California, which boasts more than half of the households with solar panels in the United States, will decide on Thursday whether to stick with a policy that has allowed rooftop systems producing electricity to flourish or to implement reforms that would make it more expensive to go solar.

The decision by California's Public Utilities Commission is being watched far beyond the Golden State, which has long led the nation on renewable energy policies. Though solar still makes up a small portion of the nation's power generation, government mandates to reduce the use of fossil fuels have many states and utilities thinking about how they will integrate ever larger amounts of rooftop solar onto their power grids.

"This is a market that has really set the bar for how residential solar grows on a national level," said Cory Honeyman, who tracks state solar policies for industry research firm GTM Research, adding that California sets "important precedents" for how other states approach rooftop solar.

Net metering, the policy that allows homeowners with solar panels to sell the power they generate but don't use back to their utility, sometimes giving them a credit on their bill, is critical to making solar cost competitive.

"This is the single most important decision facing the solar industry in the United States today," said Bernadette Del Chiaro, executive director of industry lobbying group the California Solar Energy Industries Association. "Bad net metering decisions will kill consumer choice."

She pointed to Nevada, where regulators last month approved changes to the state's net metering policy that prompted solar companies like SolarCity to stop doing business there.

Net metering has underpinned the rapid growth of residential solar installers like SolarCity Corp and Sunrun Inc, and those companies have fought hard to preserve it in California and elsewhere.

But the policy is criticized by utilities and others who say it rewards solar users while leaving other ratepayers to shoulder the cost of maintaining the electricity grid.

"If you have customers paying near zero bills but still using the grid, you can't scale that to a large percentage of customers," said Matthew Freedman, an attorney with The Utility Reform Network, a ratepayer advocacy group that proposed an alternative to net metering to the PUC. "We are concerned about the 95 percent of customers who don't have solar, and making sure their rates aren't being driven up to pay for the subsidy."

Most states have passed laws allowing net metering, but a 40 percent drop in the cost of residential solar installations in the last five years has prompted some to review those policies amid calls by utilities to roll them back.

In 2013, a new California law directed the state's Public Utilities Commission to design a new net metering program to take effect in 2017.

The PUC on Thursday will decide what changes to make to the policy, if any. The commission signaled last month that it was prepared to preserve net metering in its current form, but details like additional charges for utility transmission lines and a requirement that solar customers move to time-based rates could undermine the technology's cost-competitiveness.

The state's three investor-owned utilities, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric, initially argued for fixed charges for solar customers, but in the last month authored a new proposal that would preserve net metering but reduce the rate at which solar customers are compensated for the power they export.

"We support some level of subsidy for solar," Southern California Edison President Pedro Pizarro said at a green energy conference in Los Angeles on Tuesday. "The whole debate is about: how much?"