California lawmakers passed a bill Thursday that would allow more people in the state who generate their own solar power to sell excess generation to their utility, in a transaction called net metering.

Existing state law requires California's three largest utilities to pay customers for renewable power they send to the grid but limits the program to 2.5% of a utility's peak demand. A proposal passed by the state Assembly would extend that limit to 5% of each utility's peak demand.

Expanding the net-metering limit would allow California's thriving solar market to continue growing--a positive for solar-panel makers Sharp Corp. (6753.TO), SunPower Corp. (SPWRA), Solar World AG (SWV.XE), Suntech Power Holdings Inc. (STP) and others that sell into the California market, as well as solar-system installers like Akeena Solar Inc. (AKNS) and GroSolar.

The bill, which the state Senate passed last week, goes next to Gov. Arnold Schwarzenegger, who plans to sign it, a spokeswoman said Thursday.

"The governor ... looks forward to signing he bill, which will help California achieve its renewable-energy goal and create more jobs," said the spokeswoman, Rachel Arrezola.

California offers rebates to homeowners and businesses to install rooftop solar panels as part of the $2.2 billion California Solar Initiative. The federal government offers separate tax credits for solar-system installations.

PG&E Corp. (PCG) utility Pacific Gas & Electric is nearing the 2.5% net-metering limit, after more than 16,000 of its customers installed more than 173 megawatts of solar generation, and as several thousand more have applied for rebates to install 80 more megawatts, according to government data. Customers of California utilities owned by Edison International (EIX) and Sempra Energy (SRE) together have installed about 130 megawatts of solar generation, according to the data.

One megawatt is enough to serve between 750 and 1,000 homes.

Last October, PG&E agreed to increase net metering to 3.5% of peak customer demand, after a bill similar to the one passed Thursday stalled in the Legislature.

In addition to the net-metering requirements, California utilities are required to use renewable sources for a fifth of the power they sell by the end of this year, with that mandate set to expand to 33% renewables by 2020 under pending regulations. The mandate is part of the state's 2006 plan to combat climate change.

-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; cassandra.sweet@dowjones.com
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