The 2013 legislative session in California included the adoption of several bills designed to expand options for individuals and organizations to participate in the state’s evolving solar economy. The new measures, which will go into effect on January 1, 2014, include renewed support for traditional solar incentives, such as net metering (the ability of utility customers with solar systems to get credit for feeding renewable energy back into the utility’s grid). In addition, the long-proposed “shared solar” concept finally got off the ground with the adoption of a “green tariff shared renewables program” that allows utility customers to electively purchase renewable energy from their provider. The legislation also includes statutory changes to support emerging financial models designed to make solar more attainable for customers that cannot purchase a solar system outright.

AB 327: Extending and Reforming Net Metering

Specifically, AB 327 (Perea) extends an approaching sunset date for the net metering program (which would have been as early as 2014) and clarifies how utilities should calculate the existing 5% cap on the number of net-metered customers a utility could be required to accept. The bill also sets a floor for participation in the program, requiring that the state’s three independently owned utility (IOU) operators (PGE, SCE, and SDG&E) maintain current net metering incentives until they have together connected 5,200 megawatts (MW) of net metered generation.1

AB 327 additionally tasks the California Public Utilities Commission (CPUC) with responsibility for developing a new net metering policy that will take effect when the existing policy reaches the specified capacity limits or by July 1, 2017, whichever occurs first.2 In this endeavor, the CPUC has significant discretion to determine the content of a new policy, although the law does specify certain requirements (e.g., the new program must “ensure[] that customer-sited renewable distributed generation continues to grow sustainably and . . . that the standard contract or tariff made available to eligible customer-generators is based on the costs and benefits of the renewable electrical generation facility.”)3 Most significantly, the program conceived by the CPUC could potentially be uncapped. Companies with a stake in the distributed generation market accordingly should vigilantly monitor subsequent CPUC proceedings on this matter to ensure that California extends meaningful net metering incentives beyond the lifetime of the current program.

Renewable energy generators, both distributed and utility-scale operators, will also be interested in shaping whether and how the CPUC exercises its new authority to raise the state’s renewables portfolio standard (RPS) goals. Specifically, section 2 of AB 327, amending section 399.15, subd. (b)(3) of the Public Utilities Code, substitutes the existing language prohibiting the CPUC from “require[ing] the procurement of eligible renewable energy resources in excess of the quantities identified in [the RPS]” with express, discretionary permission to do the same. This change establishes 33 percent as a floor – not a ceiling – for the State’s commitment to renewable generation.4

SB 43: Shared Solar Through “Community Solar Gardens”

SB 43 similarly encourages the proliferation of widespread participation in solar development by establishing a program for involvement in pooled, local solar resources sometimes referred to as community solar gardens. Renters, lessees of multi-unit buildings, and owners of property with insufficient solar resources often face insurmountable political, financial, and physical barriers that interfere with their desire to install onsite generation.5 SB 43 addresses these impediments by requiring that IOUs collectively procure up to 600MW of renewable energy from sites “located in reasonable proximity to enrolled participants” (i.e., customers that want to purchase clean energy).6 The financial incentives are unlikely to be as strong as those offered to customers with onsite installations, because the program is not specifically subsidized and has been designed to ensure that other ratepayers are insulated from the costs. However, the program will allow customers to lock in a long-term rate, with the potential for savings over time. In addition, the program offers incidental benefits, as it requires that at least 100MW come from projects that are less than 1MW in size and sited in environmental justice areas, with the idea being that residents in these areas would also benefit from the installation jobs associated with the projects.7 Finally, with the exception of projects in environmental justice communities, all projects must be 20MW or less, which should facilitate the selection of solar development sites in or near urban areas.8

The shared renewables program9 embodied by SB 43 is not the first program of its kind in the United States, but, excluding uncapped programs like the Communities Renewables Energy Act recently adopted by the District of Columbia, it sets the most ambitious targets. Colorado’s Community Solar Gardens Act, for example, is limited to 9MW per year.10 California has thus raised the bar in a growing trend to adopt both utility-driven and consumer-driven “virtual net metering”11 and community generation projects.

AB 792: Utility User Tax Clarification for Distributed Generation

Additional efforts to facilitate a more diffuse deployment of solar projects in California include AB 792 (Mullin), which removes ambiguity surrounding whether or not a property owner that finances an onsite distributed generation system through third-party ownership can be forced to pay a utility user tax (UUT) on the power purchased from the onsite system using a power purchase agreement (PPA).12 Although it was unclear whether any jurisdiction had attempted to impose a UUT on projects financed using the PPA model, the fact that some jurisdictions had enacted ordinances expressly exempting such solar projects from the tax suggested that it was within the authority of local jurisdictions to do so.13 Preempting such levies (at least until January 1, 2020) will allow companies that rely on this financing model to release capital being held in reserve to meet uncertain obligations and will furthermore ensure that all customers self-supplying electricity from distributed solar generation systems will be treated uniformly, irrespective of the financing model for the project.14

This exemption was not without its detractors. In particular, municipalities argued that whether to levy the UUT was a matter of local discretion, dependent upon the needs of the community and the extent of distributed generation installed. Local governments expressed concern that as more customers move to distributed generation, existing UUT revenues will be depleted. The exemption constrains the ability of local governments to respond to this change in delivery models.15 However, it is doubtful that rejecting the proposal would have preserved local budgeting discretion and municipal sovereignty, since there are no known feasible means for collecting taxes on alternative ownership structures. As argued by the bill’s proponents, denying the PPA approach parity with other business models would likely skew the market in favor of those other models.16

Executive Action to Secure Local PACE Financing Programs

Complementing these measures, Governor Jerry Brown recently announced that he has directed the California Alternative Energy and Advanced Transportation and Financing Authority to create a reserve fund to secure Property Assessed Clean Energy (PACE) financing programs. PACE programs enable local governments to finance renewable energy and energy efficiency projects on private property and recoup the costs of the program by levying special assessments against the property benefitted by the improvements.17 The Federal Housing Finance Agency has strongly opposed these arrangements because they can result in subsequent, superior liens on mortgaged property. Responding to these concerns, the Governor’s reserve fund would ensure that government-sponsored enterprises like Fannie Mae and Freddie Mac would be compensated for any PACE lien priority payments that might otherwise impact their percentage of the proceeds from a foreclosure sale. By addressing the federal government’s chief concern, the Governor’s proposal could significantly improve the viability of an important program designed to make solar more attainable.

The efforts of the Legislature and Governor in 2013 demonstrate a continuing commitment to expanding the state’s reliance on energy generated from renewable resources in all of their forms and in particular a desire to make renewable energy more accessible to the general population.18 The programs implemented this year furthermore embody commitments to maintain important incentives for the immediate future, giving the solar industry an extended lease to mature into a significant component of our energy portfolio.