California’s recently approved solar roof mandate for all new homes came as a surprise to many people — even though stakeholders have been working on the rule change for roughly two years.

That’s likely because the California Energy Commission (CEC) passed the requirement earlier this month as an update to the state’s 2019 Title 24, Part 6, Building Energy Efficiency Standards. Not quite everyday reading.

“Building codes are a sleeper issue,” joked Kelly Knutsen, director of technology advancement at California Solar & Storage Association (CALSSA). “But if you get them right, you can do some pretty cool stuff.”

The latest round of standards, which take effect in 2020, do enable some pretty groundbreaking developments in the advancement of clean energy. Besides the requirement that all new homes under three stories install solar panels — a first for the nation — the codes help to incentivize energy storage and include a host of energy efficiency upgrades that will collectively slash energy use in new homes by more than 50 percent.

While the core elements of the new standards are now effectively locked in, the work that’s required to roll them out is only just beginning. Home builders, solar companies, efficiency experts, local governments, analysts and consumers are digging further into how the rules are structured to come up with compliance plans and to understand how California’s Title 24 codes will affect the clean energy industry overall. There’s a lot for stakeholders to grapple with.

So to help in that effort, here are answers to some of the big questions that have cropped up in response to the historic new building codes, including an in-depth look at the cost-benefit analysis of mandating rooftop solar. There’s a lot here, but it’s a faster read than skimming through hundreds of pages of docket materials. Read on through, or jump to a section by clicking on the terms below.

For more in-depth policy analysis, read Julia Pyper's weekly column "State Bulletin" by subscribing to GTM Squared.

The basics

California’s 2019 Building Energy Efficiency Standards officially take effect on January 1, 2020. The solar PV requirement only applies to new buildings under three stories tall. The solar mandate will be climate zone-specific and based on the floor area of the dwelling unit. The PV system must be sized to net out the annual kilowatt-hour energy usage of the dwelling. Common areas in multi-family buildings are not regulated under the new codes.

Under these parameters, coupled with the fact that new homes will be more efficient overall, solar system sizes under the new rules are expected to range from 2.7 kilowatts to 5.7 kilowatts based on location. The average size of a solar installation on an existing home in California today (a retrofit system) is 6.8 kilowatts. The smaller size of these systems plays a big role in determining the expected costs and grid impacts of the new codes (more on that below).

In addition to solar, the standards encourage demand-responsive technologies including battery storage and heat pump water heaters (more below) and improve the building’s thermal envelope through high-performance attics, walls and windows to improve comfort and energy savings.

The 2019 standards were crafted based on a mixed-fuel home, which assumes the home still uses some amount of natural gas, typically for heating. That’s significant, because if a homeowner decides to use less gas by opting for electric space and water heating, or increases the home’s energy usage by purchasing an electric vehicle, they don’t have to add more solar panels to comply with code. However, some homeowners may choose to build a larger PV system in order to go all-electric. 

“These standards are only addressing the energy use that you would expect to have in every house,” said Bill Pennington, a senior advisor in the CEC’s energy efficiency division. “It's basically driven by the space heating and water heating and lighting and then kitchen appliances and the equipment that people are likely to bring into their house and plug into the wall.”

A number of flexibility measures were included in the codes (more on that below). However, local governments can choose to make the rules more stringent. Under current building codes, for instance, rooftop solar receives a compliance credit but is not required. Still, half a dozen California cities have already opted to make rooftop solar systems mandatory.

In 2008, California established energy-use reduction goals targeting zero-net-energy use in all new homes by 2020 and commercial buildings by 2030. So while the solar roof mandate is a major development, it wasn’t a surprise for industry insiders.

“We wish the CEC would have waited another three to four years, but the fact is they started working on this back in 2008 and the last three updates in 2010, 2014 and 2017 were all adopted with the trajectory to try and get us as close to net-zero energy by 2020 as possible,” said Robert Raymer, technical director at the California Building Industry Association (CBIA).

“So it was not news that this was going on,” he continued. “At the same time, we are dealing with a huge housing crisis in California, so basically knowing where the CEC was headed in terms of greenhouse gas reduction gave us incentive to sit down with CEC leadership and staff…and start working on ways to help the CEC meet its goals, while at the same time doing two important things: pushing down on the cost of compliance and increasing design flexibility. I am happy to say we were successful on both of those.”

New-home market potential

One key point of interest with the new building codes is how many homes will have to comply. That number illustrates the market opportunity for technology vendors and frames the climate-mitigation impact of the rule.

