New policy proposal dims hopes of reviving community solar in California

A three-year effort to revamp California’s moribund community-solar market, spurred by state law and backed by solar industry groups, consumer advocates, environmental-justice organizations, labor unions and the state’s homebuilding industry, may now be in jeopardy.

On Monday, the California Public Utilities Commission issued a proposed decision that sides with California’s major utilities against this broad coalition. It found that the Net Value Billing Tariff (NVBT) policy these groups support ​“conflicts with federal law and does not meet the requirements” of AB 2316, the 2022 state law that ordered the CPUC to create an affordable and equitable community-solar program.

The Coalition for Community Solar Access, a trade group representing solar developers which created the NVBT in 2021, excoriated the proposed decision in a Monday press release, stating that it ​“manages to both misinterpret federal law and our proposal, and ignores precedent that has been set by states deploying community solar for more than a decade.”

The CPUC’s proposed decision also conflicts with the view of 20 California lawmakers involved in passing AB 2316, who in a September letter to the CPUC told the agency that the NVBT ​“most closely aligns with the intentions” of the law.

Building a workable structure for community solar — midsized solar projects that provide shares of their power to households, businesses and organizations that subscribe to them — ​“will be essential to a successful energy transition while ensuring that renters and low-income Californians are afforded the same opportunity to participate and reduce utility bills through distributed energy resources as wealthy homeowners,” the lawmakers wrote.

Monday’s proposed decision would order the state’s utilities to meet AB 2316’s mandate not via the NVBT, but by altering existing community-solar and wholesale-market distributed energy programs. These programs have been widely recognized as failed experiments over the course of their decade-plus existence.

Those failures are precisely why backers of the NVBT came together to support an alternative they hoped would enable California to escape its laggard status on implementing community solar. California has less than 600 megawatts of large-scale distributed solar developed to date, compared to a total of 6.2 gigawatts in the 22 states with policies that support community-solar programs. The NVBT could enable about 8 gigawatts of community solar paired with batteries to be built in California using existing grid infrastructure, according to analysis from the Coalition for Community Solar Access — an important contribution to state clean-energy goals.

The NVBT program would also encourage developers to add batteries to megawatt-scale solar projects to help shift solar power into evening hours when the state’s grid faces electricity shortfalls. And under AB 2316, projects would need to provide at least 51 percent of their capacity to serve low-income residential customers at prices that reduce their electricity bills — helpful in a state with high and rising utility costs.

An unusually large number of groups have rallied around NVBT. Environmental-justice groups say it could allow disadvantaged communities and renters to access lower-cost solar power and reduce reliance on polluting fossil-gas-fired power plants.

And construction industry groups support the NVBT as a way to meet state mandates that require almost all new homes and many commercial buildings to supply solar to their occupants. The costs and practicality of meeting those building-code mandates are a particular concern for homebuilders after the CPUC drastically reduced the value of residential rooftop solar in the territories of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.

Now these groups fear that Monday’s proposed decision from CPUC Administrative Law Judge Kelly A. Hymes — who also crafted the CPUC’s rooftop-solar decision and another decision slashing compensation for shared solar systems for multifamily properties, schools and farms in most of the state — will cut off what may be the last viable avenue for non-utility-scale solar in a state that’s still far off pace to meet its clean-energy goals.

They also fear that the proposed decision, if approved by CPUC commissioners, could undermine California’s hopes of receiving federal aid to expand community solar. The Inflation Reduction Act passed by Congress in 2022 set aside $7 billion to help low-income families access solar power, including via community-solar programs. California is seeking funds from that program, but pro-community-solar groups warn that the state may lose out against other applicants if it lacks a viable community-solar program to make the best use of the money it’s asking to receive.

“I’m gobsmacked,” said Brandon Smithwood, senior director of policy at community solar developer Dimension Renewable Energy. While the CPUC could vote on the proposed decision as early as mid-April, he’s hoping that commissioners will demand changes to the proposal or issue an alternative proposal. ​“I don’t see how this is not held for further consideration.”

