May 9, 2018, by Mark Chediak and Prashant Gopal
California became the first U.S. state on Wednesday to require solar panels on almost all new homes, sending the clearest signal yet that rooftop power is moving beyond a niche market and becoming the norm.
Most new homes built after Jan. 1, 2020, will be required to include solar systems as part of energy-efficiency standards adopted Wednesday by the California Energy Commission. While that’s a boost for the solar industry, critics warned that it will also drive up the cost of buying a house by almost $10,000. Solar companies including First Solar Inc., Sunrun Inc., Vivint Solar Inc. and Enphase Energy Inc. surged on the news with Sunrun up as much as 6.4 percent at $10.03.
The move underscores how rooftop solar, once a luxury reserved for wealthy, green-leaning homeowners, is becoming a mainstream energy source, with California — the nation’s largest solar market — paving the way. The Golden State has long been at the vanguard of progressive energy policies, from setting energy-efficiency standards for appliances to instituting an economy-wide program to curb greenhouse gases. The housing mandate is part of Governor Jerry Brown’s effort to slash carbon emissions by 40 percent by 2030, and offers up a playbook for other states to follow.
“This is huge,” said Rachel Golden, senior campaign representative for the Sierra Club. “It’s a cost effective measure that is going to reduce greenhouse gas emissions and support growth in renewable clean energy.”
The U.S. had 10.4 gigawatts of residential solar power at the end of last year, up more than six-fold from five years earlier. The industry started slowing in 2017 amid policy changes and efforts by some companies to shift their strategies.
California’s solar policy will exacerbate another critical issue in the most populous state, where high housing costs are seen as a drag on the economy that also contributes to rising social tensions.
“With home prices having risen as much as they have, I think home buyers would find it a little distasteful to be forced to pay more for solar systems that they may not want or feel like they can’t afford,” said Brent Anderson, a spokesman for homebuilder Meritage Homes Corp. “Even though, in the long term, it’s the right answer.”
KB Home, which has significant exposure to the California market, hit a low for the day after the vote, making it one of the worst performers on the Bloomberg homebuilding index.
California’s economy added 2.3 million jobs over the past five years. Over the same period, the state issued permits for fewer than 480,000 new residential units, or about one home for every five additional workers.
The new policy applies to single-family houses and multifamily units that are three stories or less, and there are some exceptions for homes that are too shady. Homebuilders will probably try to pass on the costs to customers, Carl Reichardt, a San Francisco-based analyst for BTIG LLC, said in a phone interview before the vote.
Big homebuilders like KB Home and Meritage have an advantage because they’ve been offering solar homes for years. Smaller builders will have a harder time managing the new requirements, he said.
Installing a solar system and complying with other energy-efficiency measures required will add about $9,500 to the cost of a new home, according the the California Energy Commission. That would be offset by about $19,000 in expected energy and maintenance savings over 30 years, the commission estimates.
While the policy is good for the solar industry, it may not move the needle that much.
The state adds about 80,000 new homes a year, and the California Solar & Storage Association estimates that about 15,000 include solar power. The Energy Commission estimates that the average home system uses 2.5 kilowatts to 4 kilowatts of panels, so the additional 65,000 new systems would add as much as 260 megawatts of annual demand in the state — about the size of one large solar farm.
SunPower Corp. expects the rule will increase demand for residential solar in the state by about 50 percent. The San Jose, California-based company makes panels and develops solar systems ranging from rooftops to large, utility-scale power plants.
It’s unclear how much major solar installers like Sunrun Inc. and Vivint Solar Inc. will benefit, said Joe Osha, a San Francisco-based analyst at JMP Securities. They typically target existing homeowners rather than companies building new homes.
“Your initial reaction is: ‘oh, that’s great for the solar company,’” he said. “But their business is about acquiring individual customers. If you’re working with homebuilders, it’s a completely different thing.”