How will low-income Californians access home solar and batteries?

Canary Media’s Down to the Wire column tackles the more complicated challenges of decarbonizing our energy systems.

This is the final installment in a three-part Down to the Wire series this week digging into a new rooftop-solar policy expected to be adopted by the California Public Utilities Commission on December 15, 2022. Read part one and part two. [UPDATE: The policy was adopted by the CPUC as anticipated.]

Amid all the conflict over the future of rooftop-solar policy in California, a common thread has united utilities, regulators, solar industry groups, environmental activists and consumer advocates alike. They all agree that rooftop solar systems need to be accessible to everyone, not just the wealthy — as do batteries that can shift solar power to when it’s more valuable, and electric vehicles and heating systems that can run on that solar power.

Now the question is how to make that happen. 

Rooftop solar has, until recently, largely been limited to customers who own their homes and have higher-than-average incomes and credit scores. In the past few years, however, solar adoption has started to spread to more moderate-income households, driven by falling solar prices, better financing options and, in some states, incentives aimed at expanding access in lower-income communities.

But the accessibility of a rooftop solar system is still largely dependent on how much it can earn for the household installing it. And the California Public Utilities Commission’s proposal to revamp rooftop-solar policy would reduce compensation for rooftop solar power exported to the grid by an average of 75 percent, likely worsening the economics for all customers, including those already struggling to afford solar.

Then there’s the cost of batteries to consider. The CPUC’s proposed structure will make battery-backed rooftop solar far more lucrative than solar alone, as we explained in part one and part two of this series. But batteries add several thousands of dollars to the upfront cost of a home solar system, making it even harder to afford or finance.

Stakeholders weighing in during the CPUC’s decision-making process laid out a host of proposals for how regulators could help low-income and disadvantaged communities gain access to solar and battery systems, but the CPUC declined to adopt them.

Instead, its proposed plan offers one incentive for low-income customers: People who qualify for utility low-income customer-assistance programs will be paid a higher price for solar power they export to the grid — an ​“adder” on top of the standard price, in CPUC parlance. The goal is to ensure they’ll earn enough money to cover the cost of their solar or solar-battery systems within nine years — the same ​“payback” target the CPUC has set for all customers. But even this adder will leave low-income customers earning less on their exported power than they and other customers are paid under California’s existing net-metering regime.

People with lower incomes and lower credit scores have less access to lending and are offered less-favorable lending terms than people with higher incomes and credit scores. That increases the cost of financing solar installations for economically disadvantaged customers, which drives the need for higher export payments to make their investments pencil out economically.

It’s also harder for lower-income customers to afford the extra cost of adding batteries to their rooftop solar systems. To tackle that problem, the CPUC has cited the availability of $900 million in state funds — $630 million of that set aside for low-income customers — that is expected to be available next year to expand a battery incentive program. That structure is supported by California’s utilities, which are eager to shift costs for programs like these from their customer base to California taxpayers at large, Carla Peterman, chief sustainability officer at utility Pacific Gas & Electric, said during a CPUC hearing on rooftop-solar policy last month.

The barriers to low-income solar and battery adoption

But many solar advocates fear that these measures don’t go far enough to overcome existing barriers to solar adoption for low-income and disadvantaged customers, let alone make up for the reduced solar values the CPUC’s new proposal will create.

As Steve Campbell, senior policy manager for solar nonprofit Grid Alternatives, said at last month’s hearing, low-income customers will still struggle to afford or finance the upfront costs of new solar and battery installations. That includes many customers who earn too much to qualify for utility low-income assistance programs but still face financial barriers to solar and battery adoption, he said. Campbell also warned that the $630 million in low-income battery incentives, while approved in a law passed this summer, hasn’t yet been appropriated by the state legislature, leaving open the risk that it won’t be fully funded.

Sachu Constantine, executive director of solar advocacy nonprofit Vote Solar, highlighted barriers beyond price, ​“although price is a big part of it,” he said. ​“There’s a real need for easy enrollment, for streamlined interconnection, for technical advice — and we need additional funding to support that.”

Data collected by Lawrence Berkeley National Laboratory shows that customers on the lower end of the income scale are slowly adding more rooftop solar in California. Still, families with annual incomes of less than $50,000 made up only 12 percent of the total in 2021, even though almost a third of Californians fall into this income bracket, indicating how much work needs to be done to expand access.

Rooftop solar also remains almost completely out of reach for the nearly half of all California residents who rent rather than own their homes, which includes many lower-income households.

All of these barriers require discrete solutions, Constantine said. Some of them could lie within the scope of the CPUC’s rooftop-solar policy structure, such as ​“more dedicated, more transparent funding for low-income customers” and a less steep drop-off in compensation for the solar they export, he said.

But other solutions need to come from outside the structure the CPUC is expected to approve this week, he said. Those include expanding options for renters to access solar, through existing structures like virtual net metering or assistance to multifamily housing tenants and property owners. They also include community solar, which has yet to find a workable policy model in California, although a newly mandated structure could help.

Finally, low-income and disadvantaged communities should be able to access the value of adding batteries to solar systems, Constantine said. In that light, he supports efforts across the state to find ways to bring solar and batteries to customers and communities that could benefit from lower energy bills and backup power during grid emergencies and find ways to use those resources to support the grid as a whole. ​“We want virtual power plants,” he said. (For more on those, see part two of this series.)

