This year, each new home built in California will come with something extra on top — solar panels. In 2018, the California Building Standards Commission made history, unanimously approving a mandate requiring newly constructed homes up to three stories tall to install solar panels. The first of its kind in the United States, this mandate will affect thousands looking to build new units in 2020.
While this change is a big step in sustainability, there are still various financing and installation options, costs, responsibilities and potential energy savings that homeowners should be aware of.
According to the mandate, solar photovoltaic (PV) systems must be large enough to net out the annual energy use of the home in kilowatt-hours. Depending on a unit’s location and energy efficiency, that would require the average California homeowner to install about a five-kilowatt-sized system. The state will also require builders to comply with additional green home building standards to improve the efficiency and comfort of the home. This requirement includes improved ventilation systems, energy-efficient doors and windows and denser wall and attic insulation to further increase efficiency.
Implementing solar panels will also require builders to construct roofs that can sustain their weight and shape. Tile, asphalt and metal are the most compatible materials, whereas wood and slate aren’t ideal. Roofs must also be made at a pitch of seven and a half, or about 30 degrees. A typical five-kilowatt system will take up at least 300 feet of surface area on a roof, which must be free of chimneys and other features that affect available space. Ultimately, builders will have to design roofs differently to better accommodate solar panels.
The new building mandate also requires solar systems to receive regular performance feedback, allowing homeowners to better detect potential issues or deficiencies. Regarding system maintenance, the party responsible for upkeep will depend on the owner’s financial agreement. For instance, if they opted to lease, the leaser will typically perform general maintenance for the life of the contract, thus incurring any associated costs.
However, if the homeowner chose to pay for their system using cash, loan or mortgage, they must provide maintenance if their contractor does not include it. A basic cleaning routine, like spraying off dust and dirt with a garden hose every few months to ensure the sun shines brightly on the panel, can help. If the contractor doesn’t provide a warranty or maintenance, however, hiring a professional to fix or maintain the panel can cost as much as $2,000 over the life of the system.
Along with these requirements, there are a number of exceptions. For instance, in homes where electricity rates are lower than the cost of solar panels, the mandate allows flexibility. Additionally, homes that can’t support solar panels due to shade are exempt from the ruling. Solar panels are also not required on buildings taller than three stories, so many city structures and apartment buildings won’t have them.
Another flexible measure included in the mandate allows builders to choose between either installing panels or deploying community solar programs in their place. These programs will allow consumers to purchase a section of power from an expansive solar installation along with millions of other families. However, the state has begun the year with no solid solar programs approved or established. Commissioners suggest the definition of community solar be tightened and clearly outlined before the state implements it.
Deployment and Financing
If builders decide to pursue rooftop solar rather than community solar, there are multiple courses of action they may take within that sector as well. One option for builders is that they might request bids and outsource projects to larger companies and general contractors. This action would allow homeowners to pay for their panels in a number of ways, such as paying through their mortgage, up front in cash, with a loan or by signing a lease.
This range of financing options would greatly benefit the 2,387 companies in California’s solar industry, serving the large national solar installers and financiers, like Sunrun, the most. These companies are more likely to establish relationships with home builders and gain a bigger market share. Sunrun already has the upper hand, as about 40% of their installations are within California. But if builders favor community solar over roof installations, it will drive the demand for more inexpensive options like thin-film PV and more high-efficiency rooftop products.
Potentially High Prices
The solar requirement is expected to add an average $9,500 to the cost of new homes, but the installation could cost three times that amount depending on builder estimates and location within the state. The mandate’s requirement for solar energy and the addition of efficient appliances, windows, insulation and lighting could total upwards of $30,000. These substantially higher costs will drive up the already expensive price of California homes, where only 30% of households can even afford the $540,000 median home price.
Yet the commission counters that the $19,000 in energy savings over a 30-year span will offset the price of installation. And it would if the total installation price weren’t $30,000. This incentive also doesn’t consider the possibility that solar panel prices may rise once demand heightens. Moreover, adding rooftop solar panels is two to six times more expensive than building an industrial-size solar farm, which is actually more efficient in collecting solar power, implementing panels that can rotate to follow the sun’s path.
Potentially Decreased Cost
This cost analysis may look bleak, but there’s hope for reduced installation costs. For instance, if California more than quintuples its solar industry, prices will likely decrease. Additionally, the state’s utilities are switching to new price schemes that incentivize rooftop solar. By charging customers more for using electricity during peak times, utility companies push homeowners to use electricity during off-peak hours like late at night and early in the morning. For those who can’t adjust their schedule to shift their energy use, solar power suddenly looks much more attractive.
Furthermore, homeowners can receive tax benefits if they decide to install solar panels, thereby reducing cost. A Federal Investment Tax Credit allows a 26% rebate on the overall cost of the solar system, and there is no cap on the program. Homeowners can invest however much they want and still receive the same percentage in credits. Builders are also entitled to accelerated depreciation through the Modified Accelerated Cost-Recovery System, which allows homeowners to write off the total solar system in the first year, improving cash flow and the ability to finance the installation.
Supply and Demand
The biggest downside to solar energy is the issue of supply and demand. On a day-to-day basis, energy production peaks when demand is low and plummets later in the day when demand is at its highest. Although predictable, this imbalance leads to bizarre market outcomes due to the fact that there is still no feasible way to store solar energy. California is currently paying Arizona to take excess production to prevent electrical overload.
And as the state pays others to take excess power off its hands, California struggles to keep up with residential demand in the late afternoon after the sun sets. This issue makes solar energy unreliable, increasing the likelihood of brownouts and blackouts in the area. Such a tightrope act of balancing supply with demand will only grow more complicated as California increases its solar power share by implementing the 2020 mandate.
Since cost estimates vary greatly depending on location, size and contractor, it’s hard to say exactly how much money homeowners will save by installing solar panels. The California Energy Commission, for example, estimates that, before tax credits, the installation will cost about $9,500. After the 26% credit, that number will be $7,030. Tack on a modest $7,750 to account for required energy-efficient appliances, insulation and lighting, and the total comes to $14,780.
While the CEC expects solar to add $40 per month to a home with a 30-year mortgage, it also predicts $80 worth of monthly energy savings. Thus, the solar system would pay for itself in a little more than 30 years. However, if the installation cost exceeds $14,780, a homeowner will have to pay and save for more than 30 years, depending on the cost. So for a homeowner to truly save money and see a return on investment, they’ll have to commit to solar for nearly half a century.
Will Other States Follow Suit?
The 2020 solar mandate has set a high bar, but it’s mostly unclear whether others will follow California’s lead. The state has long had a reputation as America’s green trendsetter, spurring the nationwide rollout of cleaner car technology nationwide and greenhouse gas reductions. But for now, most states will likely refrain from creating their own solar energy mandates. Since such mandates affect housing affordability and the economy, the rest of America will likely keep a close eye on California to see how the new requirement plays out.
While these aspects might keep other states on the bench, they may prompt America to think more critically about renewable energy and coinciding storage options. As previously mentioned, storing solar power on the grid is practically impossible. But if innovators construct a system to store solar energy, more states may consider a similar mandate.
The bottom line: While America may not be ready to fully adopt solar power as it’s main source of energy, California’s mandate will provide a roadmap to improve green technologies and make solar a more viable option in the future.