The California Solar Mandate

A critical step forward? Or a waste of time and money?
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Earlier this spring, the five members of the California Energy Commission (CEC) voted unanimously to approve a new law that would require new homes to be built with solar panels. The policy, which is slated to go into effect in 2020, has proven controversial among experts, with some arguing that the energy savings will outweigh the added construction costs, and others countering that the preliminary cost/benefit analyses have drastically underestimated the energy gains that the panels will provide. For a state already plagued by a massive housing crisis, the return on investment for this piece of legislation appears to walk a fine line.

Who is ultimately right will come down to two main variables (amid myriad others) in the future:

  • The cost per kilowatt of solar panels in 2020.
  • Whether the state will continue to subsidize energy production by rooftop solar.

The calculus of whether solar panels on new homes will ultimately save or cost Californians money is, unsurprisingly, determined largely by how much they cost to install. The CEC’s analysis of these costs suggested that, on average, adding solar panels to new houses would cost between $8,000 and $12,000 per home. However, this cost was forecast to be easily offset by the energy savings the solar panels would grant over the lifetime of the house, which was predicted to be around $80 per month. The math here would work out to show that in 100-150 months (8.33-12.5 years) the panels would pay for themselves.

However, critics of the legislation, such as Steven Sexton writing in The Wall Street Journal, have pointed out that the CEC is too optimistic about the cost of solar panels. His skepticism comes from a Lawrence Berkeley National Laboratory study that suggests the cost may in fact be closer to $12,000 to $16,000 per house, meaning the panels could take up to nearly 17 years to break even.

Others, such as David Roberts, writing for Vox, have argued that the CEC’s estimate may actually be too high. Roberts argues that because CEC’s figure is drawn from a BNEF analysis based on installing panels on existing homes, it fails to account for savings that will come from economies of scale. When the mandate takes effect, solar panels will be purchased in bulk, driving costs down. And many of the costs of their installation will be mitigated by the fact that they’re now part of an ongoing construction project rather than a new one. “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.,” Roberts writes.

All of these calculations, though, are predicated on the idea that the state of California will continue to subsidize rooftop solar at the same rate. The way the system currently works is that the state buys electricity created by residential rooftop solar panels from homeowners. However, the rate per watt that the state pays to homeowners can be as much as eight times higher than what the state pays to commercial solar energy farms. If the state were to begin purchasing electricity from residential homes at the same rate it gives to commercial generators, the solar panel would drastically lose value. By Sexton’s calculation, such a shift could move the energy savings from $80 per month down to as little as $12.50.

As you may have guessed, this is a complicated issue and much of how it plays out depends on the market forces of the future. If the cost of installation is low and the state continues to subsidize solar production at the same rate, the panels could be a boon to Californians and a way to curb carbon emissions, albeit by a meager amount, as residential and commercial building electricity accounts for only 14% of the California’s total greenhouse pollution. If the costs of installation are high, if the price of panels does not fall at the expected rate, or if the state decides to pay residential solar electricity producers the same rate as commercial ones, then panels could be a fool’s errand and wind up doing net damage to the economy and the people. If the latter proves to be the case, the policy may even exacerbate greenhouse emissions as housing prices become even more outrageous, and people are forced to move further from the cities they work in, necessitating a longer commute in a car powered—most likely—by a combustion engine.

Finally, there’s also the idea of political reality. Right now, solar is viewed favorably by a large majority of Americans, and as Roberts writes in the Vox article, “Political will is not fungible.” The solar mandate may not be perfect, but it’s the legislation that could be passed. It is, at least, a good-faith attempt to move toward reducing greenhouse gas pollution. “The reality of political opinion is much more than an economic idea of what may or may not be optimal,” says John Weaver of industry publication PV Magazine. “The people in the US are driving energy choice far more than the academics. And if we choose to ignore the people and say ‘oh, this isn’t optimal,’ we’re going to watch a big giant California bus swoosh right by us and wonder why they keep making all the money out there.”

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