California utility regulators last week rejected a home solar company’s application to form “micro-utilities” in the state, which would have allowed it to power small, newly-built communities with solar and energy storage and deliver electricity with new power lines.

The decision is a win for California’s large electric utilities, whose traditional monopoly is challenged by companies and nonprofits offering customers new ways to buy electricity. Community choice aggregators, local nonprofit entities that buy electricity and deliver it through utility lines, have peeled more than 11 million customers away from California utilities over the past two decades. 

The state is also home to more than 1.6 million homes with rooftop solar panels. While rooftop solar projects and electricity provided by community choice aggregators both still require customers to make everyday use of the electric grid, the micro-utility concept would have allowed Texas-based Sunnova Energy to build community microgrids that can produce and transmit electricity without the support of the larger electricity grid (although the communities served could still connect to it).

“It could provide another choice, a competitive choice in the market for sustainable energy within the state, and that’s a major priority,” said Adam Miller, Sunnova’s vice president of microgrids, in February. A state regulatory judge recommended rejecting the proposal that month, a preliminary decision that still required a vote from the state’s public utilities commission. 

After the final application decision last week, Meghan Nutting, the company’s executive vice president of government and regulatory affairs, said in an emailed statement that the rejection “is a missed opportunity to advance [California’s] aggressive housing and clean energy goals at a time when the state is in crisis.”

California has a statewide goal to build 2.5 million new housing units by 2030 and to reach carbon neutrality by 2045.

Some solar advocates worry that recent state policy decisions could imperil progress on that latter target, as well as their business. The micro-utility ruling comes just over a week before new rules go into effect on the incentives paid to homeowners for the solar electricity they generate on their rooftops, cutting credits by about 75 percent for new home solar customers. The change is expected to cause a downturn in the near-term growth of home solar installations in California, with installations forecast to drop 38 percent from 2023 to 2024, according to energy consulting company Wood Mackenzie.

Sunnova’s plan would have built rooftop solar and individual energy storage for new communities of 500 to 2,000 homes. In California, building rules already require that most new homes include solar on their roofs. Sunnova’s proposal would add a community solar system, battery storage and backup generators for emergencies. Solar electricity would be shared within the community as well as stored for later use. Sunnova aimed to offer electricity at costs lower than utility rates.     

Regulators at the California Public Utilities Commission (PUC), which assessed the application, said Sunnova did not provide enough information about the details of its proposal. A petition to dismiss the application from the PUC’s public advocate also argued that the Sunnova subsidiary that submitted the application does not meet the state’s definition of a micro-utility.

David Cheng, a staff attorney at the Utility Reform Network, a consumer advocate group, expressed concern that Sunnova was applying for “blanket approval” to build microgrids throughout the state without providing details on their individual configuration. Cheng said the group was also concerned about some negative consumer experiences with the subsidiary’s parent company. 

“In order for the public interest to be properly protected, these utilities must be properly regulated. They need to have governance, they need to have oversight,” said Cheng. “Sunnova’s proposal is very problematic … It wants to essentially create a new utility with we don’t know what kind of oversight and blanket authorizations from the commission. That, to us, is not in the public interest.”

Nutting at Sunnova said in emailed responses to questions from Inside Climate News that the company was not looking “to own and operate microgrids exempt from regulation and oversight.”

Supporters of the proposal included solar advocates and some environmental groups. Some organizations that backed the application have also urged utility regulators to reconsider elements of the home solar compensation rules that go into effect April 15. 

The Center for Biological Diversity, a national environmental organization, argued in a regulatory filing with other climate and clean energy advocacy groups that Sunnova’s application “should be encouraged to promote decarbonization, resiliency, grid reliability, customer choice, and energy equity as the state looks to modernize the electric grid for the 21st century.” The organization also joined with the Environmental Working Group and the Protect Our Communities Foundation to file a formal request asking regulators to reconsider their decision on compensation rates for Californians installing rooftop solar. The commission hasn’t formally responded. 

“Commissioners should be ensuring that everyone can benefit from local clean-energy generation, not putting up unnecessary roadblocks,” said Roger Lin, an attorney at the Center for Biological Diversity, in a March press release.

In addition to ruling on Sunnova’s application last week, California utility regulators unveiled rules for a $200 million program designed to incentivize utility-led microgrid projects in tribal communities and communities the state identifies as disadvantaged or vulnerable that may experience power outages.

In its application, Sunnova noted that its microgrids could provide backup power to the communities they serve during extreme weather or during power shutoffs, which California utilities carry out during times of high fire risk to keep equipment from igniting wildfires. Power outages during weather events and disasters have impacted customers across the U.S. 

After the application was dismissed, Sunnova said it was evaluating the potential to implement the micro-utility model in other states—Miller said it could be a possibility in roughly 15 others—in addition to considering a potential appeal in California.

“We are evaluating all options,” Nutting said in an email. “As we move forward from here, we will continue to work tirelessly on future applications to advocate for consumer choice and to push for a more competitive energy market that prioritizes the needs of the people over the interests of monopolistic utilities.”