One in five newly constructed California homes now comes topped with a solar installation. Starting in January, that needs to jump to five out of five.

A year ago, California gave final approval to updated building codes that require all new homes to come with solar attached. Multifamily units below three stories must also adhere to the mandate.

Since then, residential installers have worked to cement partnerships with homebuilders. Builders have practiced their solar pitches. And one local utility, Sacramento Municipal Utility District (SMUD), offered up a program designed to meet the mandate through community solar — sparking significant controversy in the process. 

The new building code opens the door to community solar fulfilling some of the solar requirements, as long as projects meet certain standards. Some houses aren't suitable for solar, and builders say larger, community-sited projects provide similar local benefits to rooftop solar while leveraging economies of scale.

But SMUD's proposed program — which originally included utility-scale projects located outside its territory — has led to a squabble over what exactly constitutes community solar. Critics of the plan say allowing utility-scale projects to substitute for rooftop installations will undercut the code's core aim.

Amid this tension, regulators postponed considering of SMUD's proposal, which means California is heading into the mandate's implementation without any community solar programs approved. Without that alternative resource option, some builders in the state worry it will be more difficult to abide by the requirement.

More than the state’s solar installations are at stake: Builders and the solar industry both predict that other states may consider similar requirements on new-build construction.

Here’s a look at the state of play as we head into 2020. 

Normalizing solar

For solar installation companies, California's new mandate will not be transformative. 

The mandate will mean additional yearly installations of between 123 megawatts and 334 megawatts through 2024, according to forecasts from Wood Mackenzie Power & Renewables. That’s a nice little bump for installers working in the U.S.’ top home solar state, but it won’t turn California’s market upside down.

Aside from a more concentrated focus on engaging builders in partnerships and more competition for qualified installation personnel, the residential solar industry seems to be approaching the new code with calm confidence.

Requiring customers to buy solar should help reduce always-persistent customer-acquisition costs. A push from solar installers to safe-harbor modules before the Investment Tax Credit step-down means many companies are awash in stockpiled equipment. 

Sunrun, the largest residential installer in the U.S., views the policy as a boon because it “normalizes solar." But CEO Lynn Jurich said on the company’s Q3 earnings call that the changes hadn’t yet equated to a meaningful increase in Sunrun’s installed megawatts, sales or bookings. 

That doesn’t mean that companies aren’t jockeying for an advantageous position. Sunrun has been saying for months that it’s in partnerships or conversations with “half of the top 10” builders in California, including Citadel Roofing & Solar, a leading homebuilder in the state that has also recently grown its solar expertise through partnerships.   

“The way these relationships typically work is you get awarded a community or two, you prove yourself, you get awarded more,” said Jurich on Sunrun’s Q3 earnings call. “So, it's a slow build, but we like the progress that we've made.”

Competitor Sunnova in August announced a partnership with California-based roofer Petersen-Dean, which also sells solar and batteries. Petersen-Dean is also working with SunPower and SunStreet, a subsidiary of national homebuilder Lennar. 

The new-build home solar market has long been a focus for SunPower, which now an independent residential solar and storage provider in direct competition with Sunrun and Sunnova after having spun off its manufacturing arm in November. This year the California-based company claimed to have about a 50 percent share of the new-build home solar market in the state, plus partnerships with 17 of the top 20 homebuilders. In Q3, SunPower reported a backlog of 40,000 new homes awaiting installation, mostly in California. 

Builders bracing for the "hockey stick"

The requirement will have a much bigger impact on homebuilders, even those with in-house solar teams. Petersen-Dean, for instance, completed 16,500 roofs in California last year, but just 7,000 included solar.

Many builders are working to stave off change as long as possible by filing permits before year’s end that won’t fall under the requirements. From November to December 2016, before the last round of code changes hit, housing permits increased 33 percent, according to the state’s Construction Industry Research Board. 

That rush will end in a hangover.

“There is an extreme hockey stick where a lot of these builders are going to stop pulling permits and then all of a sudden decide to ramp in going solar-as-a-standard at about the same time,” said Judson Diehl, Petersen-Dean’s vice president of builder solar sales. He expects that uptick around June 2020.

Despite attempts to skirt the mandate now, the state's building industry backs the code changes. They’re just somewhat apprehensive about the implementation process.

“It’s a laudable goal,” said Andrew Kosydar, legislative advocate at the California Building Industry Association, a trade group whose members built more than 80 percent of new California homes in 2018. “The challenge becomes how...we get there without pricing everybody out.” 

The solar industry and the state energy commission dispute claims that the mandate’s costs will be prohibitive. The California Energy Commission's own analysis suggests solar installations will add an average of $8,400 to the cost of a new single-family home in California — a state with residential home prices that are already cost-prohibitive for a large portion of the population. But those costs will be outweighed by solar savings over the course of a 30-year mortgage, offering households about $35 in net benefits per month, based on the commission's assumed system costs at a conservative $3.10 per watt. 

While some disagreement about the mandate's specific costs remain, all stakeholders seem to agree that community solar can provide a cost-effective and similarly beneficial alternative to rooftop systems in some cases. Builders in particular view community solar as an essential element of flexibility to meet the requirements.

But they're heading into the new year with concerns because no such program has yet won energy commission approval.

Not community enough

In November, the energy commission deferred consideration of SMUD's proposal, the lone community solar proposal it had been considering.

SMUD initially proposed subscribing customers to existing solar projects, one of which was a 160-megawatt project and another that was a 60-megawatt project located far from its service territory in Fresno County.

The utility said the program was designed to offer more economic solar power and provide compliance for homes that may not be able to install rooftop solar because of shading or other constraints. The program would offer an estimated $20 annual net benefit to customers.

But the solar community ripped the proposal to shreds, calling it a threat to the entire mandate.

“Those are not community solar projects by any stretch of the imagination,” said Ed Smeloff, senior director of grid integration at Vote Solar, an advocacy group focused on solar growth and accessibility. 

Solar supporters like Vote Solar argue the $20 benefit is paltry compared to the $35 per month afforded by the commission’s rooftop installation modeling. They further contend that the location of the projects didn’t provide the local, distribution-level benefits that community solar and the rooftop mandate intended. Advocates also argue that the proposal didn’t meet the mandate's additionality requirements.

Although SMUD revised its proposal to focus on only local and new-build resources, the commission postponed its decision until sometime in the new year.

The solar industry is watching the proceeding closely. While the solar industry generally favors allowing community solar to play a role in meeting the code's standards, developers and policy advocates worry that allowing utility-scale projects to count as community solar sets a dangerous precedent in a state with little community solar development.

Compared to its dominance in numerous solar sectors, California’s community solar market is small, constrained by a state law that created green tariff programs but left community solar projects largely unfinanceable. The new code makes space to consider changing that, but it has to be done in the right way, according to Rachel Bird, Borrego Solar’s director of policy and business development for the West.  

“California has really stumbled on the question of community solar,” said Bird. “We do feel like the building code is a powerful statement about the need for strong community solar programs in our state.”

Solar advocates largely agree that SMUD’s proposal is not that program. But the flexibility baked into the commission’s code leaves room for wide variety.

Bird said opening up conversations about what programs should look like is positive for the industry. And depending on how those discussions play out, the mandate could provide a bump to more than one solar market segment in California.

“This is not a question of rooftop versus community. This is a lot more about a huge policy-driven market opportunity for rooftop solar and community solar done right,” said Bird.