Adding solar to California apartments could get easier — if regulators go along

The vast majority of California’s rooftop solar has been installed on single-family, owner-occupied homes. But Dover Janis, CEO of San Diego, California–based startup Ivy Energy, sees apartment buildings as the state’s rooftop-solar future — if the right combination of technology, policy and business models can align to make it happen. The prospects depend in part on how California utility regulators decide to reform the state’s net-metering system for rooftop solar.

“There are over 1 million homes with solar in California,” Janis said in an interview. But ​“less than 1 percent of apartments or even single-family rental homes have solar energy.” 

That’s largely because the interests of renters and property owners are not traditionally aligned when it comes to rooftop solar, a situation known as the split-incentive problem. Tenants are responsible for paying the electricity bill in many rental housing units, so they benefit from on-site solar production that helps reduce those bills. But property owners, who must pay to install the solar systems, stand to see little benefit beyond cutting electricity bills for common facilities like lobbies and elevators. This has led to low solar uptake on rental housing across the country.

Ivy Energy has spent the past four years building a software platform geared to solve that split-incentive problem. Last fall it partnered with Bright Power, a New York–based provider of energy management services to multifamily buildings with projects across the country, to ​“help renting communities have access to on-site clean energy — hopefully with storage — at large scale,” Janis said.

Ivy Energy’s vehicle for doing that in its target market of California is virtual net energy metering, or VNEM, one of the state’s longest-running programs aimed at solving the split-incentive problem. In standard net-metering programs, a homeowner with solar panels feeds excess electricity to the grid and earns credits on their electric bills. Under virtual net-metering programs, landlords can craft agreements to share those credits with tenants.

This is similar in structure to the community solar programs that have sprung up across the country. Many of these use some form of ​“virtual allocation” of a solar system’s generation capacity, as do VNEM programs.

Why multifamily solar is a tricky prospect

But virtual net metering has garnered relatively little participation in the more than a decade it’s been available in California, at least compared to the standard net-metering system that has facilitated the state’s booming single-family rooftop solar market.

VNEM was authorized for low-income housing in California in 2008, and the programs created to enable it since then offer significant incentives for both landlords and tenants. Still, as of 2021, just under 60 megawatts of solar have been deployed and another 80 megawatts were planned to be built under these programs. VNEM’s use in the general market outside the domain of low-income housing, authorized in 2011, has been even lower, with just under 30 megawatts of projects built since then.

There are many reasons for this, said Ben Airth, senior distributed-generation policy manager for the Center for Sustainable Energy, the nonprofit that works with other community groups to administer California’s low-income VNEM programs.

Landlords tend to prefer low-risk investments that yield predictable and well-defined returns, he said. Virtual net-metered solar projects don’t necessarily fit that description, which is why the majority of projects built to date have been those backed by state incentives that sweeten the financial terms.

VNEM projects are also complicated to manage. ​“At the end of the day, time is money for these apartment owners,” Airth said. 

To make a project pencil out economically, landlords and their project development partners have to determine how much solar to install, based on how many individual tenants can be expected to agree to participate. ​“You have lots of people who are part of the decision-making process,” he said. The fact that tenants can move in and out adds uncertainty to the outcomes.

Landlords also have to manage VNEM’s virtual allocations with their utility and make sure that month-to-month billing and crediting structures are leading to payments for all participants on a steady basis, Airth said. ​“If we could get those things aligned, it could help streamline the process — make it easier to finance…[and] install.”

What Ivy Energy does to make virtual net metering work

Ivy Energy’s software is designed to ​“operationalize” these complexities, Janis said. The first steps are helping property owners assess the payback potential of different solar options, analyze and apply for the mix of incentives, tax credits and other resources available to reduce the upfront cost, and line up bids from project developers.

The next step is a ​“resident onboarding and rollout” platform that calculates how much tenants can expect to save on energy and makes that information available to tenants and the property managers trying to sign them up for the program.

Once the solar system is up and running, Ivy Energy’s software tracks the financial data involved with sharing solar credits among all participants. Janis called it a ​“baseline accounting record of value for the community” — a single source of data for managing and verifying who’s owed how much money, ​“instead of tons of different financial records per utility account.”

The software also monitors and analyzes how tenants are using energy. Calculating the value of net-metered solar credits is a complicated task, requiring data on the hourly mix of utility-supplied power and on-site-generated solar by individual tenants and the property as a whole.

“Running your dishwasher at 2 p.m. may have more benefits than running it at 8 p.m.” since California’s grid is under greater stress in late evenings when solar power fades, he said. Informing and rewarding tenants’ power-usage decisions requires tapping into the systems that make data from utility smart meters available to customers and authorized third-party companies like Ivy Energy. This is ​“a pain point,” Janis acknowledged, ​“but it’s always solvable.”

