Will California finally fix its community solar programs?

California regulators are under growing pressure to expand a class of clean energy that’s been notably missing from what’s otherwise a very solar-friendly state: community solar. 

For years, solar developers have complained that California’s mishmash of programs and policies has failed to support community solar projects, which make solar power accessible to people who for one reason or another can’t put panels on their own roofs.

Some roofs aren’t suited for solar panels because they’re shaded by trees or other buildings. Some building owners lack high enough credit scores to get approved for financing for rooftop solar. And about half of the population lives in rented houses or apartments, where landlords often don’t have any incentive to go solar.

Community solar projects can be financed and built on cheap and sunny plots of land by utilities or independent developers. Customers can sign up as subscribers to that lower-cost solar power, paying a monthly fee and then earning credits on their electrical bills; in most well-designed programs, subscribers come out ahead financially, although details differ from program to program and state to state.

Community solar has been taking off in other states, but it has languished in the Golden State — a fact that many advocates blame on poor program design on the part of utilities and the California Public Utilities Commission.

Now is the time for a change, according to proponents of community solar. The CPUC is currently weighing a major decision on reforming net-metering policy for rooftop solar, and it would make sense to reform rules for community solar projects as part of the same process, they argue. Solar industry, environmental and community groups have flooded the CPUC with multiple proposals to strengthen existing community solar programs — or to create brand-new ones.

One such proposal that’s getting a lot of traction would promote community solar projects that are paired with batteries. The concept comes from the Coalition for Community Solar Access (CCSA), an alliance of businesses and nonprofits that advocates for community solar projects.

Unlike most solar policy proposals in play in California, this one has garnered support from both sides of the contentious debate over net-metering reform, including both pro-rooftop-solar groups and state lawmakers, as well as groups that believe the state’s current net-metering policies are driving up electricity costs for customers who can’t afford rooftop solar, such as The Utility Reform Network, the Coalition of California Utility Employees and the Natural Resources Defense Council.

CCSA’s proposal would pay a lot more than typical utility rates for electricity that’s exported to the grid from community solar farms in late afternoon and evening hours during the state’s hottest months, when solar power fades away and California’s grid faces the greatest stress. Conversely, it would pay a lot less for power exported during other times of the day and year.

That would give project developers a strong incentive to pair solar with batteries that can store solar power when the grid has more than enough and inject it onto the grid when it’s needed the most. Indeed, critics of the current net-metering regime are asking the CPUC to incorporate similar storage incentives into all of the state’s solar policies.

Homebuilders join the call for better community solar programs

CCSA’s community solar proposal has another key ally: the California Building Industry Association.

As of 2020, California’s building codes require newly built single-family homes to include solar panels; the requirement will also apply to many new multifamily and commercial buildings starting in 2023. Homebuilders are worried that the CPUC’s current net-metering proposal, which will reduce the value of solar power exported to the grid and add steep monthly charges to the bills of solar-equipped customers, will burden owners of new homes with increased costs.

The California Energy Commission, which sets state building codes, allows builders to develop community solar projects as an alternative to installing rooftop solar panels on individual homes. But according to the California Building Industry Association, the state’s current community solar programs ​“suffer from serious deficiencies that undermine their use as a compliance pathway for builders.”

The trade group has asked the CPUC to fast-track its consideration of CCSA’s community solar proposal, in hopes that it could be approved in time to build projects that leverage the rate category as early as next year.

If the CPUC fails to take quick steps to create a ​“viable community solar program,” that could add undue ​“complexity and uncertainty to the building process,” the group contends in a January filing with the CPUC, which could have the effect of ​“undermining energy efficiency goals and driving up costs for builders.” The group fears that these costs ultimately will be ​“passed on in home prices[,] which exacerbates California’s housing crisis.”

So far, the CPUC hasn’t fast-tracked community solar as part of its already-controversial net-metering reform process. Its December net-metering proposal characterized such a move as ​“premature,” pointing out that the state’s three big investor-owned utilities are required to file community solar plans in August 2022, which could serve as an opportunity for considering changes to the state’s existing programs.

But Charlie Coggeshall, CCSA’s director of policy and regulatory affairs, thinks the CPUC should act more quickly to ​“finalize our proposal into a tariff that could be ready in 2023.”

“We have a strong proposal for reaching these unreachable parts of the market,” he said in an interview. Community solar is needed to ​“fill a market gap for buildings that don’t have a rooftop solar option,” which includes roughly half of all U.S. buildings, according to research from the U.S. National Renewable Energy Laboratory.

Why California’s existing community solar programs have fallen flat

The trick is designing community solar programs that can do two things at once. First, they must entice developers and financiers with a long-term opportunity to build projects that offer predictable returns on their investment. Second, they must offer customers low-cost, low-risk and low-complexity ways to participate.

California’s existing community solar programs fall flat on both fronts, according to critics. Many developers have moved on to pursue far more lucrative and compelling opportunities in other states.

California’s first community solar programs were introduced in 2013. But they have struggled to spur anything close to the total amount of solar they were intended to generate.

