This story was updated at 12:18 p.m. EDT.
California regulators are weighing a plan that solar companies warn could derail a type of solar project crucial to the Biden administration’s goal of decarbonizing the U.S. grid.
Unlike rooftop solar that serves one home, community solar projects flow from a moderate-sized solar array to a group of customers in a geographic area. The programs are intended to bring solar to renters, homeowners who can’t afford solar panels and people who can’t install panels because of physical limitations.
California’s community solar development has long trailed other states with community solar programs, despite the state’s overall reputation as a solar hot spot. A proposal pending before the California Public Utilities Commission (CPUC) seeks to revamp the rules governing community solar, but companies say the policy at hand isn’t much of an improvement.
And because California has an outsize role in the country’s solar market, a failure to launch community solar there could put a dent in the Biden administration’s efforts to bring more solar power to more homes. In February, the Department of Energy set a goal for community solar developers to reach 20,000 MW of installed solar by 2025, up from 7,000 MW today.
“California has been a leader in so many ways, but the one area we haven’t led is on community solar,” said Derek Chernow, western U.S. regional director for the Coalition for Community Solar Access (CCSA). “Now, the state is proposing to take small little steps when we could go bold and make a larger difference.”
A proposed decision from an administrative law judge would tweak the state’s existing program, including changing how developers and subscribers are compensated and how project enrollments are capped. Community solar advocates, however, say the changes are not enough to attract new developments.
The proposed decision had been set for a vote at Thursday’s meeting, but the CPUC removed it from the agenda Wednesday. The earliest it could come back up is the CPUC’s next voting meeting May 30.
To try to avert the decision, community solar advocates have launched a lobbying effort that includes two former heads of the Federal Energy Regulatory Commission, a Republican and Democratic appointee. New York Democratic Gov. Kathy Hochul and President Joe Biden’s climate adviser, John Podesta, have each reached out to California leaders to discuss the community solar reforms, according to multiple people familiar with the discussions.
Hochul’s office did not respond to a request for a comment. The White House declined to discuss the details of Podesta’s calls. But it said in a statement that the Biden administration “supports community solar as a way to lower energy costs for American families and create good-paying jobs.”
The CPUC is moving through its public input and decision-making process, said Alex Stack, a spokesperson for California Democratic Gov. Gavin Newsom, in an email.
“California has more solar capacity than any other state in the country and is bringing on more and more solar every single year,” Stack said, “and it’s critical that we continue bringing online more cost-effective renewable and zero-carbon energy projects.”
Community solar backers hope that the delayed vote means there will be time to revise the proposal before a vote. As of Wednesday afternoon, no updated materials had been entered into the CPUC docket, although commission records showed several meetings had occurred between commissioners and environmentalists, solar companies, and utility officials to discuss the rules.
Community solar is seen as filling an important role in the nation’s solar build-out. The projects are typically less than five MW and can be financially structured in a way that does not require a hefty upfront investment for nearby customers who sign up as subscribers. The subscribers pay a monthly fee, then get credits on their electric bills from sales of the lower cost power that goes back to the grid.
In states like California that are setting tougher emissions standards for residential buildings, community solar projects can also help developers meet new requirements without filling every rooftop with solar panels.
A 2024 outlook from industry analyst Wood Mackenzie found that there could be 14,000 MW of community solar power installed in the U.S. between 2024 and the end of 2028. Analysts at the firm forecast that with a robust policy California could account for 19 percent of that growth.
If a new policy does not strongly encourage new community solar development, however, California is forecast to install just 155 MW in that time period, accounting for just 2 percent of the nation’s growth in a state with nearly 12 percent of the country’s population, Wood Mackenzie said.
Community solar developers have installed 70 MW of generation since 2018 in the state, enough for an estimated 52,500 homes. By contrast, the state has a total of about 47,000 MW of solar combined from rooftop and utility-scale installations.
A federal conflict
Twenty-two states and the District of Columbia have passed legislation that enables community solar, although another 21 states have at least one project. States with enabling legislation generally have more robust deployment and are seen by developers as a better place to work.
The success of those programs, however, depends on their details, including how developers are compensated, how projects are permitted and whether the state has requirements for low-income resident participation.
California has fallen flat on many of these details, experts say.
Currently, utilities in the state cannot exceed caps on how much community solar capacity they can build and face restrictions on who can subscribe to individual projects. Critics argue in comments filed with the CPUC that the program is also too burdensome for both developers and customers to understand and don’t allow subscribers to lower their bills enough compared to other states.