Does community solar violate federal law? California regulators say yes

The Coalition for Community Solar Access (CCSA) structured the NVBT on one of the most successful state community solar programs in the country — the one run by New York, which had installed more than 2 gigawatts of community solar as of the end of last year. By modeling its proposal on an existing and thriving program supported by state policymakers and regulators in New York, CCSA had hoped to overcome objections from utilities that the NVBT might somehow contravene existing federal law.

But in Monday’s proposed decision, the CPUC agreed with an argument put forward by California’s three big utilities that the NVBT approach would in fact violate federal law — a stance that appears to conflict with how community solar has been treated in other states.

The California utilities argued that, unlike rooftop solar, batteries, electric-vehicle chargers and other distributed energy resources connected to the low-voltage distribution grid, which are subject to state jurisdiction, the community-solar and battery projects envisioned for NVBT fall under federal law that governs larger-scale generators operating in wholesale energy markets.

That view is based on an interpretation of the Public Utility Regulatory Policies Act (PURPA), a 1978 law that requires utilities to purchase power from certain non-utility-owned generators under structures governed by the Federal Energy Regulatory Commission.

The question of whether state or federal authority prevails over energy projects that connect to distribution grids largely subject to state authority is a complicated and contested issue. Even state rooftop solar net-metering programs have been unsuccessfully challenged — at least thus far — as a violation of PURPA, despite the fact that their purpose is to determine how utilities reward customers for the power generated on their own property, rather than with the bulk transmission systems where the Federal Energy Regulatory Commission clearly has jurisdiction.

But NVBT supporters pointed to the lack of previous legal challenges against similar state community-solar programs in New York, Maine and Massachusetts as a good reason to reject the argument put forward by California’s major utilities.

“FERC had repeatedly held that net metering and net billing tariffs between a retail customer and its utility are not within its jurisdiction and not subject to the requirements of PURPA,” The Utility Reform Network noted in comments to the CPUC last year. The nonprofit advocacy group for California utility customers stated that there is ​“no instance of FERC asserting jurisdiction over, or ordering changes to, a virtual net metering tariff or community renewable energy program approved pursuant to state law.”

Hymes appears to dismiss these points in Monday’s proposed decision, stating that ​“the NVBT proposals do not equate to retail rate programs but instead resemble wholesale electricity procurement.” While the proposed decision does not address how other states have dealt with these issues, that stance would appear to cast into question the legality of many other state programs that share similar characteristics.

“I don’t think this is going to stand. The commission has not adopted this; it is still the judge’s proposal,” Smithwood said. ​“But if the commission did [adopt it], and I was another leading [renewables] state in the country, I would be concerned [that CPUC is] handing an argument to opponents to the clean energy transition, who could say, ​‘Look at what California says.’”

What will it cost? 

The CPUC judge also took issue with the costs the NVBT program would impose on utility customers. On this front as well, Monday’s proposed decision upholds utility arguments that NVBT will burden their customers with more costs than it delivers them in savings.

In a January opinion piece, Michael Backstrom, vice president of regulatory affairs at Southern California Edison, states that the NVBT ​“would have our customers pay eight times more for their power than what they would typically pay for the same green resources.”

And PG&E provided the CPUC with an analysis that found that 1 gigawatt of community solar installed under the NVBT program could result in a cost shift of $8.1 billion from customers signed up to receive that power to all customers over the program’s 25-year life.

Hymes cites this and other utility data points as evidence that NVBT would fail AB 2316’s requirement that any new program must not increase costs for nonparticipating customers.

NVBT proponents have pushed back, saying the utility estimates incorrectly inflate costs and ignore the benefits that could come from expanding a class of solar that’s been largely absent from the state.

Smithwood called into question Southern California Edison’s cost estimate in particular, claiming that it is based on ​“a falsehood that a project on the distribution system, delivering power at the end of the line and reducing the loads that drive utility investments” — a description of a community-solar-plus-battery project — ​“has no more value than a utility-scale project in the desert which needs transmission and distribution to deliver the power.”

Analysis from Dimension Renewable Energy found that the NVBT program can deliver utility bill savings of around $200 per year to average households and close to $300 per year to low- and moderate-income households, he noted.