According to an analysis conducted on behalf of the CEC by Energy and Environmental Economics (E3), statewide construction of single-family homes is projected to total 74,154 in 2020, the first year of compliance. GTM Research analyzed the solar market potential based on that number and found residential solar sales are expected to increase 14 percent over a four-year timeframe from 2020 through 2023 (assuming the same number of homes are built over that period). That amounts to an upside of nearly 650 megawatts-DC compared to GTM's base-case forecast for the residential solar segment.

However, the solar market impact could be much greater. For one thing, the E3 number used in GTM Research’s analysis doesn’t include the multi-family homes that have to comply.

In a followup interview with CEC staff, they stated that more than 117,000 single-family homes and 47,000 low-rise multifamily units are forecast to be built in California in 2020. The total number of multi-family homes built that year will be more like 52,000 units, but a portion of those buildings will be more than three stories and regulated outside of the most recent set of codes.

The added twist is that some homes may not have to comply with the solar roof mandate if they’re deemed unsuitable for rooftop solar. Furthermore, home builders may try to delay compliance by filing for their building permits early, under the old rules, even if the house gets built in 2020.

According to Matt Brost, senior director of new home sales at SunPower, a leading solar installer in the new-home market, compliance in the first year of the new codes could be around 50 percent of all new homes. That’s because builders will pull the permits for new homes, and multi-family homes in particular, before the new codes take effect. The CEC put the year-one compliance number much higher, however. According to staff, it’s estimated that upwards of 80 percent of new dwelling units will have to comply with the solar component of the building standards in year one.  

So how many homes do the new rules apply to exactly? Sticking with CEC numbers, around 130,000 units, including both single- and multi-family homes, will have to comply in 2020.

Projections are difficult to make much beyond that. The new standards will remain in effect until at least 2023 and likely beyond, unless they’re found to be economically infeasible in reality. Given that California is currently in a housing shortage, the number of new homes could increase significantly in the coming years as builders seek to keep up with demand.

Costs to the customer and future rate changes

Cost is probably the most controversial element of the new building standards. On this topic, there are two different types of costs to consider: 1) the cost to the homeowner and 2) the cost to the grid system overall. First, let’s look at the economics for the new homebuyer.

In crafting new building standards, the CEC is required to show a cost savings over the course of a 30-year mortgage. To calculate that for the rooftop solar portion of the code, the CEC enlisted the help of experienced consulting firm E3. After crunching all of the data, E3 determined that the solar mandate is cost-effective in all 16 of California’s “climate zones.” Depending on the location, the cost of adding solar panels to a new home is expected to range from roughly $8,000 to $18,000.

TABLE: Cost-Effectiveness Summary

Source: Energy and Environmental Economics

Solar isn’t the only cost associated with the new codes; efficiency measures carry a cost too. According the CEC’s FAQ, the 2019 standards will increase the cost of constructing a new home by about $9,500 on average, but will save $19,000 in energy and maintenance costs over three decades.

“Based on a 30-year mortgage, the Energy Commission estimates that the standards will add about $40 per month for the average home, but save consumers $80 per month on heating, cooling and lighting bills,” the FAQ states.

Going back to solar-specific costs, solar advocates argue that expenses will be much lower than E3’s analysis suggests by the time the new codes come into full effect. According to E3’s analysis, the cost to comply with the solar portion of the building codes would be $3.17 per watt in 2020 dollars, if a building had to meet the standard today, or $2.63 per watt in 2020 dollars assuming full market penetration of the measure.

This cost includes: PV modules, inverter, structural balance of system, electrical balance of system, supply chain costs, sales tax, install labor, permitting, inspection, interconnection, customer acquisition, general and administrative overhead, and net profit to the installer. Furthermore, E3 did not factor any federal subsidies into these prices, because the solar production tax credit will have fallen off by the time the rules take effect in 2020. The firm also based its calculations off of the cost of a 5.6-kilowatt residential PV system installed in California in 2016.

For all of these reasons, E3’s numbers are conservative. In reality, deploying solar on new homes will cost less because the companies won’t have to spend nearly as much on customer acquisition, said Adam Browning, executive director of Vote Solar. They can also deploy several projects in one go, which means rolling out fewer trucks and making fewer appointments, and generally spending less money. Also, because new homes are more efficient, these required solar projects will be smaller than retrofit projects deployed today, which will lower out-of-pocket costs to customers.

