Solar-energy cronyism in full force

A WSJ piece this week sheds light on yet another example of energy cronyism benefitting the favored few at the expense of the rest of us. The story is, unfortunately, one we know all too well these days: small-time, inefficient energy technologies staying afloat by taxpayer subsidies yet enriching a segment of the Obama Administration’s political base. It’s so trite, but it bears repeating because it’s so true: If solar energy (like wind and other “green” energies) were economical and commercially viable, it would flourish without subsidies. Investors wouldn’t need the government to backstop them. The technologies would stand on their own and become more than a very minor contributor to our nation’s energy-supply mix. Subsidy-backed energies like wind energy, solar energy, & ethanol are simply fleecings of American taxpayers & consumers. The WSJ story:

Welcome to SolarCity, the latest booming green company that has never recorded a profit. The startup’s stock price has soared by 600% since its IPO last December—it closed on Monday at $57 a share—and spiked after the company announced a couple of weeks ago that it expects business to grow by 70% to 90% next year. Yet the company, based in San Mateo, Calif., and specializing in deploying rooftop panels, ended the first six months this year $61 million in the red.

Ordinarily, that sort of number might disconcert investors. But SolarCity’s business model is powered by government subsidies, which also fueled the 500% stock run-up and turn to profit this year of the electric-car maker Tesla. Steering both companies is Elon Musk.

In addition to being the chairman of SolarCity and CEO of Tesla, Mr. Musk is the largest shareholder in both companies. The increase in their stock prices has raised his net worth by more than $5 billion over the past year.

SolarCity’s second-quarter filing with the Securities and Exchange Commission notes that the company’s “ability to provide solar energy systems to customers on an economically viable basis depends on our ability to finance these systems with fund investors who require particular tax and other benefits” (emphasis added).

The company’s base is a 30% federal tax credit that accrues to investors who provide upfront financing for the rooftop panels that SolarCity installs for customers at no charge. Customers “lease” the panels from SolarCity by paying for the solar power they generate, which is priced below their utility’s retail rate.

Customers, however, must sign a contract agreeing to cede “any and all tax credits, incentives, renewable energy credits, green tags, carbon offset credits, utility rebates or any other non-power attributes of the system” to SolarCity. The tax credits are passed on to its investors, which include the venture-capital firms Draper Fisher Jurvetson, DBL Investors and Al Gore’s Generation Investment Management LLP.

A thick layer of state and local incentives also supports SolarCity. California, for example, has allocated $3.3 billion in rebates for solar installations through 2016 and compensates residents between $0.20 and $0.35 cents per watt of expected performance (about 5% to 10% of the total cost of installation). San Francisco, which has a 100% renewable goal, provides additional rebates ranging from $2,000 to $10,000 per residential installation.

Meantime, school districts in California have received a total of $400 million this year for energy-efficiency projects, including window-glazing and solar-panel installations. SolarCity has contracted with school districts in Barstow, Simi Valley, Los Angeles and other cities.

SolarCity also benefits from “net metering” policies that 43 states, including California, have adopted. Utilities pay solar-panel customers the retailpower rate for the solar power they generate but don’t use and then export to the grid. Retail rates can be two to three times as high as the wholesale price of electricity because transmission and delivery costs, along with taxes and other surcharges that fund state renewable programs, are baked in.

So in California, solar ratepayers on average are credited about 16 cents per kilowatt hour on their electric bills for the excess energy they generate—even though utilities could buy that power at less than half the cost from other types of power generators.

SolarCity and its competitors also implicitly benefit from energy policies like renewable mandates, fracking moratoriums and greenhouse-gas regulations that drive up electricity prices and enable the company to charge its customers more for solar power. Indeed, in its latest SEC filing, SolarCity warns investors that “a reduction in the price of natural gas as a result of new drilling techniques or a relaxation of associated regulatory standards” could harm its business.

The company could also suffer if some of the solar incentives that investors “require” were to be withdrawn. But reducing the subsidies will be difficult because of their growing constituencies.

