California regulators reject plan that would've boosted community solar

This story was originally published by Canary Media.

Over the past three years, an unusually broad coalition has come together to champion a new way to finance and build community-solar-and-battery projects in California. It includes solar companies, environmental justice activists, consumer advocates, labor unions, farmers, homebuilder industry groups, and both Democratic and Republican state lawmakers — a rare instance of concord in a state riven by conflicts over rooftop solar and utility policy.

Supporters say the plan, known as the Net Value Billing Tariff, could enable the building of up to 8 gigawatts of community-solar-battery projects over the coming decades, all of which would be connected to low-voltage power grids that sell low-cost power to subscribing households, businesses, and organizations.

But on Thursday, the California Public Utilities Commission voted 3–1 to reject the coalition’s plan. Instead, it ordered the state’s major utilities — Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric — to restructure a number of long-running distributed solar programs that have failed to spur almost any projects in the decade or more they’ve been in place. 

Critics warn that these utility-backed plans won’t create a workable pathway to expanding a class of solar power that has become a major driver of clean energy growth in other states and a key focus of the Biden administration’s energy equity policy.

They also fear that the CPUC’s reliance on state and federal subsidies to boost the economic competitiveness of these existing failed community-solar models might jeopardize the state’s ability to even qualify for the $250 million in community-solar funding that the Biden administration has provisionally offered it.

“We are cheating ourselves out of the benefits of community solar and storage with this decision,” said Derek Chernow, western regional director for the Coalition for Community Solar Access (CCSA), which represents companies and nonprofits that advocate for community solar.

Since CCSA devised the NVBT in 2021, it has won ​“unprecedented bipartisan broad-based support from stakeholders that don’t typically come together and see eye to eye on clean energy issues,” Chernow said.

The plan the CPUC cobbled together from utility proposals, by contrast, lacks ​“any support — broad-based or otherwise,” he said.

An outpouring of rage from community-solar supporters

CPUC President Alice Busching Reynolds defended the decision to reject the NVBT at Thursday’s meeting. She pointed to other existing California programs that assist low-income households and multifamily buildings in obtaining solar, and noted that the CPUC’s plan will expand an existing community-solar program that offers low-income customers a 20 percent reduction on their bills.

She said that the NVBT program was too costly a way to bring new solar-and-battery resources to the state, compared to the large-scale energy projects being contracted by utilities and community energy providers.

“California is really at an inflection point where we must use the most cost-effective clean energy resources that provide reliability value to the system,” Reynolds said.

Backers of the NVBT hold a very different view. Since March, when the CPUC unveiled its proposed decision to reject the NVBT, there has been broad public outcry. Letters protesting its proposal have flooded into the CPUC from community-solar advocacy groups, environmental organizations, commercial real estate companies, farmworker advocacy groups, farming industry associations, and Republican and Democratic state lawmakers.

The CPUC issued a revised proposed decision on Tuesday, ahead of Thursday’s vote, which differed little from the initial March proposal. The only major change was the removal of a legal argument claiming that the NVBT violates federal law — a theory that was met with widespread incredulity and was rebutted by three former chairs of the Federal Energy Regulatory Commission in letters to the CPUC.

The Utility Reform Network (TURN), a nonprofit that advocates for utility customers, has warned that the CPUC’s community-solar plan will ​“favor large utility companies by ensuring solar program development costs are incurred by home builders, renters, and other solar community participants,” while failing to offer lower-income customers a chance to reduce their fast-rising electric bills by subscribing to lower-cost solar power.

And 20 lawmakers who supported AB 2316, the 2022 state law that ordered the CPUC to create an equitable and affordable community-solar program, have told the CPUC that its failure to support the NVBT could mean the state falls short on its clean energy and climate goals.

“Transmission-scale renewables face significant siting, interconnection, and transmission challenges,” creating the risk that utilities won’t be able to hit the aggressive clean energy procurement targets set by the CPUC, the lawmakers wrote in a September letter. ​“Small, distribution-sited community solar and storage projects have incredible potential as we modernize and expand our transmission system.”

Speaking at Thursday’s CPUC meeting, Assemblymember Chris Ward, the San Diego Democrat who authored AB 2316, called the CPUC’s pending decision ​“a dismissal of California’s need for clean, reliable, and affordable energy.”

