Last week the Golden State became the first in the U.S. to require solar panels on almost all new homes. Most new units built after Jan. 1, 2020, will be required to include solar systems as part of the standards adopted 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 shares surged on the decision. Homebuilders fell.
California, the nation’s largest solar market, is merely continuing its pursuit 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 Gov. Jerry Brown’s effort to slash carbon emissions by 40% by 2030, and offers up a playbook for other states to follow.
“Essentially, this could turn residential solar into an appliance, like a water heater,” said Morten Lund, chair of an energy storage initiative at law firm Stoel Rives LLP. “There has always been a certain inevitability about that outcome, but this is moving faster than most of us thought likely.”
The Big Winners
Perhaps the biggest winner will be San Francisco-based Sunrun Inc., the largest U.S. residential-solar installer. Oppenheimer & Co. raised its price target Thursday for the company to $12, from $10. “We see Sunrun as the biggest beneficiary considering its entrenched position in the state,” Sophie Karp, a New York-based analyst at Guggenheim, said in a research note.
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.”
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.
Big homebuilders like KB Home and Meritage have been offering solar homes for years. Smaller builders may have a harder time managing the new requirements.
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 to the California Energy Commission. That would be offset by about $19,000 in expected energy and maintenance savings over 30 years, the commission estimates.
‘Admirable But Misguided’
Bloomberg New Energy Finance analyst Colleen Regan described California’s decision as “admirable but misguided.” The standard isn’t the best way to curb the state’s greenhouse-gas emissions and could exacerbate the steep ramp-up in solar power production that California’s grid operator is already grappling with at midday.
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 says 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%. The San Jose-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 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.
Some of the world’s largest solar-equipment manufacturers in Asia stand to gain in the long-run. President Donald Trump slapped tariffs on solar equipment imported into the U.S. in January, and that could mute some short-term gains.
But those tariffs phase out after four years, and “if you’re being forced to install something that you may not want, you’re going to go the cheapest route,” said Hugh Bromley, a Bloomberg New Energy Finance analyst. “And that’s likely to be equipment imported from Asia.”