Consider the fight shaping up in Arizona over the Arizona Public Service Co. utility’s efforts to scale back net-metering policies that would make solar customers pay their share of the grid’s fixed costs. The advocacy group Tell Utilities Solar won’t be Killed, or TUSK, is likening net metering to “school choice” because it provides ratepayers an alternative to the utility monopoly. Meanwhile, the Alliance for Solar Choice, founded by SolarCity and its rooftop competitors Sungevity, Sunrun and Verengo, has run commercials denouncing a proposal by Arizona Public Service to reduce net-metering subsidies as a “solar tax.”

Support for the solar interests has also come from the Obama fundraising outfit Organizing for Action, which has sent emails warning that utilities are trying to shut down an industry that is helping “families and businesses to lower their energy costs.” Progressive organizations Presente.org and Other98.com have posted a satire on YouTube that features a utility president warning that “rooftop solar threatens our industry’s entire business plan, which is to force you to buy dirty energy from the dirty power plants that poison poor communities.”

Unwinding government programs—particularly those that purport to benefit the 99%—is inordinately tough, as evidenced by lawmakers’ reluctance to roll back ethanol subsidies or enact entitlement reforms. No wonder investors see a bright future for SolarCity.

Comments (16)

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  1. PJ says:

    “If solar energy (like wind and other “green” energies) were economical and commercially viable, it would flourish without subsidies.”

    Exactly – what makes green companies immune to regular market forces?

  2. tgraham says:

    Totally agree, I am in support of renewable energy when it makes sense.
    This issue is the proponents, aka greenies, are in it for themselves and are justifying their greenness by talking environment while relying on government subsidies’.
    Wind and Solar are not available all the time (24X7). Yet most uniformed supporters have no idea what this means. And the costs are substantially higher for renewables than traditional resources, hydro, natural gas, coal fired plants.
    Nuclear is clean, but to most scary, so it is for now not popular.
    To be having the government involved in energy makes no sense. The Politicians as we have seen are so dysfunctional, they are more worried about parochial issues than energy.
    I agree coal is an issue, but as one of our more plentiful sources to produce energy, we need to find a way to make that work. Clean coal is not clean, but we need a transition, and we need it now.
    This is what the greenies are saying, but with no cost effective plan, phase out or strategy, only have government support more failed business and we as tax payers foot the bill:
    Just some already wasted money:
    Bankrupt Green Energy Companies that received substantial federal and/or state subsidies:
    •Beacon Power Corp: Received $43 million in federal loan guaranteed in 2009 and also received $29 million in PA grants – Bankrupt in October 2011
    •Ener1 (parent company of EnerDel): Received $118.5 million in federal loan guarantees — Bankrupt in January 2012 – has since exited bankruptcy
    •Evergreen Solar: Received $58 million in MA loan guarantees (an undisclosed portion sourced from federal ARRA block grant) — Bankrupt in August 2011 with $485.6 million in debt
    •Solyndra: Received $535 million in federal loan guarantees in 2009 and $25.1 million in CA tax credit — Bankrupt in August 2011
    •SpectraWatt: Received $500,000 in federal loan guarantees in 2009 — Bankrupt in August 2011
    •Babcock and Brown: Received $178 million in federal grants in December 2009 (4 months after it went bust) – Bankrupt in early 2009
    •Mountain Plaza Inc.: Received $424,000 in federal grants through TN Department of Transportation in 2009 — Bankrupt in 2003 and again in June 2010
    •Solar Trust of America (parent company: Solar Millennium): Received $2.1 billion loan guarantee in April 2011 – Bankrupt in April 2012

    Other Subsidized Green Energy Companies in decline:
    •A123: Received $300 million in federal grants and $135 million in MI grants — Declining orders and have forced multiple layoffs
    •Amonix, Inc.: Received $5.9 million in federal tax credits in 2009 through ARRA — Laid off 2/3 of work force
    •First Solar: Received $3 billion in federal loan guarantees — Biggest S&P loser in 2011, CEO fired
    •Fisker Automotive: $529 million in federal loan guarantees — Multiple 2012 sales prediction downgrades for first car release, delivery and cash flow troubles; Assembling cars in Finland
    •Johnson Controls: Received $299 million in federal grants in 2009 — Low demand caused cancellation of a new factory, operating at half capacity
    •Nevada Geothermal: Received $98.5 million in federal loan guarantees in 2009 — Defaulting on long-term debt obligations, 85% drop in stock value
    •Sun Power: Received $1.2 billion in federal loan guarantees — Debt exceeds assets; French oil company took over last fall
    •Abound Solar: Received $400 million in federal loans in 2012 — ½ work force laid off
    •BrightSource Energy: $1.6 billion federal loan approved in April 2012 – loan obtained through political connections with the administration; absent the loan, Brightsource’s solar power purchase would have fallen through
    – See more at: http://environmentblog.ncpa.org/green-energys-bankruptcy-blackout/#sthash.xqUSNATu.dpuf
    Enough said:

