By Jason Stverak – There’s a rising player in the Hawai’i energy market, promising inexpensive, green solar energy for homes and businesses, but there’s far more to SolarCity than meets the eye. The California-based solar panel provider, which has been in Oahu for three years and expanded to the Big Island this month, collects for itself tax subsidies intended for its consumers, who are left vulnerable to sudden spikes in their electricity bills.
SolarCity is one of many solar firms that relies almost entirely on government handouts and credits to generate profit–exploiting loopholes to pocket federal tax breaks intended for homeowners who install solar panels. Though not technically illegal, companies that employ business models of this nature engage in the worst type of cronyism, simultaneously pocketing taxpayer money while leaving their customers with needlessly high energy bills.
The Solar Investment Tax Credit (ITC), a longstanding federal program that was expanded in 2008, allows homeowners who install solar panels to write off 30 percent of the costs, in an effort to encourage Americans to go green. While far from the best use of our tax dollars, this program is at least defensible as one of many writeoffs used to promote certain behaviors–presuming that the tax credit actually goes to the homeowner, who pays for and gets electricity from the panels.
Most solar panel customers purchase a panel and receive the tax credit without fanfare, but SolarCity offers 20-year leases on its panels instead of selling them. Because the company retains ownership of the panels even after they are fixed on customers’ roofs, it can take advantage of a loophole in the ITC and deny the customer of his tax credit. SolarCity pockets the 30 percent tax break every time it installs a panel, and has milked the federal government out of $411 million–on top of more than $10 million in funds from the stimulus, and untold state-level subsidies.
This loophole has paid off for SolarCity, but its customers have gotten the raw end of the deal. Deprived of the tax credit available to customers of most other solar companies, these clients are also locked into 20-year leases, regardless of how well their solar panels work. And as is so often the case with “clean” energy, the panels don’t always work as intended–some California customers have seen a nearly 50 percent spike in their utility bills, contrary to SolarCity’s promises of major savings.
Yet however frustrated customers may be, paying higher rates for inefficient energy and not seeing a nickel in tax breaks, there’s nothing they can do about it until their 20-year lease expires. And SolarCity has no reason to alter what is a very lucrative status quo–collecting hundreds of millions from the federal government is hardly new to SolarCity’s leadership. The company’s founder, Elon Musk, is also CEO of Tesla Motors, an electric car company that has been almost entirely dependent on government loans, handouts, and tax breaks. Tesla used a $465 million federal loan–considerably more than it raised from private investors or from its IPO–to get off the ground. It also took a $10 million grant from the state of California and relies on tax credits to sell its cars and occasionally turn meager profits.
Now, SolarCity is setting its sights on Hawai’i’s generous solar tax credits and incentives, hoping to pick off customers on Oahu and the Big Island through the same questionable promises of lower electricity bills that have lured many California customers into financially devastating leases. Hawai’i residents are already involuntarily lining the pockets of solar firms through their tax dollars, and should do their homework before putting a panel on their roof.
Jason Stverak is President of the Franklin Center for Government and Public Integrity.