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CALIFORNIA'S SOLAR ENERGY LAWS:  HOW TO DIVORCE YOUR UTILITY CO. AND COLLECT ALIMONY 

CALIFORNIA' S SOLAR ENERGY LAWS

HOW TO DIVORCE YOUR ELECTRIC UTILITY AND COLLECT ALIMONY

By Gary L. Nell, Esq.*

PART I OF II

INTRODUCTION

            If someone promised to convert sunshine into electricity for your home or business, you would probably think it was one of those promises that are too good to be true.  Not only is it true, but also California has codified your right to do it.  California will also pay part of the cost to install this "too good to be true" technology.

            This magical technology is known as photovoltaic ("PV") electricity.  It has been used in the NASA space program for about 40 years (no electric utilities in outer space).   No attempt will be made to explain the science, but PV modules are generally composed of thin silicon wafers that produce an electrical charge when exposed to sunlight.  They come in a variety of sizes, shapes and colors. 

            One of the many attractions of photovoltaic energy  ("PV") is the renewable and inexhaustible nature of this energy.  It is 100% clean energy, as zero pollution is produced when sunshine is converted to electricity (unlike a smoke stack utility).  PV electricity has a litany of benefits for the individual, the state and the planet.  This explains the passage of the California Solar Rights Act and the PV financial incentives offered under California law.

NET METERING LAW

            With the latest PV technology and direct southern exposure, a 2,000-watt or two kilowatt PV utility grid-tie system (utility supplies electricity when no sunshine) can supply the average home for a working couple.  If the home has a pool, large family, teenagers, etc., the PV size may double or triple.  Actual production depends on the size and efficiency of the PV modules, inverter and electrical wiring.  PV production is also impacted by  latitude, climate, temperature, sun intensity and sun angle. 

            Under federal and state law (see California Public Utilities Code § 2827), a utility customer has the right to operate or tie a PV system to the San Diego Gas & Electric or other utility grid ("Grid") after meeting a few requirements.  During the day, PV generates excess electricity that flows into the Grid (electric meter runs backwards).  During the night, the Grid supplies needed electricity (meter runs forward).

            The electricity produced by the PV for the Grid during the day and the electricity supplied by the Grid at night are calculated or "netted" once a year under federal and state law.   (California Public Utilities Code, supra, referred to as "net metering law").  The customer pays the utility for any annual PV production deficit.  The utility pays the customer nothing for any annual PV surplus.  The applicable California legislation clearly favors the utility and creates an inequity and inequality if the PV produces a surplus.  (California Public Utilities Code, supra).   This encourages customers to install small and undersized PV systems to avoid surplus production.

A few state and local governments require the utility to pay for any annual PV surplus flowing to the grid.  Under the law of California and most states, the utility has no such duty and may receive free energy from the PV that it then resells to customers for a profit.  If California utilities were required by law to purchase surplus PV production, PV energy production would probably expand dramatically.   PV generating facilities can be created in days rather than the years required for conventional smoke stack power plants.  An amendment to California's net metering law could cure this surplus PV production inequity and inequality.  This amendment would probably  increase clean energy production and reduce pollution.

The Bar Association could be instrumental in passing equitable legislation to create equal treatment for the PV customer with respect to surplus PV production.  This legislation would also favorably impact clean energy production and the environment.

ECONOMIC INCENTIVES

California has offered incentives for PV for a number of years and the terms change from year to year.   The present incentive from the California Energy Commission ("CEC") is $3.80 per rated watt.  It was $4.00 until July 1 and declines every six months.  This will cover about 80% of the cost of the PV system I have installed  (not counting my time).  

The CEC website has all the information and forms for the rebate incentive (www.consumerenergycenter.org).  This website has a "Clean Power Estimator" program that will calculate the size, cost, savings, cash flow and investment rate of return on a PV system.    The results depend on the zip code and variables entered.

            Last year the CEC incentive was 50% of the PV system cost.  The current incentive should cover approximately 50% of the typical cost.  Tax benefits and credits reduce the cost further. 

The California Franchise Tax Board provides a 15% tax credit for residential and business installations through December 31, 2003 and then the credit drops to 7.5%.  (See FTB Form 3508 and ­­California Revenue and Taxation Code  §§ 23684 & 17053.84).   The IRS provides a 10% tax credit for business installations.  The Jobs and Growth Tax Relief Reconciliation Act of 2003, Sec. 201 (HR2) allows a 50% depreciation deduction the first year for solar equipment.  IRC § 179 was amended by the same Act to allow a 100% first year deduction for capital improvements up to $100,000.  Depreciation deductions are limited to business and rental properties. The PV system is also exempt from California property taxes for both business and residential users.  (California Revenue & Taxation Code § 73).   