“After agreeing with nearly all stakeholders that the state’s existing community renewables programs are not workable, the proposed decision has opted to repeat these mistakes by creating an outdated, commercially unworkable program that will result in no new renewable energy projects or energy storage,” he told the CPUC commissioners, all of whom were appointed by Governor Gavin Newsom (D).

Why California lags on community solar

California leads the country in rooftop solar and stands behind only Texas in utility-scale solar-and-battery farms. But its community-solar projects make up less than 1 percent of the 6.2 gigawatts of community solar that have been built in the 22 states with policies that support this form of solar development. That’s largely because the community-solar programs that have existed in California for more than a decade have been unattractive to solar developers, financiers, and would-be subscribers.

The earliest programs, which targeted commercial and industrial customers, charged a premium over standard utility rates, making them undesirable. Later programs created for lower-income and disadvantaged communities have been stymied by limits on how many megawatts’ worth of projects can be built and the size of individual projects, as well as onerous rules that require projects serving disadvantaged communities to be located within five miles of those customers.

Designed to remove those barriers, the NVBT was modeled on a community-solar program created by New York that has led to more than 2 gigawatts of projects in that state. That structure allows community-solar projects to earn steady revenues from the power they produce based on a complex calculation of benefits. Those benefits include helping to meet state climate goals, bringing clean power to underserved customers, and, importantly, helping to support utility grids by, for example, avoiding the cost of securing power during the rare hours of the year when utility grids face the greatest stress.

Unlike California’s existing community-solar programs, the NVBT would incentivize projects to add batteries to store and shift solar power from when it’s in surplus to when it’s most needed on the grid.

And under AB 2316, any new community-solar-and-battery projects in California must provide at least 51 percent of their capacity to serve low-income residential customers at prices that reduce their electricity bills — a valuable option for low-income households, renters, and other utility customers that can’t access rooftop solar.

“We’re very interested in seeing renters have access to community-solar projects,” said Matt Freedman, a staff attorney at TURN. ​“And we’re excited that the California statute requires at least 51 percent of the benefits go to low-income customers. We think that’s revolutionary — that we’re putting low-income customers first in line to receive the benefits of these projects.” 

To date, California’s community-solar programs have subsidized lower-income customers through funds drawn from utility ratepayers at large or from the state’s greenhouse gas cap-and-trade program. NVBT backers hoped the structure they proposed would allow projects to earn enough money in their own right to support reduced rates for lower-income customers.

Why the CPUC rejected the NVBT

But all the revenues and benefits of community-solar-battery projects under the NVBT rely on a common factor, Freedman said: being able to tap into the same value structure that dictates what rooftop-solar-equipped customers served by California’s three major utilities earn for their solar power. That structure is called the avoided-cost calculator, and AB 2316 explicitly cited it as the metric that the CPUC should use to determine the value of community solar, he said.

The CPUC’s decision rejected that reading of the law, however. Instead, it agreed with the state’s big utilities that the solar-and-battery projects that the NVBT would finance could increase costs on some of the state’s utility customers in excess of the value those projects would provide to customers at large.

To reach that conclusion, the CPUC didn’t compare the cost and value of community-solar-and-battery projects against the value assigned to rooftop solar systems and other distribution-grid-connected clean energy resources. Instead, it compared their value against wholesale ​“avoided-cost” rates of electricity generated by power plants, utility-scale solar-and-battery farms, and other large-scale resources.

Those resources provide power that’s much cheaper on a per-kilowatt-hour basis than power from community-solar-battery projects, which face higher land and construction costs connected to building in more populous areas, and which can’t match the economies of scale achieved by solar-and-battery farms in the hundreds of megawatts apiece.

But by choosing that comparison point, the CPUC also dismissed the value that distributed community-solar projects can provide by delivering power much closer to customers than far-off power plants and solar farms connected by expensive high-voltage transmission lines, Freedman said.

A better comparison, he suggested, would be against a form of solar-and-battery power that community projects could actually supplant to significant economic benefit — the solar systems all new homes and many new commercial and multifamily buildings must include under California building codes.

That’s why the California Building Industries Association trade group has been a strong supporter of the NVBT. CBIA estimates that the state’s building codes will require the addition of 250 to 400 megawatts of new solar per year over the coming decade to keep up with the pace of residential construction. Community solar and batteries under the NVBT could be a much cheaper way to meet those requirements — but only if developers have a program that makes building those projects economically viable.