    • Dewaine says:

      People just don’t understand the price mechanism. If our energy situation is really dire, the potential profits from innovating new technologies will explode, attracting entrepreneurs. Right now “green technologies” don’t work, we shouldn’t fund them. If they did work, industry would be working toward them.

    • DW says:

      “This issue is the proponents, aka greenies, are in it for themselves and are justifying their greenness by talking environment while relying on government subsidies’. Wind and Solar are not available all the time (24X7).”

      Absolutely, few people actually realize that these companies main objective are not to bring us renewable energy. It’s to make money and push others out of the market.

  3. Dewaine says:

    “It’s so trite, but it bears repeating because it’s so true: If solar energy (like wind and other “green” energies) were economical and commercially viable, it would flourish without subsidies.”

    Keep repeating it, people are still learning.

  4. Sabal says:

    Sometimes subsidies are necessary to help a young company get off the ground. It could be profitable in the future, but the market keeps it from getting the necessary funding. Sometimes it doesn’t work out, but do you really want us to abandon funding potentially world changing projects because of such a relatively small risk?

    • Dewaine says:

      Except that businesses have at least as good foresight as the government, if there is potential for an industry or technology they are the ones who have the incentive to find out. The only way things like this work out is if the government gets lucky. They start out funding a bad project, then overtime human understanding changes and the project is now deemed good. That isn’t a way to make good decisions.

      • JD says:

        Not to mention that the project will be less profitable in the governments hands hurting the taxpayers. Also, an inappropriate level of investment (either over or under) because of the governments inability to make business decisions.

      • Mark says:

        So what you are saying is that investors are willing to spend money in the long-term with high risk of failure because of the many unknowns?

        Do you have historical examples of this?

        Let’s start with concrete examples instead of economic theory.

        Let’s then start to pull a little bit of game theory into those economic theories so we can begin to look at those economic theories in a more realistic manner with people.

  5. JD says:

    “Unwinding government programs—particularly those that purport to benefit the 99%—is inordinately tough, as evidenced by lawmakers’ reluctance to roll back ethanol subsidies or enact entitlement reforms.”

    This is a big problem. The burden keeps getting heavier.

  6. Mark says:

    “the potential profits from innovating new technologies will explode, attracting entrepreneurs.”

    Who will invest in innovation over the long-term with such a high risk? Please walk me through the logic and evidence.

    We compete on a global market with other countries not just other corporations in other countries.

    Let’s look back at the innovations of the 40’s and 50’s coming out of Bell Labs. That rapid pace of innovation would not have been possible without the government giving AT&T monopoly status in exchange for Bell Labs making all of their research and innovations public. This was government interference in the markets.

    We can let our ego driven need for the kool-aid of ideological purity and it’s simplicity drive us or we can see the world as it really is, NOT what we WANT it to be or think it SHOULD be.

    Let’s start with an understanding of innovation over the short-term versus the long-term and the risk and cost associated with that innovation or would that be to time consuming and to much strain on the intellect.

    Distributed power is what green energy is about and who does not like power being distributed. I would guess their is no conservative or libertarian that would not like distributed power.

    I get it. Everyone has their kool-aid and their mixers that will spoon feed it to them. It is easier and more profitable to take this route then to have an intellectual debate with two competing sides.

    This blog is like most. It is no different then a left leaning blog in that it cannot hold two competing thoughts in the same head at the same time.

    And, I also realize that this type of “click bait” red meat (“cronyism”) drives those with a taste for red meat to click and visit (both left and right). Using such emotionally driven words, like “cronyism”, allows one to emotionally animate the self so that it can be indoctrinate with a point of view.

  7. WowMan says:

    Fossil fuels still receive far more subsidies than renewables. Put that money into renewables and you won’t need either subsidy in 20 yrs. get off the grid

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