California Prepares for a Huge Solar Boom

(Bloomberg Businessweek) -- Starting in 2020, California will become the first U.S. state to require almost all new homes to draw some power from the sun. The solar mandate is part of a wide-ranging push by the world’s fifth-largest economy to combat climate change by weaning itself off fossil fuels.

California already leads the U.S. in home solar panels. Solar makes up about one-seventh of its electricity supply, and that’s expected to grow for the state to meet its goal of 100% carbon-free power by 2045. Others may follow: Massachusetts is weighing a similar mandate, as is Maryland’s Montgomery County. “California has provided the template for a lot of U.S. clean energy policy,” says Hugh Bromley, an analyst for BloombergNEF.

In California, housing affordability remains a key challenge. State regulators say adding solar panels will increase home costs by an average of $9,500, though they note that the systems’ lower energy costs will yield net savings of about $19,000 over 30 years. Only about 20% of California houses built in the past couple of years included solar panels, according to the California Building Industry Association, a trade group.

“It’s going to be a marketing problem” for homebuilders, says Ali Wolf, an economist at Meyers Research, which tracks the new-home market. Letting homebuyers pay off the solar costs over the life of a mortgage would remove the sting, she says. In the state’s Central Valley, where houses are cheaper than they are on the coast, homebuilders will likely offer leases of solar panels, says Bob Raymer, technical director at the California builders’ association.

Folks there are “right on the bubble,” says Raymer. He adds that increasing the price of a home by $8,000 to $10,000 “means a whole lot” for Central Valley buyers. The state legislature recently granted wildfire victims an exemption to the solar mandate.

The building requirements, however, will offer a big boost for America’s rooftop solar industry, which has struggled with sluggish demand the past few years as some states have rolled back incentives. Because of its mandate, California is forecast to make up more than half the market for new U.S. rooftop systems in 2020, according to BNEF. That’s welcome news for California-based solar installers Sunrun and Tesla, along with Utah-based Vivint Solar.

Sunrun Inc. Chief Executive Officer Lynn Jurich says the requirements show how rooftop solar energy has moved into the mainstream as costs have declined. “In California, we are just now exiting the early-adopter phase,” she told investors in August. The company has signed contracts with or is in talks with half of the state’s top 10 homebuilders, according to Jurich.

The state’s solar plans aren’t foolproof. Most of California’s rooftop solar systems are designed to feed power directly to the grid, so most houses with solar panels still went dark when utility PG&E Corp. recently shut off power to nearly 2 million Californians to prevent its lines from sparking fires. Already, California’s grid has to deal with a glut of solar energy during certain times of the year, sometimes forcing it to temporarily shut down sun-fueled plants to keep its grid stable. Rooftop solar is a “much more expensive” way of adding renewable energy to the mix compared with large solar plants, says Severin Borenstein, an economics professor at the University of California at Berkeley. “I think it’s a bad policy,” he says of the homebuilding requirement.

California policymakers say the home solar mandate is one of many valuable carbon-reduction tools and that the state has changed rates to help make sure less rooftop solar energy lands on the grid during the middle of the day, when big solar farms hit peak production. Rooftop solar providers say better storage batteries can alleviate those concerns; as it happens, they sell those, too. The batteries, which can add thousands of dollars in costs, can store solar energy during the day for a homeowner to tap at night.

To contact the editor responsible for this story: Jeff Muskus at jmuskus@bloomberg.net

©2019 Bloomberg L.P.