“The state just got off on the wrong foot with community solar,” said Joe Henri, senior vice president of policy at Dimension Renewable Energy, a Georgia-based national community solar developer. “The intention is great, but the execution has been very difficult. We’ve developed a few projects there, and the experience pushed us to support the reforms.”
A 2022 state law required California officials to create a new community renewable energy program, with at least 51 percent of the benefits going to low-income customers. A group of solar advocates led by CCSA submitted to regulators a proposal known as the Net Value Billing Tariff, which changes the amount customers are reimbursed for solar based on the time of day it is dispatched.
Much like rooftop solar panels on homes, community solar projects can be compensated for excess electricity that is not used by customers and is sent back to the grid. The Net Value Billing Tariff proposal included a structure that offers higher rates for solar sent back to the grid in the late afternoon and evening and during the hottest months. That’s a way to incentivize battery storage, since it would allow power to be saved up for the maximum time.
The Net Value Billing Tariff proposal would also set requirements for low-income customers to make up at least 51 percent of subscribers and lift other rules that have limited development.
The program’s structure aligned with one in New York state that has been responsible for incentivizing more than 2,000 MW of community solar.
The proposed decision drafted by CPUC Administrative Law Judge Kelly Hymes, however, fell more in line with a proposal from utility Southern California Edison. That proposal would instead revamp two existing programs that have seen minimal participation while laying out ways for developers to use state funds to boost participation. The proposal also does away with the tariff proposed by CCSA in favor of one that compensates generation on a rate based on the cost of other sources of power on the grid.
That, CCSA and other advocates say, would result in significantly lower payments and diminish the benefits to subscribers and developers alike. Southern California Edison, however, had criticized the advocates’ proposed structure as continuing a “cost shift” that compensates solar owners at the expense of ratepayers who don’t have solar.
More importantly, however, Hymes’ proposed decision posited that the net billing tariff could violate federal law. Essentially, the administrative judge stated in the proposed decision, solar projects serving a larger community are not distributed resources like rooftop panels or home batteries, which connect to the low-voltage distribution grid.
Instead, they function more like utility-scale operations in the wholesale market, which under the Public Utility Regulatory Policies Act (PURPA) would qualify for federal oversight. That, according to the proposed decision, means they also need to be compensated like those wholesale projects.
Former FERC Chair Norman Bay, an Obama appointee, has filed comments rejecting that interpretation, as has former FERC Chair Neil Chatterjee, a Trump appointee. In an April letter to the commission, Chatterjee wrote that adopting the proposed decision “could create substantial uncertainty around federal/state jurisdictional conflicts that FERC itself has declined to initiate,” which in turn could “unsettle markets across the country.”
In an interview, Bay said that FERC has never invalidated a state net metering program — and that the federal commission would have no precedent to invalidate the California proposal.
Plus, he said, Congress has clearly intended states to stake out similar programs by including incentives in 2022’s Inflation Reduction Act.
“Far from seeking to displace state policies, Congress has sought to promote them,” Bay said.
“I think it would set a bad precedent and the kind of precedent that opponents would quickly seize on to set aside community solar programs,” Bay said.
A national push
The CPUC did not answer questions about concerns raised about the plan. The proposed decision creates an opportunity to evaluate the programs at a later date and make further changes if participation is not high enough.
Without changes, Dimension’s Henri said he doesn’t anticipate developers reentering the California market any time soon.
“My takeaway from this process has been that the industry really needs to go back to the education phase and help the commission understand the opportunity and make sure they are able to really appreciate the benefits that could be unlocked,” he said.
Starting a robust program, he added, is especially important because of the Biden administration’s efforts to get community solar off the ground. Last month, the administration announced the winners of $7 billion in grants to states, tribes and nonprofits through the Solar for All program with the aim of reaching low-income customers. Almost all of the selected grants included some community solar aspect.
In a statement, Podesta said the grants “mean that low-income communities, and not just well-off communities, will feel the cost-saving benefits of solar thanks to this investment.” The White House estimates that more than 900,000 households will benefit from the funding recipients and that it will generate over $350 million in annual electric bill savings.
The state of California netted just one of those grants, a nearly $250 million application for the state’s infrastructure development bank to expand its solar outreach and close funding gaps. Another $250 million grant went to nonprofit Inclusive Prosperity Capital for a multistate community solar program that includes California among the states it could operate in.
CCSA’s Chernow said that the Solar for All funding has motivated dozens of states to pass legislation enabling or expanding community solar.
“We’re seeing a big push in all the states, we just want California to follow and regain leadership on clean energy,” Chernow said. “We won’t meet our national solar goals without California.”