“These are real costs in the average retrofit market that will not exist at the time of new construction,” he said. According to Browning’s back-of-the-envelope calculations, based on current technology costs and including a modest margin for the solar developer, the solar mandate would cost the homeowner around $4,200 for a 3-kilowatt system — roughly half of the CEC’s estimate.

Policy changes could have a big effect on the cost/benefit equation for customers, however. For that reason, the E3 report also looked at a range of possible future policy scenarios for net metering in California, which currently allows customers to get paid back for the excess solar power they generate at their retail electricity rate, no matter when they generate it. Assuming a reasonable level of net metering reform — which is scheduled to take place in California next year — E3 found that the average benefits of rooftop PV would decrease by about 31 percent, but that customers would still see a net savings from the solar mandate.

Source: Energy and Environmental Economics

The CEC, which approved the building codes, does not approve electricity rates. That’s up to the California Public Utilities Commission. The CEC and the CPUC did work together on crafting the new building standards, however, and E3’s cost calculations are based on a best guess of how rates could change.

So what is the reasonable reform they’re expecting? The CEC assumed that any time a customer-sited solar system is generating electricity that’s offsetting the home's load, the value of their net energy metering (NEM) credit would be at the retail electricity rate. But when the customer is sending power back to the grid (assuming the home doesn’t have energy storage) that excess generation would be compensated at the avoided cost to the utility — or the marginal cost for the same amount of energy acquired through another means. In California, the avoided cost is a little more than half of the retail electricity rate.

If the CPUC decides to compensate all rooftop solar generation at the avoided cost, rooftop PV becomes cost-effective in just five of the 16 climate zones. But that would be a pretty radical policy change for the nation’s leading solar market, and a difficult one to justify in light of the new solar mandate. “Such a stark reform may not be likely within the timeframe of this code cycle, but this sensitivity serves as a lower bound for potential NEM reforms,” the E3 paper notes.

Other rate changes besides net metering, such as demand charges and fixed-fee hikes, are also possible and would alter the cost and benefits of solar for new homeowners. California is already moving all residential ratepayers to mandatory time-of-use rates in 2019, so demand charges (which are also time-sensitive) are unlikely to be introduced.

Source: Energy and Environmental Economics

It is possible, however, that California’s utilities will seek to increase fixed charges for grid upgrades and to continue paying for the electricity system now that all new homeowners will be paying less. That point brings us to the second cost consideration.

Costs to the grid and the duck curve

The CEC’s sole responsibility in crafting building code energy-efficiency standards, including for rooftop solar, is that they’re affordable from the perspective of the building owner or occupant. The question of whether the codes are economic for the grid system overall is an entirely separate analysis that wasn't addressed in the E3 report.

For years, utilities across the U.S. have argued that rooftop solar creates a cost shift from solar customers onto non-solar customers, because those with solar pay lower electricity bills and thus pay less to maintain the grid. Recent research from Lawrence Berkeley National Lab found there is the potential for cost-shifting in certain areas with high levels of rooftop solar penetration. One UC-Berkeley Haas School of Business professor calculated that California homeowners without solar pay an average of $65 more per year because of other people’s panels.

“The CEC is saying this will save homeowners money, and it very well might. Because of net metering and the very high cost of electricity in California, homeowners are avoiding very high electricity prices,” said Severin Borenstein, professor of business administration and public policy at the Haas School of Business. “The problem is the utility is not saving that much money.”

“The price for electricity is way above the true cost of supplying it,” he continued. “The differential is going pay for things like some old, very expensive contracts for grid-scale solar the utility signed 10 years ago, the energy efficiency programs, the programs to support low-income households, a bunch of other R&D, like our battery storage programs. All of those are costs that have to be paid. […] When you consume less by putting solar on your rooftop, those costs don't go away, they just get shifted to somebody else.”

That raises the question of whether building new utility-scale solar projects would be a more cost-effective way to tackle carbon emissions in California than to mandate solar roofs on new homes. Borenstein pointed out that large projects cost less per watt because they benefit from economies of scale; they also produce more electricity because their tilt is optimized toward to the sun and they can be further optimized with trackers. Furthermore, it’s cheaper to do maintenance on a single, large solar farm than a bunch of individual rooftop projects. There are some locations where distributed solar provides an economic benefit, but the number of those places is limited, he said, citing an MIT study.

“The offsetting benefit of rooftops is that the real estate is free,” Borenstein said. “But when you actually look at the full cost, that does not outweigh all the advantages of grid-scale solar.”

Not everyone agrees.

