Alert February 24, 2009

California Adopts Laws to Promote Growth of Solar Energy Industry

As a state where the sun shines nearly year-round, California has an opportunity to lead the nation in solar power energy. Through the California Solar Incentive, a program administered by the California Public Utilities Commission that offers financial incentives for solar installations, California is well on its way to creating a workable, financially feasible solar energy industry. Californians installed 158 megawatts ("MW") of solar power capacity in 2008, double the amount installed in 2007. The state now has a total of 441 MW of solar power, the highest level in the country. To put the metric in context, one megawatt of utility supplied power is enough electrical capacity to power 750 average-sized homes.

As part of its efforts to promote the solar industry, California recently enacted a series of bills designed to make the use of solar energy economically efficient for businesses and consumers. The following highlights six bills that were signed into law and went into effect as of January 1, 2009.

AB 811: Local Financing for Distributed Generation and Energy Efficiency

AB 811 assists local governments with retrofitting residential and commercial properties by providing low interest loans for energy efficient installations that are paid for using tax assessments. The California Legislature recognized the deterrent effect of high up-front costs for the replacement of inefficient appliances, equipment and building materials, and/or for the installation of renewable energy sources, such as solar energy panels. AB 811 allows cities and municipalities to issue bonds to pay for the initial installation costs of distributed generation renewable energy sources or energy efficiency improvements that are permanently fixed to residential, commercial, industrial or other real property. Repayment is made through the tax rolls by the owners of the parcels or lots on which an assessment is levied, and is stretched out over the life of the energy generation or conservation addition to the building. Parcels undergoing development are excluded from AB 811, as are appliances that are not permanently fixed to the property.

AB 1062: Solar Design Plans for School Facilities

AB 1062 amends the California Education Code to streamline the permit process for installation of solar power facilities on public school property. Schools provide an ideal site for the installation of solar technologies because they tend to have large areas of open space. AB 1062 eliminates many of the confusing and time-consuming aspects of the solar design plan approval process. Specifically, the bill requires the Department of General Services ("DGS") to develop uniform criteria by January 1, 2010 for pre-approving certain components of solar design plans, such as modular buildings, shade structures and light standards (poles). AB 1062 also requires DGS to complete its review of solar design plan applications within 45 calendar days of receipt of a complete application.

AB 1451: Property Tax Exclusion for Solar Energy Systems

AB 1451 renews an existing exclusion from property taxes for the value of solar energy systems. The bill amends Section 73 of the Revenue and Taxation Code to extend the solar property tax exclusion for residential solar systems until the 2015-16 fiscal year. AB 1451 also extends the tax break to builder-installed solar energy systems in new homes. Prior to the bill’s enactment, the value of a solar energy system was included in the property tax basis for a new home, penalizing the first-time home buyer and discouraging homebuilders from including solar as a standard feature. AB 1451 allows solar on new homes to be treated the same as solar on existing homes (ensuring that the exemption is only taken once by the first-time home buyer). Arizona and Nevada have enacted similar major property and sales tax abatements.

AB 1892: Solar Energy in Common Interest Developments

AB 1892 amends the Solar Rights Act (in the California Civil Code) to provide that any provision in the governing documents of a Homeowners’ Association ("HOA") or Common Interest Development ("CID") that effectively prohibits or restricts the installation or use of a solar energy system is void and unenforceable. Under AB 1892, an application for installation or use of a solar energy system must be processed and approved in the same manner as an application for approval of an architectural modification to the property, and must not be willfully avoided or delayed. AB 1892 does allow the HOA or CID to restrict the installation of solar energy systems in common areas, and allows for reasonable restrictions on the use of solar energy systems to be included in the governing documents. "Reasonable restrictions" are those that do not significantly increase the cost of the system, or significantly decrease its efficiency or specified performance.

AB 2180: Solar Energy System Siting Approval

The intent of AB 2180 is to give teeth to AB 1892 to ensure that HOAs do not delay a response to an owner and jeopardize federal and state incentives that can be used to offset the cost of a solar energy installation. AB 2180 requires that an approval or denial of an application for installation of a solar energy system be in writing, and that applications that are not denied in writing within 60 days from the date of receipt of the application will be deemed approved (unless the delay is due to a reasonable request for further information). Additionally, any HOA or CID that is not a public entity and which willfully violates the Solar Rights Act must pay the solar energy system owner a civil penalty not to exceed $1,000. Reasonable attorneys’ fees incurred during a court case between a property owner and an HOA or CID will be awarded to the prevailing party.

AB 2466: Local Government Renewable Generation Program

AB 2466 authorizes a local government to receive a credit on its electric bill for power generated from a city-owned or operated renewable generating facility. In essence, the bill allows cities, counties, special districts, school districts, political subdivisions and other local public agencies to receive billing credit for deliveries of excess power from a renewable energy generation system to the electric grid. That credit can be applied against other accounts ("benefiting accounts") in the jurisdiction, thus encouraging additional investment in renewable generation. The electrical output of the eligible renewable generating facility is metered for time of use to allow calculation of the bill credit based upon when the electricity is exported to the grid, and the credit is calculated based on the commodity rate.

The federal government is also making efforts to incentivize the growth of solar power. In October 2008, as part of the Emergency Economic Stabilization Act, Congress:

  • Extended for eight years the 30% tax credit for both residential and commercial solar installations
  • Eliminated the $2,000 monetary cap for residential solar electric installations, creating a true 30% tax credit (effective for property placed in service after December 31, 2008)
  • Eliminated the prohibition on utilities from benefiting from the credit
  • Allowed Alternative Minimum Tax (AMT) filers, both businesses and individuals, to take the credit
  • Authorized $800 million for clean energy bonds for renewable energy generating facilities, including solar

With the call for energy independence intensifying, the world’s interest in solar power and other forms of renewable energy is certain to grow. California increased its use of solar energy 600% from 2003 to 2008, and is currently the third-largest market for solar energy. These new legislative enactments should enhance the ability for California to grow its solar energy portfolio.