Gaps in the CPUC’s approach to multifamily and nonresidential solar adopters

People who rent their homes have thus far been largely locked out of benefiting from rooftop solar and batteries. 

Rental housing remains a tough market for solar and batteries since property owners are responsible for the cost of installing them while tenants are usually the ones who benefit because they pay the electric bills. This ​“split-incentive” problem has held back solar development on multifamily buildings across the country.

In California, this gap has been the target of state and utility-funded programs that offer incentives for multifamily building owners to install solar. But once those incentives are tapped out, there will still be no structure to support a strong market for selling solar to multifamily rental buildings.

The CPUC’s proposal to change rooftop-solar policy may make this situation worse, according to people in the industry serving multifamily markets. One big problem is the proposal’s treatment of virtual net metering — an existing structure that allows landlords to allocate bill credits from a solar system’s output to multiple tenants.

The underlying issue is that the CPUC’s policymaking process has focused almost entirely on single-family homes, according to Dover Janis, CEO of Ivy Energy, a startup with software for designing and managing virtual-net-metered solar installations in California. The process hasn’t collected the same quantities of useful, real-world data on the economics of other types of rooftop-solar customers, including commercial buildings, schools, farms and multifamily properties that use virtual net metering, he said.

“Nobody caught that,” he said, because these classes of customers are ​“such a sideline to this massive debate going on” about the impact on single-family residential solar adopters. 

That lack of data has led the CPUC to determine that the cost of installing solar for those properties is quite a bit lower than it actually is, Janis said. That’s a problem because the CPUC uses solar-installation cost estimates to determine how much of an adder should be offered to different classes of customers on top of the base compensation rate for rooftop solar.

Under the CPUC’s current proposal, single-family homes will get an adder, and lower-income households will get an even larger adder. But outside of a few exceptions for existing low-income programs, the mass of virtual-net-metered properties — along with commercial buildings, schools, agricultural sites and other larger customers — would get no adders.

This is a ​“really stunning gap,” Brad Heavner, policy director for the California Solar and Storage Association trade group, said during the November CPUC hearing on rooftop-solar policy.

That lower compensation could stretch payback periods for nonresidential rooftop-solar and battery installations well beyond the nine years that the CPUC has targeted, CALSSA’s analysis indicates. Heavner warned that the market for solar and batteries beyond single-family homes could be ​“devastated” as a result.

This could lead to more air pollution in lower-income and disadvantaged communities. If the expansion of rooftop solar slows down, then utilities are more likely to run fossil-gas ​“peaker plants” during times of peak grid demand, and many of those plants are located in lower-income areas, said Esperanza Vielma, executive director of the Environmental Justice Coalition for Water.

Under pressure from environmental and community groups, California regulators have allowed money to be directed at deploying solar, batteries and other distributed energy resources instead of building or expanding gas-fired peaker plants in some parts of the state. But ​“there has to be more done to decommission the peaker plants in environmental-justice communities,” Vielma said during a November webinar hosted by the nonprofit Environmental Working Group. ​“There are schools in there; there are churches. What is going to be the incentive for them to have solar and to be able to meet the climate goals of California?”

A new model for community solar in California 

It’s still unclear how the CPUC’s expected decision on rooftop-solar policy might affect community solar, a key alternative to the classic net-metering structure that could help low-income customers gain the benefits of solar and batteries. Community-solar programs allow customers to subscribe to solar projects that aren’t located on their properties and earn credits toward their electric bills for the power those projects generate and export to the grid.

Community solar has experienced fast growth in other states, but it hasn’t yet taken off in California. A law passed this summer could change that, by setting up a community-solar program that largely mimics the CPUC’s proposed structure for rewarding systems that export power to the grid during the hours of day and seasons of the year when it’s most valuable. (See part one of this series for more on that.)

“The reason there was so much interest in our community-solar proposal in particular is because it was able to solve two really critical problems in California at once,” said Jeff Cramer, CEO of the Coalition for Community Solar Access trade group, which developed the plan that ended up in the bill that passed this year. ​“Number one, it provides far greater equitable access to local solar for those who’ve been left out in the past,” he said. The law requires low-income customers to make up at least 51 percent of subscribers to a project, and for those projects to pay workers prevailing wages, supporting both customers and workers.

“Number two, it does so in a way that actually helps both decarbonize and ensure reliability of the system, based on the potential pairing with storage,” Cramer said. Paying community solar-storage projects more for power stored in batteries and exported when the grid needs it the most can help reduce the risk of power shortages in the short run, and help replace gas-fired peaker plants and expensive grid infrastructure in the longer run — all items on the state’s decarbonization and energy-reliability checklist.

The CPUC has until the summer of 2024 to finalize rules for how the new community-solar law will be implemented. The decision the CPUC is set to make this week may play a role in determining the compensation for power from community solar-and-battery systems, and that could play a big role in how successful the program ends up being.

All in all, solar and community groups believe the CPUC has not done nearly enough to make solar and batteries more accessible, and they plan to continue pushing the commission on this front. In the meantime, though, they and other nonprofit groups, cities, community energy providers and private-sector actors are working on a variety of efforts to get rooftop solar and storage into many more hands. Canary Media will be looking at some of these in the weeks ahead.

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