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California will require solar on new homes in 2020. Your state should, too.

Workers from GRID Alternatives install solar panels on a roof

On May 9th, 2018, in a move that may prove to be a catalyst of a new kind of home solar revolution in the state, the California Energy Commission (CEC) voted unanimously to approve a measure requiring homes built after the start of 2020 to have solar panels. The move adds to California’s already robust energy efficiency standards to provide for homes that can be designed from the start to offset all their grid usage with solar.

There are a lot of details to be combed through, but the rules set forth are pretty clear about minimum requirements, and numbers from the CEC’s own analysis and the work of other solar industry and financial estimates can provide us with a measuring stick by which to judge the potential impact of the program.

Bottom line: The move to require solar on all new homes is going to dramatically lower the costs to install the panels, making this specific application of home solar cheaper to the end user than any other source of electricity, saving homeowners thousands of dollars in the process. The rules will also create efficiencies in installation, permitting, and interconnection of the solar systems, and greatly decrease solar installer cost of marketing to find new customers.

Every other state with net metering should adopt rules like this.

If all goes as planned, it’s going to lower costs not only for owners of new homes, but for people installing solar on existing homes as well. Let’s dig in to learn a little more.

What the new rules do

The new rules, set forth in this very long and very complicated PDF boil down to one long sentence:

All low-rise residential buildings shall have a photovoltaic (PV) system meeting minimum qualification requirements… with annual electrical output equal to or greater than the dwelling’s annual electrical usage.

That “annual electrical output” is determined by a special calculation devised by the CEC based on the square footage of a home and the 16 different “climate zones” of California. It’s the kind of calculation we do a lot here, so we’ll cover how good it is and where it might fail a little further down the page.

Now of course, this is a government regulation, which means when it says “all low-rise residential buildings” it doesn’t mean “all.” The rules provide several exceptions to account for situations in which they aren’t efficient to apply. Notably, if the roof of a new home is too shady, the home doesn’t need solar. Putting panels on a shady roof is just silly. other exceptions provide for smaller system sizes based on number of stories of the dwelling, or if the homeowner installs battery storage.

But basically, every new home is going to have solar on it. It will mean something like 80,000 new solar installations per year, in a state with an average of a little over 100,000 annual residential installations already.

But how much solar will every home need?

Calculating the size of a new home’s solar system

A calculator and a solar panel system

On an existing home, sizing a solar system is pretty easy, because you know how much electricity you use. All your solar installer has to do is look at your roof, look at your electric bill, and design a system that will fit on your roof and make enough electricity to zero-out your bill.

Sizing a system for a new home is a bit more math-intensive, because you have to look at the design of the home and its climate and estimate the electricity needs. In estimating the impact of the new rules, the CEC found that new homes will need an average of 3 kW of solar panels to meet all the electricity needs of the building, but the rules provide a way to determine the exact minimum system size for any given home.

The CEC wrote the book on how new home have to be built to be energy efficient, and they’ve put a lot of work into estimating that number. So when the time came to determine the size of solar system necessary for a new home, they had the numbers ready and drew up an equation. Here it is:

kWPV = (CFA x A)/1000 +(NDwell x B)

Where:
kWPV = kWDC size of the PV system
CFA = Conditioned floor area
NDwell = Number of dwelling units
A = Adjustment factor from Table 150.1-C
B = Dwelling adjustment factor from Table 150.1-C

Now if all this sounds like math class, just skip ahead to read about how the new rules will save Californians money. On the other hand, if you’re ready for Mr. Solar’s math seminar, read on for more.

First, here’s Table 150.1-C from the CEC rules:

Climate ZoneA - CFAB - Dwelling Units
10.7931.27
20.6211.22
30.6281.12
40.5861.21
50.5851.06
60.5941.23
70.5721.15
80.5861.37
90.6131.36
100.6271.41
110.8361.44
120.6131.4
130.8941.51
140.7411.26
151.561.47
160.591.22

Next, here’s a picture of California’s Climate Zones:

California Climate Zones Map

Now back to the equation, and an example. Say you’re building a 2,500 square-foot single-family house in the Bay Area, which is Climate Zone 3. That means your adjustment factor and dwelling adjustment factor from the table are 0.628 and 1.12, respectively. Your equation looks like this:

kWPV = (2500 x 0.628)/1000 +(1 x 1.12).