Christopher Meyer, manager of the CEC’s building standards office, worked on utility-scale solar projects for years, both at the CEC and the Bureau of Land Management. “A lot of the actual costs of projects, the environmental costs and other costs, aren't really taken into the account,” he said, referencing the $2 billion Sunrise Powerlink built by San Diego Gas & Electric.

Some California desert project sites also conflict with archaeological sites and protected animal habitats. “That kind of problem is not encountered if you do the PV locally on your roof, because you're already disturbing the area,” he said.

Furthermore, the grid still needs to handle all of that energy. “If it's off in the desert, or even if it's just 20 miles away from you, the local distribution grid, the substations, transformers and conductors all have to be upgraded to handle that load,” said Meyer. “What we're trying to focus on is getting the building to look as invisible or as small to the grid as possible so you don't end up with a bunch of infrastructure upgrades where the cost of those can get socialized over all the ratepayers, not just the new-home buyers.”

Adam Browning at Vote Solar noted that rooftop solar has also proven to save on grid investments. “You can properly size transmission and distribution knowing there will be a lot of in-pocket generation that will lower system costs for that community and for everyone,” he said.

While the solar mandate came as a surprise to many, including Borenstein, a lot of work went into it behind the scenes. Meyer said the CEC worked “very closely” with the CPUC. They liaised with the utility regulators on future net metering rates and on grid harmonization, “because they were very concerned over grid impacts — as were we,” he said.

“Basically...we looked at energy efficiency first to get the energy demand of the building down as low as possible cost-effectively, which took us from your typical 4- to 6-kilowatt systems you see being installed now, to standards that are requiring somewhere between 2.8- and 3.2-kilowatt systems,” said Meyer. “By having a system that is much smaller but still meeting the electrical load of the building, you don't end up with over-generation problems to the same extent of the larger systems.”

“That was the first step we took. The second is incentivizing the self-utilization of these systems,” he said, which coincides with California’s move to mandatory time-of-use rates. “The goal was to try to keep as much of the energy behind the meter and not set it up where these systems would only be cost-effective if the owners were over-generating in the middle of the day…[and] exacerbating the duck curve.”

The desire to address the duck curve is what motivated the CEC to include a compliance credit for energy storage in the new Title 24 codes (more on that below). But that’s not the only option for maximizing on-site solar use. There’s also technology that allows for pre-cooling the home by running the air conditioner during the day when the solar system is producing, and similar technology for hot water heaters.

If the CPUC were to hike fixed fees on residential electricity customers to address grid issues or a cost shift, rather than promote the adoption of smarter energy management technologies, it would significantly alter the cost-benefit analysis for rooftop solar and could make the solar mandate no longer viable. In that case, the CEC would be forced to remove the requirement in the next round of building codes, which come up for review every three years. But numerous stakeholders said it’s highly unlikely the CPUC would do that. 

Utility response

Given that the solar roof mandate could exacerbate utility revenue and grid management issues, it was something of a surprise to see the state’s largest utilities come out in support of the CEC's new building codes.

“We are supportive,” said Erik Takayesu, director of grid modernization, planning and technology at Southern California Edison. “When we look at what we need in the future to reduce greenhouse gas emissions, to get to the state's goals of 40 percent below 1990 levels, there needs to be a lot more carbon-free resources that supply energy to the grid, and so we think that this is one component of that.”

As for the duck curve, the problem is solar generation during the day in tandem with increasing demand in the afternoon and evening, forcing the utilities to manage a steep ramp. If more solar is added to the California grid over time and there’s no additional load added to use it, it will exacerbate the over-generation issue, Takayesu said. “But when we look across the system more holistically, when we consider the amount of electrification that's needed with transportation, electric transportation, building electrification, we think that there will be some offset to the amount of solar that we're seeing.”

Greater electrification also helps to reduce cost-shifting by spreading the expense for grid upgrades across more customers and applications. SCE made this case in a recent white paper that found greater electrification is the most cost-effective pathway to cutting carbon emissions. With the latest round of CEC building codes, California homes are taking a big step closer to becoming all electric (more on that below).

But while greater electrification of buildings is good for the utility business model, a mandate for additional rooftop solar likely isn’t ideal. Utilities will still have to interconnect these projects and deal with any over-generation.

“I think that if you could talk to [the utilities] off the record, they are not very excited about this at all,” said Borenstein. “If you look at the utilities right now, the IOUs, they have much bigger problems than rooftop solar. The two existential threats they face are: liability for the wildfires and community choice aggregation, and both of those just dwarf this [solar requirement].”