              The average gross cost of PV is from $5 to $8 per watt, although some contractors quote as high as $10 per watt.  The net cost (after the above CEC incentive, depreciation and tax credits) for a 2,000-watt or two kilowatt PV system will be from about $1.00 to $4.00 per watt.  The best-case cost scenario is self-installation for a net cost after incentives of $2,000 for a two KW system.  The worst-case cost scenario is contractor installation for a net cost after incentives of $8,000 for a two KW system. 

ANNUAL RATES OF RETURN ON PV INVESTMENTS

The part you have been waiting for and of most interest to everyone is the net savings on the electric bill.  This will depend on the utility rate.  Electric rates vary from residential to commercial, with the time of year, etc.   A fair estimate for the foreseeable future for residential rates is fifteen cents per KW and for commercial rates twenty cents per KW.  Rate increases are inevitable, so the investment returns calculated below are understated for the long term.  The omission of rate increases in the calculations will compensate for some of the variables that are difficult to quantify like degradation in production with time, etc. 

A number of variables will determine the actual costs and savings.  These variables change with locations and types of installations.  The estimates herein are intended as estimates based on my research and experience at my location.  The above described "Clean Power Estimator" allows one to plug in different variables to evaluate different sizes and costs for PV systems for specific locations by zip code.  

Based on the above electric rates of fifteen to twenty cents per KW, a 2,000 watt or two KW PV system that produces 300 KW's per month or 3600 KW's per year may save $540 to $720 each year.  The savings are greater for PV on commercial buildings due to their higher utility rates and a federal tax credit.  Commercial buildings are also generally larger with economies of scale that reduce the per watt cost.  The above savings are generally proportional to the size of the PV system, so the savings will increase proportionally as the size of the PV system increases.  The savings will be approximately $5,400 to $7,200 each year for a 20 KW system.      

Sharp Corporation and most other manufacturers guarantee the PV modules for 25 years.   PV modules in the space program are still producing after 40 years.  The PV modules have no moving parts and no maintenance costs other than hosing off their dust.  Over the guaranteed life of the modules, the projected savings on the electric bill for a two KW system may be $13,500 ($540 times 25) to $18,000 ($720 times 25).   With the inevitable increases in electric rates, the actual savings will probably be even greater.

            Under the best-case scenario of self-installation and a $2,000 net cost and a twenty-cent per KW rate, the approximate annual rate of return on the PV investment will be 36% each year (annual savings of $720 divided by $2,000 net cost after incentives).   Under the worst-case scenario of contractor installation with an $8,000 net cost and a fifteen-cent per KW rate, the approximate rate of return on PV investment will be 6.75% each year.  For an owner installed PV system on a residence with a fifteen-cent per KW electric rate, the approximate annual rate of return on investment will be 27% ($540 divided by $2,000).  The rates of return on PV are far superior to the current annual rates of return of 1% to 5% on treasury bills, savings accounts, bonds, stocks, etc.  

Even though the above estimated annual rates of return on PV investments are lucrative today, the rates of return should be even better with the inevitable utility rate increases.  The rates of return will be even more rewarding for the larger PV systems that create economies of scale.  The cost of PV has been declining and the efficiency has been increasing like most new technologies, so better investment returns can be expected in the future.  

            The current financial rates of return on PV are higher than most other types of financial investments, but the financial profits may be less important than the environmental, political and humanitarian benefits.   PV electricity produces no pollution and reduces California's dependence on imported fossil fuels.  This may help reduce not only energy problems and environmental problems but also political and economic problems.

PART II

CALIFORNIA SOLAR STATUTES AND EASEMENTS

                        The laws that relate to solar energy are difficult to find.  No one to my knowledge has compiled them in one location.   The law, information and equipment for PV systems are available on the Internet.  The websites of the San Diego Regional Energy Office (www.sdenergy.org) and the California Energy Commission (www.consumerenergycenter.org) are good starting points for solar energy research.  These websites have links to numerous other solar related sites.

                California and some other states have enacted a surprising number of laws to encourage and develop solar energy in addition to the "net metering laws" and financial incentives discussed above.  California law mandates that 20% of utility energy be from renewable sources by 2017 and some believe this will be achieved by 2010.  The current percentage is about 1% from renewable sources.     

