New commercial buildings and multifamily residential buildings over three stories in California are now required to install a system of photovoltaic/solar panels as part of initial construction. The required solar system must connect to the State's electric grid ("Grid"), and must also include a solar battery storage system to store the excess energy generated by the solar panels to be available for use by building instead of being fed back into the Grid ("Solar and Battery System"). The 2022 Building Energy Efficiency Standards, title 24, part 6, of the California Code of Regulations ("Title 24") added this new Solar and Battery Storage requirement ("Mandate"), vastly expanding the prior solar mandate that applied only to low-rise residential buildings (residential buildings that are three stories or less). The Mandate took effect on January 1, 2023.
While the Mandate will help meet the State's goals for transitioning to renewable energy, there are several implementing challenges to consider. Owners, operators and developers of commercial and multifamily projects face a steep learning curve to understand what specific Solar and Battery System is required for each building. Important considerations include determining project load needs, understanding what entitlements, permits and land use approvals are needed from local authorities, and determining whether private use covenants and restrictions ("CC&Rs") apply. Property owners must engage a design consultant or rely on a contractor to design the correct Solar and Battery System to meet the project's energy demands and, if applicable, anticipate scalable future modifications to the system if the project expands over time. Owners will need to engage the applicable renewable energy installer, which can be a challenge to find, and negotiate key legal terms in structing not only the installation of that Solar and Battery System, but the ongoing maintenance and performance of such system. Owners will need to put in place sufficient warranties for system components and overall system design, performance guarantees for minimum energy output of the Solar and Battery System for each year of its useful life, and remedies if the system fails to meet those standards and specifications. Those standards and guarantees should be incorporated and integrated into a compatible operating and maintenance agreement for the system with sufficient owner protections.
Scope of Buildings Subject to Mandate
The following commercial buildings are required to include a Solar and Battery System in new construction: grocery, office, financial institutions, unleased tenant space, retail, schools, warehouse, auditorium, convention center, hotel/motel, library, medical office/clinic, restaurant, and theater. The Mandate also would apply to residential buildings greater than three stories ("Multifamily Residential") and mixed-use buildings where a use subject to the Mandate constitutes 80 percent or more of the floor area. Hospital facilities (which must adhere to separate building standards) are not currently subject to the Mandate.
Solar Mandate and Exceptions
For the solar component of the system, roof space and solar access are the factors that determine whether a solar system is required and the size of any required system. These requirements vary by climate zone as well. Roof space not only includes the roof area on a building that is capable of supporting solar panels, but also includes parking areas, carports, and other structures, like sheds, storage units, pool houses, etc., that can support solar panels. There are certain exceptions to the roof areas required to have solar panels, relating to other conflicting building code requirements that the California Energy Commission's Executive Director has determined have precedence over the Mandate. Occupied rooftops are also exempt, though it is currently unclear under Title 24 whether roof decks and other rooftop amenities would count as "occupied roofs." Once the available roof area is determined, a consultant reviews that area for its annual solar access (access to sunlight), which Title 24 refers to as "solar access roof area" or "SARA." If the roof area has a SARA of less than 70 percent annual solar access, then the project applicant is not required to install solar panels.
The Solar and Battery System size is determined by the conditioned floor area (i.e., the area in a building that is heated and/or cooled) multiplied by a factor based on one of California's sixteen climate zones. Climate zones are areas of similar temperature, wind speed, humidity, etc. Where the building has more than one use, the total solar system's capacity and battery storage size for the building is determined by calculating the sum of each use's energy needs.
The Mandate allows for some exceptions and flexibility where insurmountable physical barriers exist. For instance, a Solar and Battery System is not required where effective solar access is less than 3 percent of the conditioned floor area or less than 80 contiguous square feet due to shading from existing permanent natural or manmade barriers external to the building, or the necessary solar system would generate electricity that is less than 4 kW-direct current. A Solar and Battery System also is not required for any building that has an approved roof design that cannot accommodate solar panels and still comply with snow load requirements. Multi-tenant buildings also are exempted if the utility provider serving the building does not provide a system that allows each tenant to separately track energy use (virtual net metering) or does not offer a community solar program. If the building falls into one of these exceptions, it nevertheless must be "solar ready," which means providing the infrastructure capable of supporting a Solar and Battery System in the future.
Battery Mandate and Exceptions
If there is SARA and solar panels are required, a battery storage component is also required. The energy and power capacity of the battery component of the system will be determined by the building's energy use. There are several exceptions to the battery requirement. If the battery storage system after such determination results in a capacity of less than 10 kW hours, then the amount of storage is too small to be a useful source of energy for the building's load, in which case a battery storage is not required. If the required solar component would generate less than 15 percent of the building's energy needs, then there isn't sufficient energy generated to charge a battery, in which case a battery component is not required. If a single-tenant building has 5,000 square feet or less in conditioned floor area (multitenant buildings are based on tenant spaces with more than 5,000 square feet of conditioned floor area), then battery storage component also is not required. Lastly, battery storage systems also are not required for offices, schools and warehouses located in Climate Zone 1, which is the cold northern coastal climate stretching from Marin to the Oregon border.
Community Solar for Multitenant Buildings
A community solar system is a solar system that is located on land that is separately owned and operated from the building's real property parcel, and which generates energy for many independent/unrelated buildings. In essence, it is a like a solar cooperative. Anyone within a certain electric utility distribution area can buy into the community solar system through a utility provider's community solar program and then receive credits on their energy bill. Title 24 allows a multi-tenant building to satisfy the Mandate with community solar in addition to or instead of installing a Solar and Battery System. With community solar, each tenant can obtain reductions to its own energy bills even if each tenant is not separately metered. However, community solar programs have drawbacks, most notably locking in the participants into the program (and rates) for 20 to 30 years. While community solar programs are popular in other states, they have gotten a slow start in California due to initial controversy on where a system could be physically sited to qualify as "within the same community" as the building served by the system. The 2022 version of Title 24 has new community solar requirements that resolve this and other open issues, which should encourage more community solar programs to be developed statewide.
Title 24 has gotten progressively stricter each building code cycle, and the 2022 Title 24 continues that trend. For that reason, we are actively engaged in each three-year cycle of the Title 24 update process and track the discussion of proposed changes so we can keep our clients prepared for changes in development permitting and project cost increases.
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California continues to lead the way toward the transition to renewable energy. That transition invariably presents regulatory challenges to owners and operators of commercial and multifamily real estate. Together with consulting engineers and project design professionals, Cox, Castle & Nicholson's renewable energy experts can help to determine project solar energy needs, assist with understanding the Mandate's requirements, including determining the necessary entitlements and approvals, and review CC&Rs or architectural controls to appropriately address private restrictions. We also work with clients and their financial and tax advisors to help create a project that qualifies for any tax credits or program incentives that may be available for their project, and negotiate and draft renewable construction contracts that anticipate the requirements of available tax credits or program incentive, as well as address performance guarantees and remedies. Similarly, we draft operating and maintenance agreements with strong owner protections that align with the construction contract's performance guarantees and protect our clients' interests.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.