“I would not be surprised at all if they have made a strategic decision not to step into this fight, because they need to get a more favorable disposition on those other two issues,” he added, underscoring this is his own speculation.

Utilities don’t want to be seen as the enemy of distributed generation, but they still need to recuperate costs, Borenstein said, which is why California utilities are seeing to increase fees in their rate cases. SCE, for instance, has proposed to spend $4 billion on grid modernization over the next three years in is general rate case that’s currently before the CPUC.

Takayesu said this type of investment is necessary to incorporate more solar rooftops in communities and to forecast and manage additional grid upgrades, in order to maintain reliability

Approval of the new Title 24 building codes is “an important reminder for folks to understand that we are in a changing industry,” he said. “I think it's an opportunity for our customers to adopt more technology. I also think it's incumbent upon us as utilities to ensure that we prepare the grid and continue to enable the grid to support our customers' energy choices like what we're seeing with the solar mandate.”

It will ultimately be up to the CPUC to decide how much grid modernization is necessary to support an increasingly distributed and renewable electricity system, as well as how much money utilities can recoup for it, and how they go about recuperating it through rates.

How solar will be deployed

Home builders are fundamentally the ones on the hook for building-code compliance, including the new solar requirement, although compliance is really carried out by energy consultants who work for builders using the CEC’s compliance software. The new codes were intentionally designed to allow for flexibility, which is how the CEC was able to get the California Building Industry Association on board.

“It's important that the CEC gives us these design options and basically leaves it up to the builder to pursue which course of action,” said Robert Raymer, CBIA’s technical director.

There are a few different ways the home builder can go about getting solar onto rooftops. One option is to solicit bids and contract with solar companies or a general contractor to have them deploy the projects. The project could be added to the overall home price and paid for through the mortgage, just as if homeowner were getting granite countertops — except that they’re mandatory, but they ultimately save the homeowner money. The CEC’s economic calculations assume this model.

Alternatively, the home builder could allow customers to pay for the solar system in cash upfront, or the home builder could work with a solar company to offer customers a loan or a lease. In this scenario, the solar company works in tandem with the builder and the energy consultant to figure out what solar arrangement is the best fit for building.

Currently, around 15,000 new homes are built each year that include solar panels, according to the CEC. SunPower is a market leader in that segment, having deployed roughly 6,300 solar systems on new homes last year, said Matt Brost, the company’s senior director of new home sales. 

SunPower has earned that leadership position. The company landed its first home builder customer in 2006 and started working with early adopters of solar for new homes, including Standard Communities, Standard Pacific Homes, Woodside Homes and, a few years later, KB Homes, which agreed to go solar standard in every single community it built in Southern California in 2010. Today, SunPower works with 13 of the top 16 largest California home builders and has deployed more than 30,000 new home systems.

The CEC’s new solar mandate definitely changes the game for this segment, Brost said. “My biggest competitor for 10 years has been builders doing nothing.”

Builders are “not an easy customer,” he added, because anything they invest in a house they have to be able to make money on. “Price is important to them but so too is product quality, so too are aesthetics, so too is execution,” he said. “Builders have been burned by crappy solar. They've had roofs catch on fire, they've had...some bad experiences."

“Because they have to warranty the home and the solar for so long, they want to partner with somebody that they know is going to be around, somebody that's got a strong product…who's going to protect their interest for the long term,” Brost continued. “They don't walk away from the liability of what they put in to a home the second they sell it. They're on the hook to warranty that home for quite a while.”

With 12 years of experience in new-home solar installations and a suite of panel product offerings, SunPower is in a prime position to serve this expanded market, he said.

Another compliance option for the home builder is to take the solar process in-house. Some builders already have their own solar divisions. Lennar Homes, for instance, has a solar division called SunStreet. SunPower’s Brost estimates that SunStreet built between 2,000 and 3,000 new homes with solar last year — making it another top contender in the new solar homes space. More builders could soon choose to go this route.

Roofers could also get further into the solar game. PetersenDean, the largest privately held U.S. solar and roofing company, is already active in the solar space. But a lot of these companies don’t often have the ability to support solar financing schemes.

Meanwhile, utilities are involved throughout the process, to understand from home builders what the demand of a new community will be, through to interconnecting the solar system and turning it on.