                Although the law generally creates no rights to light, views and sunshine against adjoining property owners, California Public Resources Code § 25982 limits adjoining property owners with respect to trees or shrubs that grow to cast shadows on solar energy devices.  After 30 days notice to remove shadows without compliance, section 25983 requires the DA or city attorney to prosecute and file a public nuisance complaint.   Installing a PV system may create rights to light, views and sunshine against your neighbors that are otherwise unavailable.   

                 Civil Code §§ 801 - 801.5 provide for the creation of solar easements that can become covenants that run with the land.  Section 801.5 defines a solar easement and outlines the requirements for creation.  The solar easement may restrict vegetation, structures and other objects that may obstruct sunlight through the easement.

SOLAR RIGHTS ACT

                The California Solar Rights Act guarantees the right to install a solar energy system in spite of any contrary CC&R's or other restrictions on property.

The following is a summary of the California Solar Rights Act from the San Diego Regional Energy Office.      

                "It is the policy of the State of California to promote and encourage the use of solar energy systems and to remove regulatory obstacles to their use. The California Solar Rights Act (Section 714 of the Civil Code) was enacted in 1978 to ensure that any covenant, restriction, or condition contained in any deed or other contractual restriction, which affects the sale or value of real property, does not limit the installation or use of a solar energy system.

        California residential and commercial developers of new construction typically incorpo­rate Covenants, Conditions and Restrictions (CC&Rs) into property purchase and sale agreements. CC&Rs are writ­ten to ensure a consistent physi­cal appearance within property areas during the time when new housing or commercial units are constructed and sold. After all the new units are sold, homeowner associations (HOA) or business property owner associations (BPA) take on the task of enforcing CC&Rs to control architectural modifications to the properties. The California Solar Rights Act is intended to remove obstacles to solar installations on properties regulated by CC&Rs and to encourage system installations that ¿achieve maximum effi­ciency at an affordable cost.¿

        The law does not apply to ¿reasonable restrictions¿ imposed on solar energy systems. Reasonable restrictions are defined as those that do not increase the cost of the system by more than 20%, or decrease its efficiency by more than 20%. According to the law, solar systems also should meet applicable standards and requirements imposed by state and local permitting authorities. For example, solar systems should be certified by the Solar Rating & Certification Corporation (SRCC) - a nonprofit third party supported by the US Department of Energy - or other nationally recognized certification agency.

        The California Solar Rights Act states that the application and review process for solar installa­tions must be treated in the same manner as any other application for architectural property modifi­cation, and must be processed in the same amount of time. Any entity, other than a public entity, that willfully violates this requirement will be liable to the applicant for actual damages and will pay a civil penalty to the applicant not to exceed $1,000.  In the event that legal action is required to enforce compliance, the prevailing party will be awarded reasonable attorney¿s fees. Thus, it is in the interest of the HOA or BPA to carefully review and expedite any property owner¿s solar installation request since failure to do so could result in penalties charged against the association.

        Section 714.1 of the Civil Code addresses the installation of solar sys­tems in common areas and on roofs owned by the association, and states that the association may place indemni­fication requirements on the solar sys­tem installer.

Section 1354 of the California Civil Code, Alternative Dispute Resolution, outlines the formal process that can be used by property owners and develop­ment associations to resolve challenges to overly restrictive CC&Rs or unrea­sonable property modifications. Ideally, any differences between the association and property owner over a solar installa­tion can be resolved through good faith negotiation and compromise by keeping within the spirit of the California Solar Rights Act."

SUMMARY

Not only is it possible to convert sunshine into electricity, but also California law guarantees the right to do it.  California and federal law create incentives and protections for solar energy.  Japan and Germany, technologically astute countries, have realized the benefits and value of PV energy also and have even more incentives and protections for solar energy than our federal and state governments.

Solar energy is a superior financial investment with the current California incentives that create exceptional rates of return on PV investments.   However, the environmental, political and humanitarian benefits may be even more important.  In view of the benefits of PV energy and the recent Blackout of 2003, the time has come to support a legislative amendment to California's "net metering law" to require utilities to pay customers for surplus PV energy generation.  This will  end the current unjust enrichment of utilities and their unjust profits from 100% clean energy generated by their customers.  This amendment will promote equity and equal protection for customers and increase the production of 100% clean PV energy with environmental, political, economic and humanitarian benefits.