- Distributed Energy Resources
- Policy Regulation
- Renewable Energy
- Renewable Energy
- Home Energy Management
- Solar Power
California’s Energy Code Update Benefits Some More Than Others
In a move to reduce energy use by more than 50%, the California Energy Commission (CEC) voted on May 9 to support on a series of reforms designed to require that new homes comply with standards of self-sufficiency. This includes requiring solar—a first globally.
Green Vision Is 2020
The new requirement will take effect on January 1, 2020 and will focus on four areas: residential and non-residential ventilation requirements, non-residential lighting requirements, updated thermal envelope standards, and—what interests me most—smart residential photovoltaic systems.
On the last topic, the CEC aims to “promote installing solar PV systems in newly constructed residential buildings. The systems include smart inverters with optional battery storage.”
The solar requirement is well-timed. The ITC step down will have its first decline in 2020, from 30% to 26%, and that will disappear for residential systems in 2022.
CEC Plans Include DER
The requirements go beyond solar; the CEC also included other DER technologies in the mix. It also aims to “encourage battery storage and heat pump water heaters that shift the energy use of the house from peak periods to off-peak periods.” This aligns well with previous time-of-use electricity pricing regulations in California with mandates for solar installations.
While the solar industry will benefit from this requirement, some parts of the industry will benefit more than others:
- OEMs: OEMs will be the clear winners from this initiative. California adds between 70,000 and 100,000 new housing units per year—or an extra demand for solar equipment of between 490 MW and 700 MW (assuming 7 kW systems). This effect will be similar for batteries and smart HVAC and heat pumps. Here we have two groups. Those OEMs that have products and brands that can add value to the property will benefit the most, as they will be able to work with real estate developers to create premium housing. Tesla leads this group, but others like SunPower, LG, and First Solar could benefit as well. The other group will have to compete to create low cost solutions to partner with real estate developers that target the poorer segments of the real estate market, or try to build a recognizable brand.
- Installers: For installers, the new requirement is not a clear victory. While the extra demand is generally welcomed, in this specific market segment the real estate developers will have the upper hand. Therefore, installers will face deals that sacrifice margin for volume to become sub-contractors. In the medium-term, it’s more likely that real estate developers will build their own teams in charge of DER installations.
- Financiers: Financiers face the same problem as installers. While the extra demand might bring new deals in which the person that buys the house decides to have a mortgage on the house and a separate loan or lease on the DER installations, the most likely outcome is that mortgages will cover the house and the DER equipment.
An Opportunity for a New Type of Residential DER Company
Initially, the outcome after the CEC energy code reforms does not seem to change for companies involved in installation and financing of solar systems in California, like SunRun or Vivint Solar. They do have a skill that real estate developers do not—the ongoing servicing they offer their customers. Companies with strong servicing arms could sacrifice part or all of their margin in the installation in exchange for long-term servicing contracts and potentially the rights to operate the equipment as an aggregator to offer services to the grid.