California cuts incentives for community solar projects

California’s energy regulator today adopted new rules for on-site solar projects, despite warnings from clean energy advocates that the move would actually undermine efforts to expand solar options for low-income customers.

The state’s largest utility companies were in favor of the new regulations.

Community solar projects are typically small-scale, on-site solar panels that can serve renters and homeowners who cannot afford to install their own rooftop solar panels. They are part of the state’s overall strategy to ultimately power the power grid exclusively with renewable energy.

The California Public Utilities Commission’s 3-1 ruling preserves and expands programs that will allow any ratepayer to subscribe to a project pool and receive a 20% rate reduction, Commission Chairwoman Alice Reynolds said. However, it also reduces future compensation for solar providers and residents.

The Commission calculates the benefits of small-scale distributed solar projects that provide a “service” of transmitting clean energy to the power grid and lowering transmission costs by serving nearby communities. Developers of photovoltaic systems are paid in line with the value of the benefits their project provides.

The formula adopted today essentially reduces the value of small-scale distributed renewable energy in the future, providing less incentive to build new community solar projects.

For the foreseeable future, grants and incentives to help promote community solar installations will remain in place and will be covered by the recent $250 million federal grant California received through the Solar For All program.

One of the concerns of solar energy advocates is what will happen when the funding pool dries up and the financial incentives to develop solar energy evaporate.

“The foundations of a sustainable program should not be built on one-time money,” said Derek Chernow, western regional director for the Coalition for Community Access to Solar Energy.

Although California has been a leader in promoting solar energy and advocating for a zero-emission electric grid, the state’s efforts to encourage smaller solar projects have been lackluster. One example of a missed opportunity that critics point to is not requiring local photovoltaic projects to have energy storage systems that would allow energy to flow after the sun goes down.

“We’re not done yet,” Reynolds said, adding that the programs could be modified and improved in the future.

With electricity bills skyrocketing for many Californians, she was also critical of the impact of “cost shifting,” the idea that subsidies given to local solar projects are costs borne by all ratepayers. This is the basic argument of fairness that the Commission has used in other proceedings to justify grant reductions.

But advocates say changing or reducing subsidies and other incentives for the still-maturing industry will result in fewer solar installations, ultimately cutting off low-income ratepayers from the benefits of renewable energy. Community solar programs are designed to ensure that at least 51% of the energy generated by projects serves disadvantaged customers.

Late last year, the commission reviewed incentives for apartment building owners, schools and companies that install solar panels. These rules were another in a series of recent decisions taken by the Commission to reduce financial incentives for rooftop solar installations. At the end of 2022, the Commission reduced payments to homeowners who sell excess energy from newly installed solar panels on single-family homes.

Advocates are lamenting what they say is a delay in California’s clean energy leadership and criticizing Gov. Newsom, who delivered the keynote speech at the Vatican Climate Summit last week, for failing to hold the state’s powerful utilities and oil companies accountable.

The commission’s solar decision quickly added to a list of what critics say is a disturbing pattern of rollbacks on key renewable energy policies.

“The CPUC’s recent series of decisions threatens to undermine California’s progress on clean energy,” the Solar Energy Industries Association said in a statement. “It is time for Governor Newsom and state leaders to take power on the commission before it does more harm to customers and the state’s clean energy economy.”

As with previous closely watched decisions, the committee heard from countless organizations, including the solar industry and environmental justice groups, advocating for programs that will expand access to clean energy and lower energy bills.

There were no public comments during this morning’s hearing, but at least two state legislators expressed their opposition to the proposal. Assemblyman Christopher Ward noted that the updated proposal was only released this week and condemned it as “fatally flawed.”

“It doesn’t reflect the intent of the bill,” said Ward, a Democrat from San Diego commissioners, citing provisions he authored requiring the Commission to review its rules. An unintended consequence of today’s decision, he said, would be to discourage new projects.

An aide to Sen. Josh Becker, a Democrat from Menlo Park, read a letter from the lawmaker expressing doubts that the policy would increase access to clean energy.

In lengthy remarks, Commissioner Darcie Houck outlined several concerns about the decision, including her view that it did not go far enough to benefit ratepayers in low-income communities. Much of the commissioner’s opposition focused on regulations that she said would discourage the use of solar energy and prevent a “just and equitable energy transition.”