The Quad Report

California has too much solar-produced electricity. The California Energy Commission this month said the answer to that is to build more solar.

California has a very expensive housing market. The California Energy Commission this month said the answer is to increase the cost of a new home by around $10,000.

The five-member energy commission voted unanimously May 9 to change the state’s building standards to require all new homes built in the state have solar power, either rooftop arrays or community solar. Rooftop solar is likely to be the dominant approach to solar power in new homes. The requirement goes into effect in 2020. The requirement had enthusiastic support from the state’s home builders, and the commission says the rule will increase the cost of a new house by $8,500 to $12,000, but sales to the state’s utilities under the net metering policy will quickly recover those costs.

Does this make sense? Not according to University of California at Davis economist James Bushnell, writing in the blog of the Energy Institute at Haas. Bushnell argues that the energy commission’s new regulation is a “lesson in regulatory hubris” and a product of “regulatory groupthink.”

The approach of the commission, Bushnell says, is “if we like a technology, we mandate it! If we don’t like a technology, we ban it!” Standards, he says, are inflexible and ignore costs. Rather, “standards should be limited to cases where they mandate an obvious, slam-dunk best option for solving a problem. This is where rooftop solar runs into trouble. In the case of rooftop solar, it should be not just the obvious best choice right now, but for much of the lifetime of a new home. That’s a tough criterion to meet. Consider what you thought to be the slam-dunk best technology 30 years ago.”

Another flaw in the CEC building standard is cost-shifting. “We continue to treat infrastructure cost-shifting as savings,” says Bushnell, noting that this issue “has been a recurring theme on the blog over the years.” He says that full residential retail electric rates “contain a large amount of fixed and sunk infrastructure costs. Those costs don’t go away when a home generates solar energy. Solar homes shift those costs onto non-solar homes.”

California’s fixation on a “net-zero energy standard” is also a weakness in the state’s energy policy. The state has a goal of 50% renewable energy by 2030 and some in the leadership in the legislature would like to push that to 100% by 2045. “Economists, or anyone who has spent any time thinking about comparative advantage, have long shaken their heads in disbelief at this stuff. Apparently we haven’t articulated the counter-argument clearly enough,” says Bushnell.

Also critical of the CEC is David Gattie, an engineering professor at the University of Georgia, writing in The Hill. He says, “Given the context of California’s 50 percent-by-2030 renewables goal for electricity and its recent decision to shut down the state’s last remaining nuclear plant, this new regulation is a clear case of using policy to choose winners.” He is particularly critical of the California policy to shut down its nuclear generation while mandating solar, giving California consumers electric rates of about 20 cents/kWh versus about 11 cents/kWh in Georgia.

Supporters of the CEC plan argue that the commission has probably overestimated the costs of the mandate, and it will produce significant economic advantages for solar power. Stanford energy efficiency expert Jonathan Koomey tweeted, “This policy moves rooftop PV from a niche product with high markups to a standard product with low markups. It drives costs down by eliminating unnecessary friction and unproductive steps in the install process. And it allows the industry to scale up and eliminate soft costs.”

— Kennedy Maize