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Guest Column: California Chips Away at Solar Soft Costs

July 2014

This article was distributed in the Summer 2014 issue of REsource: Business and Financial Insights for the Renewable Energy Industry

From a policy perspective, promoting the growth of residential distributed solar generation is a question of strategically choosing where to chip away at barriers to adoption. Those barriers evolve over time, depending on technology, economics, and politics. For example, hardware costs were once a major hurdle; but in the last decade, the total hardware costs per kilowatt have dropped 50%.

As a recent report by the National Renewable Energy Laboratory demonstrates, soft costs—supply chain costs, transaction costs, permit fees and other expenses—now make up more than half the total cost of going solar at the residential level. Some of those costs, like labor and developer profit, are beyond the reach of policy initiatives, but others, like permit costs and inspection procedures, which are controlled by regulation, make obvious targets.

In California as elsewhere, construction-related permit and inspection requirements are generally set at the municipal level. But in 1978, recognizing the special role of solar energy, California enacted the Solar Rights Act, which clearly established access to solar power as a state priority and limited municipal involvement to matters of health and safety. Despite this, many of the state’s more than 500 cities and counties have established their own patchwork quilt of permit and inspection regulations. While some of these regulations do a good job of reflecting the maturation and standardization of the solar industry, others are still framed as if solar is an unproven technology, requiring multiple inspections on prefabricated systems with established reliability track records.

While the NREL report calculates permitting, inspection, and interconnection costs to come to only 1.9% of total residential installation costs, this figure actually underestimates the true impact of an inefficient array of outdated permit and inspection regulations. Taking more than a month to inspect a system that was installed in eight hours increases developers’ cost of capital and frustrates consumers—a factor that is particularly important given that dissatisfied consumers are poor ambassadors for solar adoption among their friends and social networks.

In order to standardize permitting and inspection requirements and spread the adoption of best practices, the California State Assembly overwhelmingly passed AB 2188 (Muratsuchi) at the end of May, which directs the state’s municipalities to create an “expedited, streamlined permitting process for small residential rooftop solar energy systems” by September 30, 2015. The bill mandates that local governments post permitting requirements online and accept electronic submittals to cut down on long waits at the permit counter. The bill also mandates that there be only one building department inspection and inspections are to be scheduled in a timely fashion according to best practices. The bill is now before the State Senate, where observers are optimistic about its passage. Simultaneously, Governor Jerry Brown’s office is in the final stages of producing a guidebook to help municipalities with implementing the new processes by providing template forms and other resources.

Having the bill become law would be a major victory for solar advocates in solidifying the state’s role in solar power, and it is expected that the large majority of municipalities would quickly adhere to the new standards. However, there is a vocal core of jurisdictions that are likely to resist on philosophical grounds. In those cases, the bill’s proponents believe it will give the state’s Attorney General a stronger platform from which to act.

Streamlining the permit process and mandating timely inspections is only one aspect of the soft cost challenge. But hopefully, AB 2188 can serve as an example for other states facing similar issues, and provide momentum as the industry turns to address further soft cost hurdles.

Bernadette Del Chiaro is Executive Director of the California Solar Energy Industries Association (CALSEIA).

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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