A problematic replacement plan

It’s hard to see how the CPUC’s newly enacted Community Renewable Energy Program (CREP) structure will make that possible.

In essence, the CPUC has ordered utilities to restructure two existing tariffs that allow distributed energy projects to sell their power to utilities at wholesale avoided-cost rates: the Renewable Market Adjusting Tariff (ReMAT) program, which allows projects of up to 3 megawatts, and the Public Utility Regulatory Policies Act (PURPA) Standard Offer Contract, which allows projects of up to 20 megawatts.

But the low prices and short contract terms for these structures have been extremely unattractive to clean energy developers. No project has been completed under the ​“standard offer contract” structure since 1995, and only one 3-megawatt solar-only project has been built under ReMAT since 2021, Freedman said.

It’s hard to envision lenders or investors backing a solar project with such an unclear pathway to profitability, CCSA’s Chernow said. What’s more, neither of those tariffs reward projects that invest in batteries to store solar power when it’s not as valuable for the grid and discharge it during times of grid stress, he said.

“You don’t get the scalability, you don’t get the growth, you don’t get the storage — you don’t get all of the avoided-cost benefits that were originally set up with the Net Value Billing Tariff,” he said.

To make matters worse, both of those programs are meant to supply lower-income customers with solar power that can reduce their electricity bills, Freedman said. But retail electricity rates in California are five to six times higher than the wholesale rates that the CPUC would allow these projects to earn.

To make up for that discrepancy, the CPUC has ordered utilities to use ​“external funding or incentives” to offer credits to subscribing customers that are structured in a way that doesn’t increase their utility energy costs. Low-income customers, which must make up at least half of all subscribers, ​“will receive no less than 20 percent” bill credits.

But at present, the only money the CPUC has identified for these external sources is $33 million in state-approved funding available for community-solar usage and storage-backed renewable-generation programs. Beyond that, Thursday’s decision orders utilities to look to federal investment tax credits and a set of programs created by the Inflation Reduction Act to spur investment and lending in underserved communities, including the U.S. Environmental Protection Agency’s $7 billion Solar for All program.

Last month, EPA announced 60 provisional recipients of that funding. California is set to receive $249 million, pending approval of how it plans to spend the money — including a commitment to ensure that low-income customers who participate will be able to lower their electricity bills by at least 20 percent compared to what they were paying before.

CPUC President Reynolds noted at Thursday’s meeting that ​“while we’re still waiting for guidance from U.S. EPA, we hope to use a significant portion of this funding to support projects and subscribers in this new program.”

But NVBT advocates say it’s far from clear that the programs that will evolve from the CPUC’s decision will provide the underlying utility tariff structures that could allow that federal funding to jump-start a commercially viable community-solar market. In fact, CCSA has calculated that the $249 million in federal funding would allow only about 50 megawatts of community-solar-and-battery projects to achieve economic viability under the CPUC’s proposal and still achieve the Solar for All program’s low-income energy-cost reduction targets, Chernow said.

That’s a far cry from the gigawatts of solar-and-battery projects financed and built by independent developers on a cost-effective basis that the NVBT could have incentivized to be built. But Freedman pointed out that even that relatively small-scale expansion might not be possible if developers decline to participate due to lack of clear long-term economics.

“Even if the state gets the commitment from the money, will we be able to spend it? If you design a program that developers don’t subscribe to, and there are no resources under the program, there’s no draw on the program,” he said.

CPUC Commissioner Darcie Houck, who voted against the decision, echoed some of these concerns at Thursday’s meeting. ​“The reliance on funding that may or may not be available in the future puts the program either at risk of failing or potentially having to have ratepayers cover the full cost of the program going forward,” she said. Houck was outvoted by commissioners John Reynolds and Karen Douglas and CPUC President Reynolds, with commissioner Matt Baker recusing himself.

Chernow said the CCSA planned to ​“work within the CPUC’s process to try to fix this as much as we can.” But without significant changes, he warned that the structure set by Thursday’s order stood little chance of spurring the kind of community-solar growth happening in other states.

The U.S. Department of Energy has set a goal of building 25 gigawatts of community solar by 2025, a fivefold increase from today. But Chernow fears the country as a whole ​“can’t get to these federal goals without California — and California can’t get there with this proposed decision.”