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California becomes first state to mandate solar on new homes

Bloomberg logoBloomberg 5/9/2018 Mark Chediak and Prashant Gopal

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Video by Fox News

California became the first U.S. state to require solar panels on almost all new homes, sending the clearest signal yet that rooftop power is moving beyond a niche market and becoming the norm.

Most new homes built after Jan. 1, 2020, will be required to include solar systems as part of energy-efficiency standards adopted Wednesday by the California Energy Commission. While that’s a boost for the solar industry, critics warned that it will also drive up the cost of buying a house by almost $10,000. Solar shares surged upon the decision, while homebuilders fell.

The move underscores how rooftop solar, once a luxury reserved for wealthy, green-leaning homeowners, is becoming a mainstream energy source, with California -- the nation’s largest solar market -- paving the way. The Golden State has long been at the vanguard of progressive energy policies, from setting energy-efficiency standards for appliances to instituting an economy-wide program to curb greenhouse gases. The housing mandate is part of Governor Jerry Brown’s effort to slash carbon emissions by 40 percent by 2030, and offers up a playbook for other states to follow.

“This is huge,” said Rachel Golden, senior campaign representative for the Sierra Club. “It’s a cost-effective measure that is going to reduce greenhouse gas emissions and support growth in renewable clean energy.”

Sunrun Inc., the largest U.S. residential-solar installer, gained 3.8 percent to $9.79 at 3:40 p.m. in New York. Tesla Inc. rose 1.4 percent and SunPower Corp. climbed 3.7 percent. KB Home, which has significant exposure to the California market, declined 5.2 percent.

a screenshot of a video game: Becoming the Norm © Bloomberg Becoming the Norm

The U.S. had 10.4 gigawatts of residential solar power at the end of last year, up more than sixfold from five years earlier. The industry started slowing in 2017 amid policy changes and efforts by some companies to shift their strategies.

“Adoption of these standards represents a quantum leap in statewide building standards,” Bob Raymer, senior engineer of the California Building Industry Association, said during the meeting before the vote. "You can bet the other 49 states will be watching closely what happens.”

Tesla’s Francesca Wahl, senior associate of business development and policy, was among the company representatives to back the mandate at the meeting Wednesday, and expressed support for provisions that will also promote wider use of energy storage systems.

California’s solar policy will exacerbate another critical issue in the most populous state, where high housing costs are seen as a drag on the economy that also contributes to rising social tensions.

“With home prices having risen as much as they have, I think home buyers would find it a little distasteful to be forced to pay more for solar systems that they may not want or feel like they can’t afford,” said Brent Anderson, a spokesman for homebuilder Meritage Homes Corp. “Even though, in the long term, it’s the right answer.”

Solar Surge © Bloomberg Solar Surge

California’s economy added 2.3 million jobs over the past five years. Over the same period, the state issued permits for fewer than 480,000 new residential units, or about one home for every five additional workers.

The new policy applies to single-family houses and multifamily units that are three stories or less, and there are some exceptions for homes that are too shady. Homebuilders will probably try to pass on the costs to customers, Carl Reichardt, a San Francisco-based analyst for BTIG LLC, said in a phone interview before the vote.

Big homebuilders like KB Home and Meritage have an advantage because they’ve been offering solar homes for years. Smaller builders will have a harder time managing the new requirements, he said.

Installing a solar system and complying with other energy-efficiency measures required will add about $9,500 to the cost of a new home, according the the California Energy Commission. That would be offset by about $19,000 in expected energy and maintenance savings over 30 years, the commission estimates.

The decision “reinforces the state’s leadership in advancing clean-energy solutions,” Lynn Jurich, Sunrun’s chief executive officer, said in a statement Wednesday. “This standard will play an important role in aiding California to reach its climate and renewable energy goals.”

Solar Demand

While the policy is good for the solar industry, it may not move the needle that much.

The state adds about 80,000 new homes a year, and the California Solar & Storage Association estimates that about 15,000 include solar power. The Energy Commission says that the average home system uses 2.5 kilowatts to 4 kilowatts of panels, so the additional 65,000 new systems would add as much as 260 megawatts of annual demand in the state -- about the size of one large solar farm.

SunPower expects the rule will increase demand for residential solar in the state by about 50 percent. The San Jose, California-based company makes panels and develops solar systems ranging from rooftops to large, utility-scale power plants.

It’s unclear how much major solar installers like Sunrun and Vivint Solar Inc. will benefit, said Joe Osha, a San Francisco-based analyst at JMP Securities. They typically target existing homeowners rather than companies building new homes.

“Your initial reaction is: ‘oh, that’s great for the solar company,’” he said. “But their business is about acquiring individual customers. If you’re working with homebuilders, it’s a completely different thing.”


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