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California leads the nation in rooftop solar installations by a long shot. But it has never managed to craft a viable community solar market for people who can’t put panels on their own roofs. That’s been a glaring oversight in a state where median home prices in major cities have soared above $1 million, pushing home ownership out of reach for millions of residents.
But a late-summer legislative breakthrough could unleash community solar statewide in the next couple of years. AB 2316 passed the legislature by a broad majority last week with widespread support from interest groups — not just solar developers, but also environmental justice organizations, consumer advocates, the homebuilding industry and utility workers. By learning from successes and shortcomings in other states’ community solar programs, California designed its version to benefit customers, developers, workers and the overall power system at the same time.
In doing so, community-solar advocates sidestepped ongoing and contentious debates on how to properly compensate owners of rooftop solar. And they avoided critiques of unfair subsidies or cost shifts by ensuring these projects are, by definition, a good deal for everyone.
The most common community-solar model has private developers build projects that individuals can subscribe to. As the projects generate solar power and feed it into the grid, subscribers earn credits that are applied to their electric bills. The subscription fees should be lower than the value of the credits so subscribers come out ahead financially.
To make this work, policies are needed that tell utilities to credit customers’ energy bills for power produced elsewhere. In some states, these rules set a certain price that utilities must pay for community solar production. But exactly where to set that compensation level becomes a contentious question.
In California, compensation for community solar will be pegged to the actual value of electricity at the time it’s delivered to the grid. Since California is awash in solar in the sunny hours but desperately in need of power during evening hours, market forces will push community solar projects to be built with batteries in order to allow projects to sell their power when it can command the best price.
“The value of the bill credit is going to be driven by the value of the power — and the value of the power varies within the day, within the month, within the year,” said Richard Caperton, vice president of regulatory affairs and market development at Arcadia, the cleantech unicorn that manages community solar subscriptions across 13 states and Washington, D.C. “That seems intuitive, but that’s not the way it works everywhere.”
California Gov. Gavin Newsom (D) still needs to sign the bill to make it a reality. If he does, he could usher in a new market for potentially hundreds of megawatts of solar production that will be stored in batteries for delivery when California’s grid desperately needs it. The customers who save money on their bills would fund an expansion of clean, dispatchable power that makes the grid more reliable for everyone.
Community solar designed for equity and grid value
For years, California homeowners have been able to buy or lease their own solar panels and reap the benefits. But that was not possible for millions of renters, nor for condo dwellers or people who own a home that happens to be shaded by, say, a majestic redwood grove. People in these groups could sign up for a clean-energy option through their power provider, but that typically costs extra instead of saving money.
The problem wasn’t that California lacked a community solar policy; it just didn’t have one that really worked.
“We had some well-intentioned bills in the past that just haven’t played out the way that they were intended to,” said Derek Chernow, Western regional director for the Coalition for Community Solar Access. “It just didn’t pencil out for companies to come in and go all-in on community solar.”
Now, assuming Newsom approves the bill, a new option will be available to everyone in the territories of the state’s three big investor-owned utilities: Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.
California’s new program will go beyond conventional community-solar design by stipulating requirements to serve equity and just-transition goals:
- At least 51% of subscribers to a project will have to be low-income. This avoids issues seen in other states, where much of the community solar production ends up serving businesses, which solar financiers typically see as less risky than low-income families.
- The projects will be built by workers paid prevailing wages. The goal is to ensure the emerging clean-energy economy creates family-supporting jobs, replacing well-paid fossil-fuel power-plant jobs as they recede.
The program does not contain subsidies to help low-income families subscribe to community solar projects, but the families should benefit from reduced power bills and lower costs overall. Additional funding may become available from federal or state sources to lower the cost of projects serving communities that suffer from air pollution from dirty power plants.
The program design also tries hard to ensure community solar projects act like good neighbors for the power system at large.
California doesn’t need more solar production dumped onto the grid at noon; it’s looking for clean power delivered in the evening hours when solar generation dips out but demand is still high. These are the hours when the grid gets wobbly in a heat wave, like the one that bore down on the state earlier this week. Instead of encouraging community solar whenever, wherever, the legislators tailored the new program to attend to the needs of California’s grid:
- Community-solar production will be paid based on the “avoided-cost calculator.” That’s a complex technocratic calculation, but the gist of it is that projects earn more for delivering power when it’s more valuable to the grid. In effect, this means each project will have energy storage attached so it can maximize the savings for subscribers.
- Projects will be connected to the distribution grid, rather than the bigger transmission network, Caperton noted. This serves local resilience because if a long-range transmission line gets knocked out by a fire or earthquake, community solar can keep delivering power locally.
While California grapples with keeping the lights on, it’s also working toward a legal deadline to decarbonize the grid by 2045. In aggregate, this new community-solar program in California could deliver substantial amounts of clean power at much-needed times, without socializing the costs of construction.
“It uses private capital to fund public infrastructure, taking those risks off ratepayers’ backs,” Chernow said. “Developers have every incentive to make the projects cost-effective, innovative and competitive.”
Dodging solar policy pitfalls
In California, energy policy emerges from conversations — or knock-down, drag-out struggles — between interest groups that hold influence with the Democrats who control state politics. Utility unions regularly square off against generally non-unionized rooftop solar installers over who should supply clean power to the grid. Pro-nuclear climate hawks joust with anti-nuclear environmentalists. Things can get messy.
The community solar proposal that became AB 2316 started out as a pitch to regulators deciding the future of rooftop-solar net-energy-metering policy in California, known as the NEM 3.0 proceeding — a divisive issue, to say the least. The utility regulator released a draft in December that got slammed as overly punitive to rooftop-solar customers, kicking off a political firestorm. The revised proposal still hasn’t been released.
Community-solar advocates did not wait around for that procedural logjam to get disentangled.
“NEM 3.0 just lost all momentum, so we took it to the legislature,” Caperton said.
They found a sponsor, Assemblymember Chris Ward (D) of San Diego, to introduce the proposal as a stand-alone bill. The coalition that united behind it avoided the usual internal struggles among Democratic interest groups.
In other states, this kind of community solar program might kick up opposition because it could be considered a threat to a regulated utility that makes a guaranteed profit by building new power plants. But in California’s semi-deregulated market, the investor-owned utilities get most of their new power from contracts with independent renewables and battery developers; the community solar structure doesn’t radically alter that system.
There is one open thread on the legislative front. Advocates including the California Environmental Justice Alliance had campaigned for dedicated state funding to support community-solar projects serving low-income areas. That did not make it into the budget. But SB 846, the last-minute breakthrough to keep the Diablo Canyon nuclear plant running, includes $1 billion over three years for a “Clean Energy Reliability Investment Plan.” It’s up to the California Energy Commission to decide how to spend that money, but advocates believe community-solar projects fit the bill and deserve some of the funding.
The recently passed federal Inflation Reduction Act could also bolster community solar development in California. That law creates tax credits for solar and storage projects built with prevailing-wage labor and expands the credits for projects serving low-income or frontline communities. The law also earmarks $7 billion to support state community-solar programs. If project developers can tap those funds, they should be able to lower the cost of subscribing to their projects.
AB 2316 calls for California’s utility regulator to approve final community solar programs by the summer of 2024. Previous experience in the state has shown that a lot rides on implementation. But the strong majorities in both chambers of the legislature who voted for this new approach to community solar, and the wide-ranging political coalition behind it, suggest that the model has broader buy-in than ever before. A lot of eyes will be watching the program as it moves toward fruition.