What's the state of solar energy in California?

Even though the market for solar power has never been better, the future is still uncertain as the state’s energy policy undergoes major reconstruction this summer.

Solar energy is at a tipping point. State subsidies from the California Solar Initiative are drying up. The Legislature is considering a bill that would give regulators at the California Public Utilities Commission authority to tinker with how much Californians will pay for electricity. And federal tax credits for solar-panel systems may fall drastically, or disappear, unless Congress extends them.

But industry experts say the battle over “net metering”—or how much to offset a solar user’s energy bill as their system generates power into the grid—will cast the longest shadow over the future of solar power in the state.

As the summer heat forces Californians to blast their air conditioners, spiking their energy bills, many homeowners are seizing the last chance to sign up for rebates for a rooftop solar system. The solar industry owes its rapid growth partly to this mix of state and federal rebates and tax credits.

But the CSI’s $2.167 billion program budget is winding down (or running out of money, depending on whom you ask) almost four years ahead of schedule.

It has accomplished its goal of kick-starting the solar-power industry in California and driving down costs. Since 2007, solar blossomed from an expensive niche technology to an affordable consumer product embraced by almost 156,000 homes and businesses.

There will still be subsidies for new homes—the New Solar Homes Partnership program provides incentives for new construction similar to the CSI—but its impact has been limited by sluggish growth in the housing sector.

But few are saying that the end of these subsidies is a sky-is-falling scenario.

Andrew McAllister, commissioner of the California Energy Commission, said this is how the program was designed. “[The tiered subsidy] tapers off and allows the market to get adjusted for a no-incentive future,” he told SN&R.

McAllister added that there are also hopeful signs when it comes to solar systems on new homes. “Builders are also seeing that solar homes sell quicker,” McAllister said. “In many cases, they command a premium.”

There’s also a federal tax credit for solar, which drove demand for panels before the CSI started. The feds allow solar users to write off 30 percent of a system’s cost with no maximum limit. But this could drop to 10 percent if Congress doesn’t extend it.

Still, experts say that solar will continue its stellar growth, even as state and federal subsidies decline or expire.

Sara Birmingham with the Solar Energy Industries Association, which represents more than 1,000 solar companies nationwide, sees hopeful signs. “But it is a little bit too soon to tell. It kinda feels like we’ll know once we get there,” she said.

According to PG&E spokesman Denny Boyles, all this poses no risk to stalling the nascent solar industry. “Even as the incentives have shrunk,” he said, “the number of installations each month and the number of applications each month continue to grow.”

Other solar-industry representatives also see a bright future.

“There is still a large market opportunity in residential [solar],” said Channing Chen, with solar developer SunEdison. “We do forecast very high growth, just like the other developers are seeing.”

One reason experts forecast more growth is because private investment is stepping in as public investment is winding down.

“More and more capital is coming into this space—new investors, new lenders, new [financing] structures—and that helps drive down the cost,” Chen said.

In just six years, the CSI has improved solar-energy costs dramatically. According to McAllister, medium- and large-scale solar projects can currently generate energy at a cost equal to or less than existing power plants. On top of that, emerging technologies promise to drive down costs further.

Despite all signs pointing to more and better solar projects across California, the state’s net-metering policy remains the top hotly contested issue among renewable-energy stakeholders.

At the center of the net-metering debate are two questions: How should utilities pay to maintain the big power grid as the small solar grid expands; and two, how much should solar users pay compared to nonsolar ratepayers?

Industry-owned utilities like PG&E regard residential solar as an expensive but inevitable—and necessary—infrastructure upgrade to satisfy state-mandated renewable energy goals.

But PG&E and other investor-owned utilities argue that net metering lets solar users zero out their energy bills, which unfairly shifts the costs of maintaining grid infrastructure to nonsolar customers.

Boyles pointed out that not everyone who wants solar panels can have them, since some areas receive too little sunlight to make it worthwhile.

Meanwhile, solar advocates insist that California should make net metering more generous, because residential rooftop systems benefit nonsolar ratepayers more than those shifted costs.

The CEC’s McAllister offered an optimistic forecast, despite the utilities skepticism. “There’s a lot of good technology that’s going to help regulators and utilities make that happen,” he said.

But this won’t be easy for some utilities. “We have some challenges to make sure that our electric grid can process in the long term, maintain reliability and keep costs as low as reasonable,” he said.