But these analyses rely on the prospect of crediting community-solar-plus-battery projects based on the avoided-cost calculator — the structure the CPUC now uses for valuing energy exported from rooftop solar systems. Monday’s proposed decision rejects using that method for valuing community solar, citing utility arguments that NVBT-enabled projects ​“do not avoid transmission, distribution, and capacity cost categories.”

Instead, Monday’s proposed decision suggests that future community-solar projects in California should be compensated based on significantly lower ​“avoided-cost” values — a term for what power from grid-connected projects is worth to utilities, compared to the power they’re already getting from traditional sources.

Debates over how to set fair and appropriate avoided-cost values have consumed state lawmakers and utility regulators throughout the decades since PURPA was enacted. NVBT backers had hoped to avoid those disputes over what those values should be for community solar in California.

But Hymes’ proposed decision would throw open those issues once more, by ordering California utilities and other stakeholders to work out ways to implement a host of revamps to existing programs to meet AB 2316’s mandate for a fair and equitable community-solar regime.

A questionable set of alternatives 

The first proposed alternative would be a ​“new PURPA-compliant community renewable energy tariff.” It would be a modified version of two existing routes for third parties to build distributed power projects and sell their power to utilities in California — the Renewable Market Adjusting Tariff (ReMAT) program, which allows projects of up to 3 megawatts, and the PURPA Standard Offer Contract, which allows projects of up to 20 megawatts.

These programs have had a troubled history in California and have largely been viewed as providing low prices and short contract terms that make it difficult or impossible for developers to use them. The Solar Energy Industries Association trade group pointed out these flaws in comments to the CPUC, noting that ​“they cannot be a viable alternative to a community solar program which has to support a decent level of savings for low-income customers and other subscribers.”

Monday’s proposed decision also suggests tweaks to a number of the state’s failed community-solar programs of the past, while acknowledging that those programs have either been left completely unused or have been chronically plagued by low participation.

Since their introduction in 2013, California’s first community-solar programs have failed to attract more than a few thousand subscribers. One big problem is that they ask customers to pay more for community-solar subscriptions than the cost of standard utility service.

Meanwhile, another set of community-solar programs serving designated disadvantaged communities has also seen poor uptake, due to caps on how many megawatts can be built, requirements that subscribers live within 5 miles of the project, and other restrictions.

Monday’s proposed decision would seek to increase enrollment in these programs by ordering utilities to jointly develop a website to centralize marketing for them. But it does not lay out a clear path for how these programs could reduce customers’ bills while still earning enough money to be cost-effective for utilities or developers.

It proposes allowing developers to add batteries to solar while acknowledging that ​“this will likely result in more costly projects.” It suggests that those costs could be ​“balanced with the additional value to the grid that resources combined with storage will provide,” but it does not lay out what tariff or payment structures would enable this, deferring any such matters to utilities and stakeholders to develop later.

Nor does the proposed decision address the need to expand the relatively small scale of the existing programs. The current ReMAT program is capped at just under 500 megawatts, for example, while the community-solar programs for disadvantaged communities appear to have a total available capacity of a little over 150 megawatts. Together, that’s well under 1 gigawatt of capacity, compared to the 8 gigawatts of capacity the Coalition for Community Solar Access forecasts the NVBT program could enable over the remainder of this decade.

Monday’s proposed decision suggests a slew of alternative funding streams that could overcome those problems, including $33 million in state-approved funding available to the CPUC for community-solar usage and storage-backed renewable generation programs, revenue from the state’s cap-and-trade program or funds from California’s share of the $7 billion in Inflation Reduction Act funds.

But solar groups contend that uncertain and limited pools of funds can’t make up for a program structure that’s fundamentally uneconomic. The U.S. Environmental Protection Agency, which is administering the $7 billion Solar for All program, is ​“looking for scalability, the inclusion of more low- and moderate-income households,” said Derek Chernow, the Coalition for Community Solar Access’ Western U.S. regional director. Monday’s proposed decision ​“doesn’t get us there.”