If you own a business — maybe a taco stand, a dress shop, or an insurance agency — you know it takes a lot of hard work, good market analysis, a better product or service than your competition, and advertising. Add in a bit of luck, and you hope to grow your business — though vacant storefronts and boarded up buildings in towns and cities across America show that isn’t always enough. Each going-out-of-business sale represents the death of someone’s dream.
If, however, you are a politically favored business — say solar — your story is different. Your growth is dependent on government generosity. And, when people, who may never buy your product or use your service, balk at underwriting your venture and convince their Congressmen to take away the taxpayer largesse, like a badly behaved toddler, you threaten to take your marbles and go home — leaving former staffers unemployed and customers without service.
Such is the story of SolarCity — which has taken advantage of the favored status and bilked government programs to grow into being the nation’s largest installer of rooftop solar panels. Despite that distinction, SolarCity still loses millions of dollars. SolarCity doesn’t manufacturer solar panels — though, thanks to $750 million in funding from New York’s taxpayers — that will soon change.
Despite “major changes and growing competition in an already competitive industry,” as theAssociated Press called it, Governor Andrew Cuomo is, essentially, giving SolarCity a state-owned, rent-free factory — a decision that Michael Hicks, a professor of economics and director for the Center for Business Research at Ball State University, says is “an eye-popping deal, a very questionable use of state funds, but a huge windfall for the investors of SolarCity.” In return, SolarCity promises to “create 1,460 high-tech jobs” at the Buffalo, New York factory scheduled to begin operations late this year. The company also expects to have 1,440 “manufacturing support and service provider jobs,” as well as at least 2,000 other jobs in the state — which Hicks claims is “small, given the investment.” The New York “gigafactory” will manufacture a “radically new type of solar technology” that is, according to MIT Technology Review, “a huge risk” and “a big gamble.” About SolarCity’s new move to manufacturing, the Review states: “scaling up the production processes quickly and doing so while maintaining the efficiencies of the modules and without increasing costs could be difficult. And there are no guarantees that by the time the modules are commercially available they will still be the best on the planet.”
SolarCity has no qualms about throwing a tantrum and leaving a state that doesn’t play by its rules — as it has done in Arizona, Nevada, and even in the UK. Even uber-green California is being threatened by an exodus and states such as Washington and New Hampshire received warnings that SolarCity won’t come to the state if subsidies don’t favor its operational model.
Last week, Nevada became the latest state to “roll back” its “net-metering electricity scam,” as the Wall Street Journal (WSJ) calls it. As a result, “SolarCity reacted by announcing that it would cease sales and installations in the state.” Back in 2013, with great fanfare, SolarCity announced that it was coming to Nevada “after securing incentives worth up to $1.2 million from the state’s Governor’s Office of Economic Development,” reported the Silicon Valley Business Journal. As in New York, SolarCity claimed it would create “hundreds of jobs” near Las Vegas. But times have changed.
Nevada is just one of many states considering changes to the subsidies offered to encourage rooftop solar installations. Arizona already made the change, causing SolarCity to shift resources to other states where the profit margins are higher. In April, the Arizona Republic announced that SolarCity was relocating 85 workers out of state. SolarCity CEO Lyndon Rive called the changes “too restrictive.” He declared that they “eliminate the potential to save money with solar for nearly all customers.” The changes made Arizona “the most challenging for his company.”
What states have found is that the increasing implementation of solar results in higher costs for non-solar customers — who as the WSJ states, “tend to be lower income.”
The net-metering policies are at the center of the debate. In short, net metering compensates solar customers for the excess solar power they generate. The problem is that these individual generators get paid retail for the power, rather than the wholesale rate utilities pay for typical power supplies. As a result, customers with solar panels can completely avoid paying the utility — even though they still use power, transmission lines, and services from the company. States are seeing costs shifted from solar customers to those who can least afford it. As a result, several states, including Nevada, California, and Washington, have mandated policy changes. Generally, the changes reduce the payment to wholesale and add a grid connection fee or demand fee.
The WSJ called net metering “regressive political income redistribution in support of a putatively progressive cause.” Frank O’Sullivan, director of research and analysis at MIT Energy Initiative, explains it: “Net metering, in its most plain, vanilla form, is certainly a subsidy to rooftop solar owners. Obviously there has to be a cost transfer to others who don’t have solar on their roofs.”
In response to SolarCity subsidiary Zep Solar’s closure in the UK, due to cuts in solar subsidies, energy and climate secretary Amber Rudd said she was “concerned at job losses” but “she had to control costs to consumers.”
Nevada’s Governor Brian Sandoval said, “Nevada has provided tremendous support to the solar industry” but the government must ensure that “families who consume traditional energy sources are not paying more just to finance the rooftop solar marketplace.”
In Arizona, the changes to the net-metering policies grandfathered in current users, but added grid usage/demand fees. In Nevada, payments to existing customers have been slashed and connection fees have been raised. The current proposal in California would cut payments for excess electricity almost in half and solar customers would pay a monthly fee. In Washington, utilities are pushing for a charge on solar customers.
The solar industry is filing legal action as, admittedly, these “proposals threaten to undermine the economics of their systems.” WSJ explains: “corporate welfare encourages dependency and entitlement that’s difficult to break.”
Despite being the largest installer of rooftop solar in the country, SolarCity has not been profitable — with losses of $56 million in one year and $293 million cumulatively. As more and more states look toward revising the generous solar subsidies as a way to rein in exploding costs and balance budgets, companies like SolarCity become a bad investment. When Congress extended the tax credits for solar as part of the 2015 omnibus budget deal, Solar City “saw its share price skyrocket.” The rich get richer and the poor get soaked.
Explaining the industry’s reaction to changing policy, Rep. Jeff Morris, the sponsor of proposed legislation in Washington, HB 2045, said: “The reason they are going off the rails on this is because they are afraid that it’s going to sweep across the 50 states.”
It is the state and federal incentives, not free markets, which have created a burgeoning solar industry. Congress foolishly extended the federal credits. But with “recent improvements in solar costs and efficiencies,” as Lori Christian, president of Solar Installers of Washington, says, “it is time for all states to reassess the outdated incentive structure currently in place.”
When even California is proposing policy changes that would result in solar power being less-cost effective for homeowners and businesses, it is time to realize this business model has to change. And that includes taking the silver spoon out of the mouth of SolarCity. Although they’ll likely throw a temper tantrum, take their marbles, and go home, it will save taxpayers millions and force solar to operate on a level playing field like other businesses have to do.