All that behind-the-scenes work yields detailed records that show tenants and owners alike how they’re ​“getting a piece of the benefit” of the solar system, he said. The sample statement below indicates how much data is involved:

This kind of in-depth analysis can give multifamily property owners the assurance they need to pull the trigger on a major investment like shared rooftop solar, said Andrew Ulmer, Bright Power’s executive vice president of strategy and growth for California. It’s the same type of analysis that Bright Power and other energy-services companies have been using for years for major building-efficiency upgrades, he noted.

Ivy Energy smooths the process for building owners. ​“They take on all of the complexity of understanding the tariff, understanding time-of-use [rates], solar production, consumption [and] billing, and essentially create a software solution that gives the owners what they need,” Ulmer said. This can turn what was once a risky and labor-intensive process into an informed investment decision with predictable rates of return — quite often very attractive ones, as Ivy Energy’s modeling work with California apartment building owners indicates.

Beyond solar: Batteries, EVs and building electrification

California has struggled to expand access to rooftop solar to lower-income and disadvantaged residents over the past decade, Janis noted. Over the coming decade, the state will need to find ways to change that disconnect, not just for solar but for batteries, electric vehicles and electric building heating systems, which are all part of California’s decarbonization roadmap.

Much of Bright Power’s work on building energy upgrades is around electrification, Ulmer said. ​“There are heat pumps for space and water heating; there are EV chargers,” he said. ​“On-site solar, and more and more the ability to store that energy with batteries, creates this path toward electrification and toward cleaner buildings.”

Janis noted that recent changes to state building codes that prioritize these electric systems have ​“really awakened everybody” to the gap in serving the multifamily market. One particular challenge for multifamily buildings is finding affordable ways to install and share the costs of EV chargers. In the coming year, Ivy Energy plans to introduce software that will allow tenants to allocate virtual net-metering credits to accounts linked to EV charging, he said.

Similar approaches could allow tenants and landlords to share the value of batteries that store and shift solar production to times when California’s grid needs it the most, Airth noted.

All of these options could be on the table for the California multifamily solar projects that Bright Power and Ivy Energy will be working on, Ulmer said. ​“If it makes sense to implement with a battery now, we’ll do that. And if it makes sense to implement EV chargers alongside a battery, we’ll do that.”

Tied up in the net-metering debate 

Much of the potential of VNEM is linked to how California utility regulators end up deciding to reform the state’s broader net-metering regime for rooftop solar, however. Right now, the California Public Utilities Commission is facing a political firestorm over its proposal to dramatically cut back on the value of net-metered solar fed to the grid; it is now in the midst of reconsidering its approach.

The proposed decision the CPUC released in December would cut net-metering compensation for solar from general-market VNEM projects in the same way it would cut compensation for solar from single-family homes. Ivy Energy has protested this stance in comments to the CPUC, stating that those who ​“do not own their property (renters) have been at a disadvantage in [net-metering] program participation thus far.”

The CPUC’s proposal states that it does not intend to apply these value-reducing changes to the state’s existing VNEM programs targeted at lower-income residents. But as Airth noted, the language of the proposed decision left open the possibility of future changes for other VNEM programs, and ​“any statement like that can put a freeze on the decisions of property owners,” given the uncertainty it could inject into the future value of their investments.

The Center for Sustainable Energy has asked the CPUC not only to remove this uncertainty but also to expand funding or increase incentives for low-income VNEM programs in whatever future net-metering policy it decides on, Airth said. ​“They should strengthen the value that solar delivers to property owners and tenants to make the decision easier for them to go solar.”

Other groups have made similar requests. The California Environmental Justice Alliance, a group of community organizations and nonprofits, has asked the CPUC to make VNEM programs ​“more inclusive and [targeted to the state’s] most impacted communities” — for example, by allowing more kinds of affordable housing to be eligible for participation.

Much of the future of California’s distributed solar and energy policy is tied up in how the CPUC decides to handle the net-metering issue. Janis noted that 46 percent of Californians live in rental properties that have largely been locked out of rooftop solar, representing a major untapped market that could be opened up to help the state meet its clean-energy goals.

“These are much larger solar projects than [can be installed on] homes. You have efficiencies of scale,” he said. ​“Theoretically, you can finance projects at a lower soft-cost standpoint and [with lower] customer-acquisition costs,” which represent the largest cost category for residential solar installers today. ​“We’re working with a couple of banks now that are very serious about the multifamily market for that reason.”