California makes it harder for schools, farms and rental housing to go solar

California regulators have ordered changes to the state’s shared-solar programs that critics say will ruin the economics of rooftop solar on apartment buildings, schools and farms across much of the state.

And while the new regulations approved by the California Public Utilities Commission on Thursday have been modified from the rules proposed earlier this year to reduce the impact of the changes on renters, critics say the current version will still make rooftop solar uneconomic for most rental property owners, putting the benefits of solar further out of reach for the four in 10 Californians who rent their homes.

CPUC President Alice Reynolds said at Thursday’s meeting that the changes will help California ​“achieve a constellation of goals including grid reliability, greenhouse gas reductions, affordability equity, consumer protections and cost containment of utility bills.” The changes won’t affect existing customers, but they will apply to new projects for customers of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric, the state’s three biggest utilities, starting in early 2024.*

But Reynolds’ comments fly in the face of strident opposition from clean energy groups, renters’ rights advocates, affordable-housing proponents, farming groups, school districts and more than 135 local elected officials. These groups have warned that the new regulations could derail investments in clean power needed to help the state reach its decarbonization goals, while preventing schools, farms and rental-housing properties from mitigating the burden of utility bills that are already among the highest in the country and are set to rise further in the coming years.

“It’s really disappointing that state regulators are standing in the way of modernizing schools and farms” with solar, Brad Heavner, policy director for the California Solar and Storage Association trade group, said of the CPUC’s decision. As for the new rules for multifamily residential rental properties, ​“the changes will help on some projects, but will still hurt others,” he said.

What’s more, the new regulations could undermine the economics of new construction, Heavner said, echoing concerns from building-industry groups. California building codes require new commercial and multifamily buildings to include solar and batteries — and reducing the value of those solar and battery systems will add costs to new construction that can’t be recaptured in bill savings for owners and tenants.

That, in turn, could undermine California policies aimed at encouraging homes and businesses to install electric-vehicle chargers and switch from fossil-fueled heating to electric-powered heat pumps, Heavner said, again echoing broad criticisms of the proposed decision. In that light, the CPUC’s decision appears to ignore ​“the link between electrification and solar,” he said.

Breaking down the controversy over shared-solar policy 

Thursday’s unanimous vote by the CPUC’s five commissioners makes major changes to the state’s virtual net energy metering (VNEM) and Net Energy Metering Aggregation (NEMA) programs, which allow properties with multiple electric meters to share one solar system’s electricity and bill credits.

Those programs have previously worked much the same way that solar net metering for other customers used to work in California. Simply put, customers could reduce their electric bills by consuming the power that rooftop solar generated, while also earning the equivalent retail rate for solar power in excess of what they consumed that is ​“exported,” or flows back onto the utility grid.

But in December 2022, the CPUC decided to significantly reduce the value of rooftop solar systems for single-family homes and businesses served by those utilities. Customers can still reduce their utility bills by consuming the solar power they generate. But any solar power they don’t consume and is exported to the grid instead is paid at an ​“export rate” that is roughly 75 percent lower on average than the retail rates that customers pay.

The CPUC’s changes to VNEM and NEMA take things even further, however. The commission largely adopts the perspective laid out in filings by the state’s major utilities that customers with shared-solar systems shouldn’t be allowed to offset their utility bills with solar power at all. That’s because how much solar power versus utility grid-delivered power they are actually consuming at any time can’t be precisely measured. (Opponents of this proposal offered multiple arguments against this logic which the CPUC has largely rejected, as Canary Media noted in previous coverage.)

Instead, under the new rules, all of these classes of customers except for residential renters will earn only the much lower export rate for every kilowatt-hour of solar they produce. And, as has been proven out in similar policy battles in states across the country, the economics of rooftop solar projects simply don’t work if customers can only earn lower export rates.

Reynolds emphasized that the state’s existing initiatives to support solar on low-income housing — the Solar on Multifamily Affordable Housing and Multifamily Affordable Solar Housing programs — will be exempt from the changes being applied to other customer classes. She also noted that the CPUC’s broader net-metering decision created a ​“glide path for the industry and consumers to help transition to the new tariff design” in the form of additional bill credits for new net-metering customers and low-income customers.

Still, solar industry groups have tracked a dramatic drop-off in home solar projects since the CPUC’s new net-metering policy went into effect in May. Now they fear that the changes to VNEM and NEMA will cause an even steeper reduction in the markets that rely on the programs, despite the recent modifications that provide some relief to renters.

Farms and schools are the worst hit, Heavner said. Eliminating the capacity to reduce utility bills ​“will devastate the ability of farmers in California to use solar,” he said. ​“And for schools, it’s going to knock out a lot of projects — and there’s a lot of concern that it will mess with the ability to do construction of new buildings.”

Suzanne Leta, head of policy at solar installer SunPower, said that the new rules could also undermine a key goal of the CPUC: to encourage the deployment of batteries alongside solar systems to store power at midday for use in late evenings, when the state faces peak grid demands and risks of rolling blackouts. The CPUC’s new net-metering structure is designed to make grid exports most valuable at those times.

