Recently adopted California building codes that require builders to include solar electric systems on new single-family homes and low-rise apartment buildings are "credit negative" for the state's utilities and contribute to a "cost structure challenge" for utilities and their customers, Moody's Investors Service said in a May 14 research note to clients. Solar developers. along with securitizations backed by solar leases and power purchase agreements, however, stand to benefit, the credit ratings agency added.

The California Energy Commission unanimously voted to adopt the new building codes on May 9. The mandate will take effect in 2020, pending a final procedural review by the state's Building Standards Commission. The Standards Commission is widely expected to affirm the Energy Commission's decision because the regulators worked together to develop the new building codes.

If the new regulations are confirmed, Moody's estimates that more than 200 MW of additional solar capacity will be installed on new single family homes in 2020 alone. Increased home solar installations "will bolster solar developers' cash flows and increase their operations and maintenance portfolios," Moody's analysts wrote. At the same time, risks to securitizations backed by solar leases and PPAs will decline, they said. Share prices of home solar specialists Sunrun Inc. and Vivint Solar Inc. initially jumped on the Energy Commission's vote.

Although officials of PG&E Corp.'s Pacific Gas and Electric Co. and Edison International's Southern California Edison Co., the state's largest utilities, both endorsed the solar mandate in a hearing ahead of the Energy Commission's vote, they could suffer negative consequences. "Because of the way utilities recover transmission and distribution costs, customers who self-generate power contribute less to the utility's fixed costs, shifting those costs to customers who do not self-generate," the analysts wrote. "Continually shifting costs to balance out revenue is ultimately unsustainable for utilities' business models."

Speaking at the May 9 hearing, a representative of Sempra Energy subsidiary San Diego Gas & Electric Co. voiced similar concerns over the state's net energy metering policy, which compensates solar-powered customers. Moody's expects California regulators to revisit the policy in 2019.