California Energy Commission Unanimously Approves Solar Panel Mandate for Homes

by Holland & Knight LLP
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HIGHLIGHTS:

  • The California Energy Commission voted unanimously on May 9, 2018, to require solar panels on all new single-family homes and apartment buildings that are three stories or less starting in 2020.
  • The new regulations would require a solar-power system of a minimum 2 to 3 kilowatts, depending on the size of the home.
  • The proposed regulations include exceptions when solar panels are not cost-effective or feasible, such as when a home does not receive sufficient sunlight. Builders could also opt to construct a shared solar-power system serving a group of homes in lieu of providing solar panels on each residence.

In a landmark decision that continues California's trend of leading the nation in clean-energy initiatives, the California Energy Commission voted unanimously on May 9, 2018, to require solar panels on all new single-family homes and apartment buildings that are three stories or less starting in 2020. The decision is aimed at furthering the use of renewable energy in the state and decreasing greenhouse gas emissions. The Energy Commission estimates that this single mandate will reduce greenhouse gas emissions by an amount equal to removing 115,000 fossil fuel cars from the road.

The proposed regulations include exceptions to solar panel installation when solar panels are not cost-effective or feasible, such as when a home does not receive sufficient sunlight for electrical generation. Builders could also opt to construct a shared solar-power system serving a group of homes in lieu of providing solar panels on each residence. The new regulations would require a solar-power system of a minimum 2 to 3 kilowatts, depending on the size of the home. A typical household in California consumes approximately 600 kilowatt-hours of electricity per month on average. As such, homes subject to this mandate will continue to draw power from the electric grid.

The Energy Commission estimates the solar panel mandate will add $9,500 to the construction cost of an average single-family home but will save homeowners approximately $19,000 in energy and other expenses over 30 years. Newly constructed buildings that are required to have solar panels under the new rules will join the more than 5 million homes in California that currently use solar power, which already makes California the nation's leader in solar panel installations.

Representatives of the construction, utility and solar industries all contributed to the push for the new regulations and support their implementation. However, some lawmakers feel that the new rules will further exacerbate California's significant housing shortage.

"That's just going to drive the cost up and make California, once again, not affordable to live," said California Assemblyman Brian Dahle.

Takeaways and Considerations

Undoubtedly, other states will be looking to see how this mandate affects California, its businesses and its residents. Massachusetts, New Jersey and Washington, D.C., have all considered legislation to require that new buildings be solar-ready. Hawaii already requires other types of energy-efficient measures such as solar water heaters.

The solar panel mandate will likely affect the demand for California's Property Assessed Clean Energy (PACE) program. Under the PACE program, started in 2008, California homeowners can obtain loans to fund energy-efficient home improvements such as solar-power systems. Local governments then tie the privately financed loans to a home and allow the loans to be repaid through the home's property tax bill. However, applicants for PACE financing often encounter difficulties with obtaining the written consent of lenders to subordinate their home loans to PACE financing.

In addition, the program came under scrutiny from consumer advocates who said PACE lenders were providing kickbacks to contractors and taking advantage of borrowers who did not understand the loan's terms. California Gov. Jerry Brown signed two bills in October 2017 to address these concerns. Nonetheless, two lawsuits were filed in April 2018 against the County of Los Angeles and two lenders, alleging the PACE loans at issue were liens on a house, lacked adequate consumer protections, and were marketed and sold by unscrupulous contractors that were not properly monitored.

With solar panels included in the price of a new home, homeowners, lenders and developers could avoid the challenges of PACE financing and may not need to separately finance solar-power systems through the PACE program.

The regulations that require solar panels still require final approval by the California Building Standards Commission, which typically adopts the Energy Commission's recommendations when it updates the state's building codes every three years. Given the Energy Commission's unanimous approval, we are likely to see more and more rooftop solar installations until all new homes have them.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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