New California rules would crush rooftop solar for renters

California is on the verge of drastically undermining the value of shared solar systems for renters — and solar groups and environmental justice advocates are crying foul. 

The policy changes set forth in this month’s proposed decision from the California Public Utilities Commission would essentially eliminate financial incentives for property owners to install rooftop solar in shared settings, such as schools, farms or multifamily dwellings.

The new rules would put solar power out of reach for California’s nearly 17 million renters, who have been largely locked out of the state’s residential rooftop solar boom, these groups say. It would also break a pledge from the CPUC to protect low-income communities from the major changes to the state’s solar net-metering rules the agency imposed last year, they warn.

Pushback to the proposal, which could come up for a vote by CPUC commissioners next month, has been fierce. More than 100 community and environmental justice groups sent a letter to the CPUC and Governor Gavin Newsom demanding changes to a proposal they warned would ruin the economics of in-progress multifamily solar projects that could serve an estimated 100,000 renters in the state. Over 150 local elected officials signed a similar letter decrying the proposal as ​“fundamentally unfair,” as it would ​“force tenants, schools and farms to buy all of their power from the utility even when it is generated on their own rooftop or field.”

“There’s really nobody I’ve spoken with who has not been frustrated and angry reading this,” said Dover Janis, CEO of Ivy Energy, a company that works with multifamily property owners to implement solar projects using the programs threatened by the CPUC’s decision.

How California’s big net-metering shift has complicated shared solar structures

The proposed decision would make major changes to the two important measures of shared rooftop solar: the virtual net energy metering (VNEM) and Net Energy Metering Aggregation (NEMA) tariffs. For decades, VNEM and NEMA have been used to assess how the power generated by shared solar arrays attached to a single electricity meter is credited to other meters on the same property, including the tenants of individual rental units in multifamily housing.

When it comes to rentals, VNEM is the relevant rule — it has been a key tool for enabling solar projects at multifamily properties and low-income housing. It’s used for the state’s Solar on Multifamily Affordable Housing and Multifamily Affordable Solar Housing programs, which have been the dominant pathway for the multifamily solar systems now serving about 37,000 renters in the state.

But the VNEM tariff has always relied on a workaround to the fact that the solar power generated and measured at one meter is not being measured at every meter that shares in the credits. That workaround has been ​“propertywide netting,” or splitting up the value of solar generated across all the different meters — or tenants, in the case of multifamily properties — included in the arrangement.

This was a lot simpler under California’s old net-metering program, which paid the same retail rate for solar that offset an individual customer’s use of grid power, known as ​“self-consumption,” and solar generated in excess of that customer’s demand from the grid, known as ​“exported” energy.

But late last year, the CPUC replaced that structure with a ​“net billing tariff” structure that pays a much lower rate for exported solar power — roughly 75 percent below what rooftop solar exports used to earn. That’s made self-consumption of solar power far more valuable than sending power back to the grid.

But instead of allowing customers under the VNEM tariff to continue to offset a portion of their bills, the CPUC’s proposed decision would adopt a plan from the state’s three big investor-owned utilities, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric, to pay only the far lower export rate for the entirety of the shared solar being generated.

That will devastate the value of solar for multifamily property owners and tenants alike, Janis said. Instead of being able to reduce utility bills that charge average rates of 32 cents per kilowatt-hour, customers under this proposed structure would instead earn about eight times less, or an average of 4.7 cents per kilowatt-hour over the course of the year, he said.

Even if these properties install batteries to store up solar power to discharge to the grid during the hours in which exported energy is most valuable, an Ivy Energy analysis indicated this would ​“only bring the blended avoided rate to about 11 cents per kilowatt-hour,” Janis said. ​“It doesn’t change the economics much.”

The proposal would also allow homeowners to earn far greater economic benefits from rooftop solar than renters can ever hope to, said Roger Lin, senior attorney for the Center for Biological Diversity. That’s an unfair burden on the roughly 44 percent of Californians who rent their homes, about four-fifths of whom are Latino or Black, he said — and that makes the CPUC’s proposed decision a possible violation of Californians civil rights, as his organization argued in a CPUC filing.