“But that only works if the customer — meaning the residential tenant and building owner — can benefit from the self-generation on the site,” she said. ​“That’s why we and so many others — members of Congress, the state legislature, environmental justice organizations — locked arms in this proceeding, to ensure that the benefits of clean energy on a roof of every building are shared with the people in that building, and that everyone gets those benefits fairly.”

An outcry from farms, schools and multifamily property owners

These views were voiced by dozens of commenters who called in to Thursday’s CPUC meeting to protest the decision. No public commenters spoke in support of the decision.

“If the proposed net-energy-metering rules are adopted, schools will not be permitted to generate their own power any longer,” Sasha Horwitz, legislative advocate for the Los Angeles Unified School District, told commissioners. ​“Instead, they’ll be forced to buy their own solar back from utilities at full price,” he said, ​“hurting our ability to reduce emissions, electrify our schools and invest in a safe, healthy learning environment for our children.”

At Thursday’s meeting, CPUC President Reynolds highlighted other programs that schools and other government entities could use, such as one that allows solar systems on one government property to share the credits from that system with billing accounts at other government properties, and an existing state incentive for installing batteries. However, Heavner noted that the first program listed has met its cap and is no longer accepting new applications, while the state battery incentives available for school districts have been depleted and would require either regulatory or legislative action to replenish.

The picture for multifamily properties is more clouded. In a shift from its previous proposal, the decision approved by the CPUC on Thursday does allow residential rental tenants to apply shared-solar generation to reduce their utility bills, much like single-family home solar systems do. That’s a far better outcome for renters than what the CPUC had initially proposed, Heavner said.

But there’s a catch, he added — the CPUC doesn’t extend the same treatment to the bills of rental-property owners for power consumed by the common areas of multifamily buildings. That includes outdoor lighting, lighting in lobbies and hallways, elevators, washers and dryers, pool pumps, offices and other electrical loads — and critically, any EV charging stations that property owners might plan to install to serve their tenants.

That’s a big hurdle, he said, because rental properties suffer from a ​“split-incentive” problem. Property owners must pay for the cost of solar panels, batteries, EV chargers and other energy equipment. But most of the benefits of those investments flow to the tenants who pay the bills for the majority of a multifamily property’s electricity use.

Cutting electricity bills for common facilities is one of the only ways that property owners can earn back what they’ve spent, Heavner said. ​“This has always been the way you fix the split-incentive problem: There needs to be benefits to both. And if you take out the benefit on the property-management side, you get fewer projects — and that doesn’t help tenants.”

Technologies exist that can track the flow of electricity to individual customer meters from a shared solar system, and they have been used in markets where policies similar to VNEM and NEMA haven’t been available. But those add cost and complexity to solar installations that are already hard to justify on economic grounds, Heavner noted — which is ​“exactly the problem that VNEM was designed to fix.”

“We need apartment buildings to add EV chargers,” he said. ​“This pushes in the opposite direction.”

That perspective was also expressed by Tyler Valdez, energy equity manager with the California Environmental Justice Alliance advocacy group, at Thursday’s meeting. While the CPUC’s decision to protect net billing for tenants is an important improvement, ​“without on-site netting for commercial accounts, some property owners will not be incentivized to install solar, which would prevent any benefits accruing to tenants,” he said.

The same disincentives could prevent schools, community centers and other commercial and public buildings from installing solar and batteries to serve as resilience centers needed to provide ​“emergency services during climate disasters” such as wildfires and heat waves, he said.

The big question for the CPUC is whether existing solar net-metering structures unfairly shift costs from solar-equipped customers to others who don’t have solar, CPUC President Reynolds said at Thursday’s meeting.

“Evidence shows that rooftop solar continues to be a relatively expensive way to produce electricity compared to other clean energy resources that competitively bid into wholesale markets,” she said. ​“And as we are all aware, and as we heard today, electricity bills are on the rise, and affordability is front and center.”

But the notion that rooftop solar is overly expensive, and that it pushes costs from solar-equipped customers to other customers, has been hotly contested by environmental groups, community advocates and energy analysts in net-metering regulatory battles across the country.

Heavner highlighted that solar projects built under VNEM and NEMA have made up only a fraction of the state’s total installed rooftop-solar capacity, which stood at 1.8 million installations with a cumulative total of more than 15 gigawatts of nameplate capacity, according to the latest data. The majority of projects now using the tariff are part of the state’s existing low-income multifamily program, which won’t be affected by the new changes.

But the potential for expanding the proportion of solar coming from rooftop shared-solar arrays has been growing in the past few years, with an increasing number of project developers targeting the largely untapped opportunity to fill in the gaps between single-family homes and the state’s utility-scale solar projects, he said.

“That’s what really pains me — that at a time when we finally cracked the nut and brought solar to non-low-income multifamily [dwellings], they want to shut it off,” he said.


*Clarification: This article originally mistakenly stated that the changes ordered by the CPUC will come into effect for new projects in 2025. In fact, projects under the VNEM and NEMA tariff will be subjected to the newly enacted program rules starting in early 2024, but will be billed under the preexisting tariff until utilities finalize the new tariff billing process no later than mid-2025.