Gov. Arnold Schwarzenegger predicted that a proposal by San Francisco-based Pacific Gas & Electric Co. would open the way for more companies and homeowners to install rooftop panels to generate power.
Schwarzenegger last month ordered utilities to get a third of their power from renewable sources by 2020, the most aggressive green energy standard in the nation.
To meet the threshold "we have to really use every means to get there," the Republican governor told The Associated Press. "We all know that the more you give financial incentives, it leads people in that direction.
"We should encourage people to do everything that they can to put solar on the roof," he said.
About 50,000 homes and companies across the sun-splashed state generate solar power. When solar panels produce more electricity than customers need, they can return the excess to a utility and receive credits to offset their electricity use when the sun isn't shining.
Under recently enacted state law, a customer can be paid for those credits at the end of the year or carry them forward to offset future electricity use.
In some case "you can zero-out your electric bill," said Susan Kennedy, the governor's chief of staff. "It makes the cost of installing solar panels pay for itself."
Schwarzenegger also plans to push to end limits on the amount of solar power purchased by utilities from customers. He said those limits chill investment in solar energy.
The company's proposal must be approved by state regulators. Last year, solar power accounted for less than 1 percent of the electricity generated in California.
"We will continue to pursue additional clean renewable resources for our customers as we strive to meet the greenhouse gas emission reduction goals," the company said in a statement.
PG&E provides natural gas and electric service to approximately 15 million people in northern and central California, according to its Web site.