The CPUC is fielding comments from stakeholders, the vast majority of them opposed to the proposed decision, before it will be brought to the full commission for a vote as soon as next month. The agency could vote on the proposed decision as it stands, issue an alternative proposal and vote on that, or decide to hold off on a vote for further review.

A blow to energy equity, affordable housing and the laws of physics 

The core problem articulated in the CPUC’s proposed decision is that it’s just too difficult to determine how the power use of different units is offset by one shared solar array.

Solving that problem definitively would require technology that can track and manage shared solar power flows across multiple meters. While such technology does exist and is used in other markets that don’t allow propertywide netting, it does add extra cost and complexity that shared-solar projects can ill afford, Janis said.

But that’s far from the only route available to CPUC, advocates say.

Ivy Energy, along with a panoply of solar groups, consumer advocates and environmental justice groups, have asked the CPUC to stick with a structure that continues to allow individual tenants to lower their utility bills with a portion of the solar generated by shared systems. In many cases, that solar is being generated behind the same utility transformer that serves the property at large, which means that it’s offsetting the grid demand from all of the units behind that transformer.

Even in circumstances where the link between solar generation and load reduction isn’t as clear, propertywide netting ​“would more accurately match how electricity generated is being physically consumed by loads throughout the property,” nonprofits Grid Alternatives, 350 Bay Area, Vote Solar and Sierra Club argued in a filing with the CPUC.

But the proposed decision, written by administrative law judge Kelly Hymes, declined to take up these arguments, stating that the tariff to replace VNEM ​“should not be based on a presumption of onsite self-consumption.” It also cited utility arguments that it would be ​“overly complex” to determine just how much solar power should be ascribed to each individual tenant’s utility bill versus credited as exported power.

Instead, the proposed decision adopted the utility proposal to pay only the much lower exported power rate for the entirety of the solar power generated, stating that this ​“would be easy for customers to understand and easy for utilities to administer.”

In Lin’s view, that line of reasoning ​“essentially says, ​‘yes, there’s on-site consumption at the vast majority of multifamily properties.’ But then it jumps to, ​‘but it would be too complex to determine that — so we just won’t have any on-site consumption.’” As he put it, ​“In addition to potentially raising a big red flag about civil rights, it also violates the law of physics.”

Sachu Constantine, Vote Solar’s executive director, agreed that the argument that utilities ​“can’t net against on-site, property-based load is absurd. They’re already doing it.” VNEM has been in place since 2007, and the technology available for utilities to measure and differentiate between what’s being consumed on site and what’s being exported to the grid has ​“only improved since then. It’s patently absurd to suggest they couldn’t do this.”

That lack of sound reasoning for denying renters the chance to reduce their utility costs is even more jarring in light of the threat it poses to California achieving its broader policy goal of reducing energy burdens on low-income residents, he said. Electricity rates at the state’s three big investor-owned utilities are double the national average, have been rising much faster than the broader inflation rate and are expected to keep climbing in the years to come.

The lack of affordable options to adopt solar could also be a problem for multifamily housing developers that must start including solar as part of new construction starting next year under California’s building codes. Janis pointed out that the CPUC’s proposed decision would ​“strip away the ability to measure self-consumption — pretend it doesn’t happen — and then bill the tenants who use that power six to 10 times the price you paid the property owner,” which would still be allowed to offset utility bills for common-area loads like lobby lighting and elevators.

That assessment was shared in a letter to CPUC President Alice Reynolds from 17 multifamily and affordable housing developers. They warned that if the proposed policy is put in place, ​“real estate owners and developers who invest in multifamily solar projects will not have a viable pathway to recoup investment costs other than by raising rents, nor could they share any bill savings with tenants, negatively impacting housing affordability for renters.”

It’s possible that community solar programs, which allow utility customers to receive utility bill reductions and credits from solar being generated at another site, could serve as an alternative way to expand solar access to renters and multifamily property developers. After decades of failed community solar programs, California passed a law last year ordering the CPUC to develop a new model that could dramatically expand the scope of the market, with the CPUC expected to issue a proposed decision this fall.

“Community solar is also a viable alternative if it’s designed right, and if you get the incentives right,” Constantine said. But that’s not a good reason to undermine another program that can help renters in a way that will ​“narrow the ability of customers across the board to go solar.”