NEVADA NEWS & VIEWS 09/02/2015

Big Solar’s Subsidy Bubble

Companies cash in on tax credits and ‘net-metering’ schemes.

REVIEW & OUTLOOK
WALL STREET JOURNAL
AUGUST 30, 2015

The Department of Energy’s Inspector General revealed last week that the legendary solar-panel manufacturer Solyndra—a poster baby of the Obama stimulus—lied to the feds to get a $535 million loan guarantee before going bust in 2011. Solyndra is a cautionary tale, but the Obama Administration is still throwing caution to the sun.

The IG report, which follows a four-year investigation by the IG and FBI, describes how Solyndra engaged in a “pattern of false and misleading assertions,” including inflating the value of corporate contracts and sales, to win a giant loan guarantee in 2009.

All evidence suggests that DOE was a willing victim. The IG notes that DOE loan officers felt “tremendous pressure” from the White House and Congress to rush through loan-guarantee applications. In their haste DOE officials failed “to ask specific questions, and require specific assurances” and overlooked major red flags.

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The larger problem is that the White House is more concerned with boosting the politically favored solar industry than protecting taxpayer dollars. More troubling, the solar industry may be growing too big to fail, and the Administration is assisting another taxpayer solar scam.

The President warned last week at the National Clean Energy Summit in Las Vegas that Republicans want to make “massive cuts to investments” in “successful, job-creating clean energy programs.” Thanks to government “investments,” he noted, the solar industry employs twice as many American workers as coal and has added jobs 10 times faster than the rest of the economy. This is as much an indictment of the Administration’s economic policies as a tribute to solar, and the bigger story is that the government-inflated solar bubble could pop if subsidies shrink.

Solar installations increased 30% last year thanks partly to cheaper photovoltaic panels, but also a rush to cash in on the 30% federal investment tax credit that expires next year. The largest tax credit beneficiaries are big businesses like Wal-Mart WMT 0.75 % and Google, GOOG 1.41 % solar-leasing companies and their investors. The financiers of SolarCity, SCTY 4.17 % which installs and leases rooftop panels, include Goldman Sachs, GS 0.83 % Citigroup C 0.67 % and J.P. Morgan Chase JPM 1.06 % —the guys Mr. Obama loves to hate.

As the President dryly remarked, these businesses are “not doing this just out of altruism.” The real reason: Solar leases are a high-yield political investment.

Here’s how this dubious business works. Solar-leasing companies install rooftop systems (which often cost tens of thousands of dollars) at no upfront consumer cost. Homeowners rent the panels for 20 years at rates that typically escalate over time but are initially cheaper than power from the grid. Investors get to pocket the myriad state and federal subsidies while homeowners are promised hundreds of dollars annually in savings on their electric bills.

Sounds fantastic. The catch is that the teaser rates could shoot up if government subsidies are scaled back.

A dozen Members of Congress last year wrote to the Federal Trade Commission expressing concern that solar-leasing companies were utilizing “deceptive marketing strategies that overstate the savings” and “understating the risks.” Four Democrats from solar-rich states voiced similar complaints in a letter to the Consumer Financial Protection Bureau.

Maybe the biggest risk to solar profits is that many states are considering revising their net-metering policies, which are a key profit driver for the solar industry. These policies require utilities to purchase extra energy generated by residential and commercial solar installations—above and beyond what is used on their premises—at the retail power rate. This is often twice the wholesale price.

The reason for the disparity is that the retail rate includes transmission, delivery and grid maintenance costs. Solar customers who depend on the grid to obtain power at night and sell their excess generation during the day skirt these costs. In doing so they shift the costs of supporting the grid to other customers who must then pay more.

Even President Obama acknowledged that “there are some legitimate issues around how does a new distributed system work, and folks have some costs and how do we deal with those things.” But then he lambasted “massive lobbying efforts backed by fossil fuel interests, or conservative think tanks, or the Koch brothers” to rework net-metering policies.

Nevada this month became a flashpoint in this subsidy fight. The state caps the share of customers who can enroll in net-metering at 3%. In the spring the legislature passed a law requiring the Public Utilities Commission to form new rate regulations that reflect “just and reasonable rates and charges” for solar customers by the end of this year when the cap was expected to be hit.

The law set off a mad dash by solar companies to sign up and grandfather in customers under the current rates. As a result the state reached the cap this month. The solar industry’s top lobbyist Bryan Miller—who was the Department of Energy’s senior counsel while Solyndra was cashing in—threatened thousands of job cuts if the current net-metering rates weren’t extended. Vivint Solar, VSLR 0.74 % the U.S.’s second biggest panel installer, suspended operations in the state. All of this shows how dependent companies are on the regulatory subsidy.

Last week the utility commission bowed to political pressure by temporarily extending current rates so the leasing companies can continue enrolling new customers. What does it say that the President is using his bully pulpit to abet an industry that is essentially fleecing the American public?