California solar panel decree is negative for utilities

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A new California Energy Commission requirement that solar panels be installed on new homes creates a cost structure challenge for California utilities and their customers.

The proposed building standards are credit negative for the state’s utilities, Moody’s Investors Service analysts said.

The five-member California Energy Commission voted unanimously May 9 to adopt the building standards that would start in 2020. The standards still need approval from the California Building Standards Commission.

The change would mean that California homes would operate more efficiently while generating their own clean energy, said Commissioner Andrew McAllister.

“They will cost less to operate, have healthy indoor air and provide a platform for ‘smart’ technologies that will propel the state even further down the road to a low emissions future,” McAllister said.

The energy commission estimates the new standards could cut energy use in new homes by more than 50%.

In addition to requiring solar panels, both resident and commercial buildings would have updated attic insulation standards and commercial buildings would have stiffer lighting standards. The new solar standards apply to apartment buildings under three stories as well as single-family homes.

Placing three-kilowatt systems on the 90,000 homes expected to be constructed in 2020 would result in an additional 200 megawatts in power generating potential, Moody's analysts said.

Electricity rates would rise for customers who don’t have solar installed as utilities adjust to lower revenues, analysts said.

“Continually shifting costs to balance out revenue is ultimately unsustainable for utilities’ business models,” Moody’s said. “We expect that utilities will rely on regulators to monitor the credit customers receive through net energy metering and continue to modify that policy to help utilities navigate the energy shift.”

The state is slated to revisit its net metering policy in 2019.

If the building commission approves the change, California would become the first state to require solar-powered homes. The energy commission expects that the change would reduce greenhouse gas emissions by 700,000 metric tons over a three-year period.

The change would also help the state meet a goal of sourcing 50% of its electricity from renewables by 2030.

The new building standards would result in a four-fold increase in the number of homes with solar panels, according to the California Solar + Storage Association.

Currently the solar industry installs on average 15,000 solar panels on new homes in the state annually, or less than 20%, according to the industry group.

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