How solar will be financed

Who deploys the solar system will have an impact on how it’s financed, as alluded to above. The CEC’s analysis assumed that solar will be rolled into the price of a home as a cash purchase. As with solar on existing homes, this option is most likely to save the homeowner the most money over the life of the system. But this isn’t necessarily going to be the most popular way to deploy solar under the new Title 24 building codes.

According to SunPower’s Brost, in new communities where there’s both a lease and a purchase option, more people are leasing than buying. It’s not a dramatic difference, but more people are definitely leaning toward a lease, he said. The lease option is going to be of particular interest for California’s Central Valley, where customers are particularly sensitive to home prices, said Raymer at the CBIA.

“The overall benefit to the homeowner in such a case is not as nearly as large as it is if they own the solar, but at the same time, they didn't have to increase the upfront cost of the home by $10,000 to $13,000,” he said. “I’ve got to tell you, in the Central Valley region, you can effectively knock out about 14,000 potential homebuyers for every $1,000 of increased price of a home.”

Under the lease option, the builder will typically work with a solar company to install the project, and have the solar firm own and maintain the system for 20 to 30 years. Leading residential solar installer Sunrun underscored on its latest earnings call that the company is well positioned to serve the budding new home market. Sunrun is currently the top residential solar lease provider in the U.S. for both new and existing homes, according to GTM Research.

“I think this [solar mandate] is a real opportunity for solar-as-a-service business model to be the dominant way solar is the deployed,” said CEO Lynn Jurich, in an interview. Last year was the first year since 2011 that residential solar customers purchased more systems with cash and loans than with leases and power-purchase agreements.

SunPower, a leader in new solar home deployments, introduced a zero-down leasing product for the new home market in 2016. “It's very different in new homes for a leasing program than in an existing home market,” said Brost. “You have to meet different hurdles for your financing than you do in the existing home market.” Not everyone can offer that kind of option, he added.

SunPower designed its lease to transfer easily to another homebuyer, knowing there’s a good chance a family won’t stay in their new house forever. He noted there has been some bad press in recent years about difficulties associated with reselling a home with solar. In some cases, the potential buyer would qualify for the home, but not the lease.

“The issues that got leasing a bad reputation were either you couldn't transfer it or you would not want to accept the transfer because the terms were so bad,” Brost said. “We do not have escalators in our lease. It's zero-escalator; it's priced lower than the expected bill that the customer would pay from the utility. It's fully transferrable to the next homebuyer or you can buy it out at time of purchase. It's a super flexible lease."

Then there’s the rental market situation. While condo owners can buy or lease solar panels in their multi-family building, renters can’t. So for these units, solar will very likely be added on by the builder and costs will be passed on to renters. It’s unclear what that will do to rental prices, but tenants should still save on their electricity bills.

For solar installers, the rental market represents an exciting new opportunity. Historically, building owners haven’t been incentivized to install solar because they don’t pay the electricity bill, the renters do. The CEC’s new building efficiency standards change that.

“This new code opens up an area of the market, in my opinion, that has been pretty much closed,” said Brost.

Solar system maintenance

The responsible party for managing upkeep of the new mandated solar systems will depend on the financial arrangement. If a customer opts for a lease, the leaser will ensure that the system is operational over the course of their contract. But if a customer pays for their solar panels through their mortgage, they may have to take responsibility for maintaining them. That could involve periodically getting up on their roof to rinse them off, or regularly checking to make sure the panels are still functioning and notifying a service provider if there are issues.

This is important because solar will be something completely new for a lot of Californians, and not something they would otherwise pursue. Without adequate customer education, the solar mandate could see some pushback. If customers don’t maintain their solar panels, they stand to lose out on expected bill savings. There will also be costs associated with solar system O&M that customers will have to pay out of pocket over the lifetime of their system. E3 baked those costs into its economic analysis (addressed above), but in reality those costs will be more visible.

One thing the CEC added to the building code to give homeowners greater insight into their PV system, is a requirement that homeowners receive regular feedback on how the system is operating. “So whether it's an app or a dashboard, they'll be able to actually see how all the different panels of their system are operating throughout the day, and that will help alert them if there's any deficiencies in their system, so that it's not going to be up to someone to come out and try to diagnose,” said the CEC’s Christopher Meyer. The customer “will know that there's a problem when they contact the builder, so that they can get the warranty issues resolved.”

Community solar, exemptions and flexibility

Including flexibility in the 2019 building codes was of utmost importance to California home builders. According to Raymer at CBIA, the option for builders to deploy community solar instead of rooftop was key.