Simplified, that’s 1570/1000 + 1.12, which equals 2.69 kW.

That’s a really small solar system for a decent-sized house! That’s due to a combination of the relatively mild climate near the Bay—which means low cooling and heating costs—and California’s building codes, which are already pretty strict on energy efficiency.

How much electricity can 2.69 kW of solar panels make? well, it’s about 3,800 kilowatt-hours (kWh) of electricity per year, or a little more than 10 kWh per day. Compared to the average house in America, which uses about 30 kWh per day, that’s super low. But compared to the average California home, which uses 17 kWh, it’s not far off.

Now, if the homeowner thought they’d be using more electricity than that, they can certainly elect to install more. Especially if they intend to switch to driving an electric car at some time in the future. If the system generates more electricity than the homeowner can use, they’d be credited for the difference at PG&E’s surplus compensation rate.

How the new solar home rules will save Californians money

The most obvious way solar saves homeowners money is by offsetting their electricity costs. The 3,800 kWh from our example system above might have cost the homeowner $760 in 2020 if they didn’t have solar. But of course, the panels cost money too, and the savings will be offset by an increase in the monthly mortgage payment.

The CEC estimates that a solar system installed under the new rules will save a homeowner $80 per month in electricity costs, while adding just $40 per month to the mortgage payment. Those numbers are based on an estimated cost of $3.17 per installed watt of solar, but there are reasons to believe the actual costs will be lower, and the savings higher.

Why the CEC rules will dramatically lower the cost of solar in California

The reason solar power installed by professionals is priced as it is has very little to do with the cost of the panels themselves. According to the National Renewable Energy Laboratory, the average cost of installing solar in California in 2017 was $2.90/watt. Of that, hardware costs account for only about 30% of the final price. Check it out:

nrel 2017 installed solar costs by state and cost category

Other costs associated with the final retail price include the so-called “soft costs” of marketing, overhead, permitting, labor, sales tax, and profit to the installer. As you can see in the above graphic, these costs add up to about half the cost of the system!

Our good friends at PV Magazine have written an excellent piece on why the CEC’s new rules will help eliminate a ton of those soft costs. It basically boils down to this: the costs of marketing solar to new homebuyers will be mostly eliminated. The costs of permitting and inspections, often handled by an entire department of people at medium and large solar installers, will be rolled into the permitting and inspections included in the cost of any new home purchase, reducing overhead costs as well as time spent on the job site.

And don’t forget, the cost of purchasing solar equipment keeps falling as manufacturing volume increases. The analysts at PV Magazine envision a final cost to the customer of just $1.12/watt as of 2020, with further reductions almost certain from there. While that’s a pretty rosy picture, it probably won’t be too far off.

So the cost for our example 2.69-kW system at $1.12/watt might be just over $3,000, which would equal $16/month in additional monthly payment on a 30-year mortgage, while saving the homeowner the same $63/month. And on top of that are the incentives.

What incentives will reduce the cost of solar for Californians who purchase new homes?

California is a mature solar market, and the days of direct incentives paid to homeowners are mostly over. The new CEC rules will take effect after the end of the current New Solar Homes Partnership, which currently provides cash incentives for building a new home that includes solar.

But the federal government will still be offering the Solar Investment Tax Credit (ITC) in 2020, albeit at a somewhat reduced rate. in 2020, the ITC will provide a federal tax credit of 26% of the costs to install solar.

Federal Solar Tax Credit Steps Down starting in 2019

Yes, 2020 is the first year of the ITC’s step-down, a multi-year reduction in the percentage of the final cost of installing solar eligible for the tax credit. But 26% of installed costs can still represent a huge savings.

In the CEC’s estimates, the 3.0-kW solar system will cost $3.17/watt, or $9,510. That would make the homeowner eligible for a $2,853 federal tax credit, which can be claimed the year after installation, provided the homeowner has the tax appetite to take advantage of it. And that’s money in the homeowner’s pocket after just one year, independent of electricity bill savings.

On the other hand, if the prediction of $1.12/watt prices comes true, that same 3-kW system would only be eligible for $1,008 as a federal tax credit. But we wouldn’t be complaining.

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