This month, the California Public Utilities Committee (CPUC) is scheduled to vote on a Proposed Decision that could have significant implications for the state’s housing and environmental objectives. Virtual Net Metering (VNEM), a program aimed at simplifying solar installations for multi-tenant buildings to provide cleaner energy access to around 17 million California renters, is on the verge of losing its economic viability in most cases. This situation is particularly concerning, as it disproportionately affects lower and middle-income households, placing them at a significant disadvantage.
Under California’s Building Energy Efficiency code, Title 24, all new multifamily housing developments with three stories or fewer must install solar arrays capable of covering the property’s annual energy consumption. This means that property owners may need to install solar arrays large enough to power the energy needs of potentially over 400 residents to construct new housing in the state.
VNEM is a program designed to enable multiple users to benefit from a single solar installation by virtually allocating bill credits generated by the system to individual tenants.
For property owners, VNEM has historically offered a cost-effective opportunity to implement solar power in multifamily dwellings. By generating electricity through solar panels, property owners can effectively become clean energy providers for their properties. Instead of the expensive and often impractical route of installing personal solar systems for each unit, owners can simply distribute credits for the energy generated by the shared VNEM system to residents.
On the other hand, for residents of multifamily housing units, VNEM offers a convenient way to access solar energy, as they often lack the means to invest in their own solar panels.
However, the revised program proposed in the VNEM Decision would reduce the value of the energy produced by approximately 70 to 80%, depending on whether batteries are used in conjunction with solar to take advantage of time-based pricing. Systems large enough to power large apartment communities typically cost between $4 to 6 million. Such a significant investment with a negative net present value would be impractical and negatively impact the development of new housing and equity in California.
First, these added costs will discourage housing developers from building in California. California already faces challenges in housing development, resulting in a widely recognized housing crisis that is the most severe in the country. Factors such as low-density zoning, high land costs and stringent regulations increase holding costs and contribute to the housing shortage. Title 24 adds complexity and tight margins to an already challenging development environment. Removing the economic incentive of mandated solar installations in multifamily buildings will further discourage new housing developments in California, exacerbating the existing housing shortage of 980,000 units.
Many property owners may find it difficult to offset the additional costs through increased rent, as local market conditions may prevent charging excessively high rates. Developers who decide to pursue lower-rise communities in California may do so in areas where the rental market can accommodate higher rents. Unfortunately, this would have undesirable consequences. Faced with a multimillion-dollar financial burden, owner-developers would have no choice but to recover costs by raising rents, which would only worsen California’s housing shortage and contribute to the state’s cost of living crisis.
“As owners and operators in the commercial real estate industry, we have a responsibility to help minimize the carbon footprint of assets, as well as encourage others to view this as not only an opportunity for value creation but also providing equitable resiliency for all stakeholders. By disincentivizing the value of distributed solar energy, you create hesitation among an industry that historically has been slow to adapt,” said Lucas Nagy, VP of structured finance at Taurus Investment Holdings.
As currently proposed, this decision could harm the state’s efforts to attract developers to build affordable housing and result in a higher cost of living for lower- to middle-income Californians. What’s particularly concerning is that instead of benefiting from the energy transition, renters could end up bearing the financial burden. If VNEM becomes unprofitable, the cost of decarbonizing buildings through the Title 24 solar mandate would likely be passed on to renters through increased rent. This directly contradicts California’s equity goals, as the proposal would favor single-family homes economically while severely affecting the affordability of multifamily housing.
I come from a lower-middle-income background. My parents never had the means to own a home during my childhood. At PearlX, we believe that energy equality equals housing equality. I firmly believe that renters should enjoy the same benefits of solar energy as homeowners do. Forty-four percent of California’s population are renters, totaling 17 million people, with nearly a third falling into the lower and middle-income brackets. All we are asking for is that California renters have the same access to benefits as homeowners.
We strongly urge the Public Utilities Committee to vote against the proposal in its current form.
