaiming that it will enable the state to take a huge leap towards a cleaner, renewable energy-powered future. Furthermore, the California Energy Commission estimates that the solar mandate is equivalent to taking 115,000 fossil fuel vehicles off the road and will save homeowners approximately $80 per month on heating, cooling, and lighting bills (which translates into $15,000-$20,000 over the course of a typical 30-year mortgage.)

It is also projected that the ruling will increase solar demand in California by 200 megawatts (MW) in 2020 and 650 MW over the course of the next three years, which will generate a considerable amount of business for companies throughout the solar value chain, from manufacturers to installers to service providers (lenders, attorneys, and so
forth.)

Critics argue that the mandate will increase the upfront cost of a home by roughly $10,000, which could increase a 30-year mortgage by up to $40 per month. They also cite that homeowners will be responsible for annual inspections and cleaning at an estimated cost of $300-500 per year and will likely have to shell out upwards of $600 for maintenance costs.

In reality, that argument is not quite accurate. If homeowners opt for a purchase power agreement (PPA) or lease (in which a solar company maintains ownership of the system and is responsible for ongoing maintenance), the homeowner’s upfront costs will be mitigated or eliminated. Even if a homeowner opts to purchase the solar system outright, upfront cost is not full cost, and the ongoing cost savings on monthly utility bills provide for a relatively quick
payback period.

“The accusation that the solar mandate will increase the cost of homes in California is much ado about nothing,” says net zero energy expert Ann Edminster, Interim Executive Director of the Net Zero Energy Coalition. “If a homeowner chooses a PPA or lease agreement, the upfront cost for a new home won’t be much different, and the net effect is that they’ll have an immediate reduction in monthly energy expenses.” Edminster continues, “The mandate requires a different method of thinking. The solar system should be considered as money that would otherwise be spent on energy, not on the house itself—it’s drawn from a different bucket.”

While Edminster, a pioneering green architect and long-time sustainability advocate, is supportive of the mandate, she feels that it falls a bit short. “It certainly represents
progress, but net zero electricity isn’t the same as net zero energy,” she says. According to Ann, “After working on this issue for years, it wasn’t feasible to get to full net zero energy this time around, mostly because of grid-harmonization issues, which require more advanced and scalable storage solutions than are available today, and also because we had to find a solution that was palatable for a wide spectrum of stakeholders—including builders.”

The scuttlebutt indicates that building industry representatives were brought kicking and screaming to the table (armed with the inevitable question, “if solar is so competitive and
adds so much value, why does it have to be mandated?”), but after fighting the mandate for years, they realized that it was time to face the music.

“This was a political negotiation,” admitted Bob Raymar, technical director at the California Building Industry Association (CBIA) in an interview with Fox news. “The California Energy Commission (CEC) has been working on this for over 10 years, and while we wanted to postpone the implementation of the mandate for 3-4 more years due to our housing crisis, getting any further delay was not in the cards. So, two years ago, we made the hard choice to work with the energy commission to push down on the compliance costs and expand design flexibility.”

“In the state of California,” Raymar continues, “our leadership, our governor, and the legislature has made climate change mitigation a top priority. It would be nice to have more flexibility, but the regulatory environment in California is heading down this road … This is the biggest and most costly code change that I’ve seen in my 30+ years with the CBIA. Initially, the costs were expected to be $30,000-$35,000, but we worked with the CEC to get the cost down to $10,000 if you go with a solar purchase, and the costs will drop to about $1,000 if you go with a solar lease.”

CR Herro, VP Innovation and Sustainability for Meritage Homes (the eighth largest homebuilder in the United States) is concerned that if prices for new homes do increase—even by just a little—homeowners will be swayed to purchase existing homes rather than new homes.

“The challenge in a free marketplace,” Herro avows, “is that buyers purchase the best value from their perspective. Without support, they will default to the lowest cost home that meets their needs. The solar mandate, while well intended, doesn’t offer the needed support for the average homebuyer to understand the value of new homes with solar. Without that support, there is a real danger that higher-priced new homes will be less competitive, resulting in people buying used homes for a lower first cost.”

Herro asserts that the awareness gap needs to be addressed with “responsible transaction” tools that allow realtors, appraisers, and underwriters to comprehensively incorporate total value—not just first cost—into the valuation and lending process. To achieve this, Herro advocates that energy ratings (such as HERS scores) should be required for every real estate transaction so that buyers can accurately compare operating costs; performance analyses should be included in the appraisal process so that homes that are more durable and less expensive to operate can be properly evaluated; and operating costs, including savings from solar systems and energy efficiency measures, should be included in underwriting criteria.

Herro is laudably calling for nothing less than a massive system overhaul, requiring systematic change at all levels. “Without additional tools” Herro argues, “we fail to achieve the complete marketplace benefit and buyer value that was intended.” In the meantime, it seems that the onus of consumer education will fall squarely on the shoulders of the homebuilders, obliging them to amplify their messaging about the long-term benefits of solar, including costs savings and enhanced resale value (solar experts claim that solar adds $3-5 per watt of value to a home).

Perhaps the silver lining is that we finally have an opportunity to shift the discussion away from the antiquated price per square foot metric to a more appropriate one that includes energy efficiency, sustainability, renewable energy, and long-term value. Once again, California seems to be light years ahead of the rest of the country in its approach to codes and the built environment, paving the way for a distributed clean energy infrastructure. But keep your eyes on other states, like Hawaii, Arizona, and New York, who may soon follow suit. Before we know it, solar may go the way of fire sprinklers—once the subject of fierce debate, now an accepted safety requirement.

What do you think about California’s solar mandate? Write to me at [email protected].