Builders are free to pursue the community solar option whenever they want, but have to get sign off from the CEC and coordinate with their local utility. Building a single, large community solar project allows the home builder to benefit from reduced labor costs. But under California’s current regulations homeowners can’t benefit from net metering in a community solar arrangement. So there might not be much of a cost benefit to the customer, unless California’s rules change.

“I think over the course of time, [community solar] may grow in popularity,” said Raymer. “One thing we're trying to do is work out the administrative bugs in the system well in advance in 2020. That'll be some of the stuff I do over the next 15 months.”

“The bottom line here is that it's all entirely up to the builder,” he added. “The important thing for now is that it's an option.”

There are other flexibility measures written into the code besides community solar, including a playbook for what to do if a roof simply cannot sustain solar panels due to shading or another reason. 

The rules are also designed to allow for tradeoffs. A home is given an energy budget, Meyer explained, and compliance can be met in a number of ways. “We have it where you can't trade efficiency measures for just larger PV systems, but you can have more insulation, say, to make up for the fact that you want more glass on one side of your building,” he said. The energy storage credit is another flexibility option.

One factor that could limit optionality is how local governments roll out the CEC’s building codes. Local authorities have the ability to make the codes even more stringent. “All they have to do from our standpoint is...come before us and demonstrate that it's a reduction in energy consumption over our mandatory code,” said the CEC’s Bill Pennington. “If they do that, then they can go ahead and enforce it. We don't really look at the cost or other impact of it. We just look to make sure any local ordinances are actually reducing energy consumption over the adopted code.”

Some localities could choose to make both rooftop solar and energy storage a requirement, he said. Half a dozen cities around California already have a solar PV requirement today, even though it is not currently a CEC mandate. 

Energy storage compliance credit

Another major development in the Title 24 standards approved this month is the option to receive a compliance credit for energy storage technology. Home builders can deploy storage to reduce the amount of solar PV they have to deploy by 25 percent, or to offset some of the efficiency measures the CEC added during the most recent update.

These aren’t monetary incentives, so energy storage would still have to pencil out based on current market conditions. It’s very likely that installing a battery will be more expensive than building out a full-sized solar project that meets the code requirement. But impending policy shifts could change that.

From the home builders’ perspective, the benefit of the energy storage credit is that it will prepare the market for a potential demand spike when mandatory residential time-of-use charges take effect in California next year.

“Even though it's still sort of an emerging technology and still relatively expensive, I think the consumer preference is going to start skyrocketing for the battery technology,” said Raymer at the CBIA. “I suspect by the time we hit the 2023 and 2026 [building efficiency] standards, you're going to see this integrated into the regs.”

Pennington acknowledged the CEC included a credit for storage to help customers cope with new time-of-use rates. Storage is also expected help to protect the grid.

“We had extensive interaction with the solar industry and manufacturers of storage, developed required control protocols for storage that would make the combined system extremely useful to the grid,” he said. “That was a focus.”

Kelly Knutsen at CALSSA noted that there’s still more work to be done around energy storage integration under the Title 24 standards.

As for whether or not residential energy storage could become a mandate: “We're just going to be looking very closely at how this is used by the industry over the next couple of years and decide in the next cycle if these things need to be modified,” said the CEC’s Meyer.

Walking back net zero, driving to electrification

Will all new homes in California be zero net energy under the new rules? In a word: no.

The CEC set a goal in 2008 to make all new residential building net-zero energy starting in 2020. “The goal meant that new buildings would use a combination of energy efficiency and distributed renewable energy generation to meet all annual energy needs,” the commission’s FAQ states. “However, California’s energy landscape has changed since then.”

Because the grid is cleaner overall and net metering reform is reducing compensation for over-generation, “It is critical that rooftop solar generation does not substantially exceed the home’s electricity use,” the FAQ continues. This gets back to the discussion above about the relative costs associated with the rooftop solar mandate, and making sure system impacts are as minimal as possible.

“Looking beyond the 2019 standards, the most important energy characteristic for a building will be that it produces and consumes energy at times that are appropriate and responds to the needs of the grid, which reduces the building’s emissions,” according to the CEC.

The emissions piece is key. Rather than focus on achieving net zero energy, the CEC appears to be shifting its focus to cutting carbon. Initially, clean energy advocates were dismayed that policymakers were distancing themselves from the net zero goal. But a focus on emissions opens the door for full-home electrification, which is arguably the most significant element of the new building codes — even more significant than the solar roof mandate.

