California Popularized Solar, But It's Behind Other States on Panels for Renters

(Bloomberg) --

The array located in Visalia is a community solar project, designed to provide clean electrons to those who can’t install rooftop panels. This one, developed by Dimension Energy, along with two others near it will provide enough electricity for more than 3,700 nearby residents at a 20% discount of standard utility rates.

“We need more projects like this to help the state’s millions of renters in need of relief from their high utility bills,” said California State Senator Anna Caballero, a Democrat who represents part of the Central Valley.

Community solar developers install panels on land in or near communities as opposed to larger-scale projects that can be located hundreds of miles away from their customers. Renters, apartment dwellers and people whose homes aren’t suitable for rooftop solar can then sign up to get power from these small-scale systems often called “solar gardens,” paying a monthly fee while receiving a credit on their bill based on their share of energy produced.

The Biden Administration has been promoting community solar, part of a bid to expand clean energy access and reduce carbon emissions. In April 2024, the Environmental Protection Agency awarded California $250 million to develop projects including community solar for low-income and disadvantaged communities. But while community solar has taken off in states including New York and Minnesota, it has failed to thrive in California. The state played a central role making solar mainstream. It was most instrumental in popularizing rooftop panels in the US. Yet recent policies and decisions have shunted that growth. 

“California has instituted one failed policy after another that’s really hampered and served as a barrier to community solar,” said Derek Chernow, western regional director of the Coalition for Community Solar Access, a trade association.Two years ago, California lawmakers sought to revive the moribund community solar industry by passing a law that required utility regulators to create a new cost-effective program that would expand access for low-income residents amid rising utility rates that among the nation’s highest.

A coalition of solar developers, consumer advocates, labor unions and builders put forward a proposal that they say would have jump started the state’s community solar industry, providing compensation for projects at a high enough rate that proponents said would make them economically feasible.

The California Public Utilities Commission, which is responsible for developing the rules under the new community solar law, struck down that idea in May 2024. 

“Solar developers sought compensation for projects in the new program that was much higher than competitive market prices,” said Terrie Prosper, a spokeswoman for the California Public Utilities Commission. “Their desired compensation level would have increased electricity rates in California” for residents not participating in community solar, she said.

Instead, the agency expanded the capacity of an existing community solar program for low-income customers, but developers say it doesn’t offer enough incentives to build new projects. The commission also created another program that will compensate community solar energy at a  rate similar to what the large-scale utility projects get. That’s lower than what the solar coalition wanted. This program allows for projects to take advantage of the $250 million in federal funding and $33 million in state funds, with details on how that will work to be decided later.

Caitlin Connelly, a senior solar analyst at Wood Mackenzie, a market research firm, said the California community solar ruling dampens prospects for those types of projects in the state. “The proposed changes are not enough to attract new development or create a scalable program.”California accounts for a tiny fraction of the nation’s community solar market, installing 14 megawatts out of a national total of 1,284 megawatts last year, according to Wood Mackenzie. This fall, Dimension Energy also completed a community solar project in Inyokern, California, that will serve over 2,000 households in Southern California. State regulators still need to decide how to allocate the $250 million of federal funding, which will determine how many additional projects get built, Connelly added. However, the new compensation rules on their own likely won’t be much better for developers than the old program, she said. 

Dimension Energy, which developed the projects in Visalia and Inyokern, is taking a wait-and-see approach, said Brandon Smithwood, vice president of policy at the company.

“Until that second decision is out, we won’t really know whether the projects we want to build can proceed or not,” he said. 

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