That’s largely because they’re structured in a way that saddles Californians who sign up with higher overall electric bills, Coggeshall said. As community solar developer Solstice points out in its review of the state’s existing programs, most people just aren’t willing to pay more for solar power.

Even if that rate imbalance were to be corrected, the programs have other limits that make developers leery of focusing on them instead of pursuing more lucrative alternatives, Coggeshall said. First, the programs come with hard caps on how many megawatts can be built, which could lead to a collapsing market once those caps are reached, as has happened with community solar programs in other states like Illinois.

Second, community solar programs are not open to customers who participate in ​“community choice aggregation” programs, an alternative to traditional utilities that are expanding in California. This leaves would-be community solar developers with a shrinking pool of potential subscribers.

More community solar options exist for lower-income customers, including incentives to help owners of multifamily housing units add solar and incentives and bill savings for participants in community solar projects serving designated disadvantaged communities.

But the latter programs are bogged down by some of the same limitations that have hindered uptake of California’s general-market community solar programs, Coggeshall said. There are hard caps on how many megawatts can be built in the territories of different utilities and community choice aggregators, as well as on how big individual projects can be. And the programs aimed at disadvantaged communities restrict potential subscribers to people living within 5 miles of a project, limiting growth in rural areas.

The community solar programs managed by utilities also have an ​“overburdensome” application and administrative process that’s ​“shutting out many communities,” according to the California Environmental Justice Alliance, a group of nonprofits including The Greenlining Institute and Communities for a Better Environment.

These factors have limited the total size of California’s community solar market to about 300 megawatts to date, almost all of it built by utilities rather than independent developers. That’s less than 1 percent of the state’s total solar capacity from utility-scale and rooftop solar systems. It’s also far from the amount of community solar development that the California Building Industry Association says would be necessary to help builders meet the state’s solar mandates for new buildings; the association is forecasting a need for 250 to 450 megawatts of new community solar capacity to be added every year.

Combining storage with community solar to shore up California’s grid 

What’s needed, Coggeshall said, is a new structure for community solar, one with a funding pool that won’t dry up when program caps are reached or force projects to navigate complicated and lengthy utility-administered application processes.

The group’s proposed rate could do just that, he said, by establishing a common rate structure for the power generated by projects and allowing developers to seek out and finance projects they believe can make enough money at low enough cost to offer customers enticing subscription rates.

“We don’t propose having some sort of cap,” he said. That’s because the rate structure is designed to support projects that not only help subscribers save money by going solar but also provide positive benefits to the grid at large.

In this aspect, CCSA’s proposed rate matches the CPUC’s proposed structure for compensating rooftop solar systems for the power they export to the grid. Instead of the power from community solar projects earning the full retail rate, it would earn an ​“avoided-cost” rate that reflects both the value of that energy at the time and place it’s injected into the grid and the costs it helps the whole energy system avoid.

Specifically, CCSA has designed an ​“export credit rate” (ECR) that it proposes should be applied to community solar projects. The rate takes into account the hour-to-hour energy prices on the wholesale energy markets of California grid operator CAISO, as well as a set of capacity, grid and greenhouse-gas-reduction values determined by the CPUC’s avoided-cost calculator.

Some solar industry groups and consumer advocates worry that using this kind of method to set rates for net metering could undermine rooftop solar economics in the state, replacing a stable, predictable value for exported solar with a complicated and ever-evolving formula that homeowners, solar installers and their financial backers won’t be able to predict with any certainty.

CCSA hopes to reduce that risk by locking in a 25-year term for the hour-by-hour avoided-cost values that community solar projects with storage would receive, Coggeshall said.

A handful of states are building community-solar-and-battery projects based on similar rate structures, he noted. New York state’s value of distributed energy resources rate tier is one of the furthest along, and it has supported the development of nearly 1 gigawatt of community solar to date.

To make money under this structure, owners of community solar projects in California would need to provide as much power as possible to the grid during the key period of 5 p.m. to 9 p.m. in July, August and September. Those are the only times when the export credit rate would shift from low ​“off-peak” rates to significantly higher ​“peak” rates, as this chart shows.

These peak hours represent the times when California is most at risk of seeing its electricity demand outpace grid supply as summer heat drives heavy air-conditioner use. Such conditions forced the state to impose rolling blackouts in August 2020 and have continued to threaten grid reliability during summertime. California Governor Gavin Newsom (D) and the CPUC have taken dramatic steps to try to fill this reliability gap, fast-tracking utility-scale battery installations, offering lucrative payments to customers who agree to reduce power use during times of peak demand, and allowing the use of dirty backup generators when grid emergencies loom.

The same pressures are shaping the CPUC’s approach to net-metering policy, he noted. State law requires the CPUC to boost the value of rooftop solar backed by batteries and to tie the value of exported solar to broader goals for strengthening the grid and reducing greenhouse gas emissions.

“Our proposal starts to move in that direction by valuing the energy based on the value it provides to the grid — not incentivizing, but just paying for it,” Coggeshall said.