“They’re changing the goal to being a net-zero-carbon goal,” said Knutsen at CALSSA. “So we're like, ‘OK, then let's work with you on solar water heating. Let's do more of that in the future.’ The next round [of standards], I think we're going to be talking about the heating and cooling of the buildings and especially commercial buildings. That's going to be the 2022 cycle.”

Heating in California is typically provided by natural gas. The Title 24 rules require some efficiency improvements to gas use, but they don’t mandate switching to electric alternatives.

“The default is ‘mixed fuel’ (i.e., gas heating) in buildings, so we need more incentives to compel builders to change practices,” said Rachel Golden, senior campaign representative with the Sierra Club. “Hopefully we will get there in the next code cycle.” The Sierra Club submitted a letter to the CEC earlier this month, calling for the commission to reduce the reliance on gas in the next building standards update. Gas companies are far less enthusiastic about this, and reports show they’re looking for ways to push back against electrification efforts.

While progress may not be happening quite as fast as some would like, the new Title 24 rules lay the groundwork for greater electrification and lower emissions. The latest round of standards specifically incentivize “demand responsive technologies including battery storage and heat pump water heaters,” according to the CEC’s FAQ form.

“What I’m reading from this carefully worded document is a clear statement of recognition by the CEC that the real issue we’re facing is not an energy use one, but one of carbon emissions,” wrote Bronwyn Barry, president of the North American Passive House Network, wrote in a recent LinkedIn post. “This requires a more nuanced balancing act between consumption and generation, which includes all the elements they’re now encouraging: efficiency, electrification, storage, grid responsiveness (insert your own interpretation of that phrase here) and just the right amount of generation.”

“This is distinctly different from the zero sum math required to achieve their previous targets and points directly to the acknowledgement of ‘energy balance’ — a phrase which, as an advocate of passive house buildings, disproportionately excites me,” she wrote.

Not everyone is excited about this shift to an all-electric future.

“We're about to take a quantum leap in the building codes with the solar mandate,” said Raymer at CBIA, the home builder organization. On top of that, the CEC plans to focus next on commercial and high-rise residential buildings in the upcoming 2023 codes. Plus, there are changes coming to the existing building stock as a result of SB 350 and AB 758. That’s already a lot for the building industry to manage, said Raymer, making a potential new requirement for electric space and water heating a challenge.

“When you have that kind of a workload…adding on to that already existing regulatory burden may not be the smartest thing to do,” he said.

“I do want to be open about design options, electrification options, for the builder to consider,” he said. “[But] we need some time to implement and educate on this. This solar mandate is big. We can't necessarily get sidetracked and think, ‘Well, now that we've adopted the regs our work is done and we can go on to the next big thing.’”

“We've got years of training and implementation. This is not going to be a smooth rollout. This is big,” he said. “For those that are thinking, ‘Well, the May 9th [standards] adoption was the end of it and now we can move on to other things — that's probably being said by people who don't have to work out in the field on the actual implementation of these regs. 'Cause this is huge.”

Listen to The Energy Gang for a discussion on the pros and cons of electrifying everything.

Next steps

Before the 2019 Building Energy Efficiency Standards go into effect, they must be approved by the California Building Standards Commission (CBSC). This process is important, because it involves reconciling new and existing buildings codes. But the CBSC doesn’t have the authority to make any major changes to the standards as approved by the CEC.

“They can't change things from a technical vantage point or substandard,” said the CEC’s Bill Pennington. “They check to see whether we had a good rulemaking process.” In 40 years, the CBSC has only sent back a standard for further consideration by the CEC a single time, he said. Furthermore, the CBSC has already expressed support for the latest round of building codes.

But while the codes can no longer be materially altered, there’s still a lot more to be sorted out before the rules take effect on January 1, 2020. As noted above, there are a lot of questions surrounding future electricity rates and more policy work to be done on the community solar piece. Local governments will also take steps to enact the new standards, which could include making additional tweaks. 

Home builders as well as solar and efficiency companies will work to come up with new offerings for the new-home market. There will likely also be an important customer-education element as solar becomes more mainstream. Meanwhile, stakeholders including the Sierra Club are already looking for ways to reduce natural gas use in future iterations of the residential building codes.

For now, though, champions of the new California building standards are taking a moment to relish in how far the state has already come.

The overwhelming feeling is “dramatic relief,” said Meyer. “I think we're all generally very happy that we got this far."

Additional resources

In case you haven’t read enough about the new CEC’s building codes, here are some handy resources, compiled courtesy of Kelly Knutsen at CALSSA.