Solar City: Tax Subsidies For Them, Big Bills For Hawaii

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Solar panelBy 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.

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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.

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32 COMMENTS

  1. What everyone else said. Some people are so stupid that they believe anything that's in the paper. Central power distribution is over and the companies are terrified. Self generated power is the now and the next century. Good bye central distribution. Happy to see you go.

  2. This article is fraught with so many outright inaccuracies (read lies) that it fails to be journalism or an intelligent report about anything. I wonder who paid him to write it?????

  3. looking at solarcity as a business model and as an investment,i would not invest in this company.solar city is publically traded on the NasdaqGS:SCTY. she traded last Friday @ 52.45. fundamentally,this company is way over valued.she has yet to show a profit and hs a lot of debt. solar city will continue to need all the government support possible. and there are more homeowners and businesses that would rather own their solar panels rather than commit to a 20 yr. lease.and the competition is fierce.the panels will get cheaper and cheaper.the stock is worth $10 and not $52.the company recently had to start a joint venture with Groupon to attract potential customers.now that was probably a wise drcision because it lowers Solar city's cost of advertising and seeking customers.and just as important customers would rather apply for a loan to purchase a solar panel to own rather than sign a long term lease.

  4. So happy to see all of the other comments on this "article (?)"! While reading it I was thinking the EXACT same things everyone else commented on. It's full of almost blatant lies!
    It so bias, and untrue, that they really should consider pulling the article altogether from this site.
    You can “report” a commenter’s comments, can you “report” a junk article like this somehow?
    Garn

  5. Because of how poorly (Or should it be how greatly?) this “article” fails to make any valid arguments or points I had to do a little research. So I say this to you Jason… Just because you are a republican it doesn’t mean you have to be a follower of every word they say, only to find yourself being against something that may benefit mankind. (Don’t be a republic-can’t. Try thinking for yourself. I realize that doesn’t pay as well, but it can be liberating.)

  6. Although I am opposed to government subsidies of solar power, I am quite willing to take advantage of them while they exist. It's a way of getting back a small portion of my tax money being taken from me by the government. The fact that those subsidies go to Solar City (or in my case their competitor Verengo Solar) rather than directly to me personally doesn't really change the equation. Money is fungible, and the subsidies lower the cost I pay to Solar City or Verengo for electricity compared to what I'd pay if the subsidies didn't exist or if I owned and installed the solar panels myself. I consider solar power to be a risky investment, so I prefer to have Solar City or Verengo be the panel owners, thereby bearing all of the upfront costs and maintenance costs and market risks. For me there is no downside: I just pay less money than I had been paying for my electricity. How the author of this article can construe that as a raw deal is beyond me. Are these solar panel companies ripping me off by pocketing more of the savings and tax credits than if I did it myself? Not as far as I'm concerned, not when you factor in the risks of how well a relatively new technology like solar panels will perform over a twenty year life span along with financial considerations of otherwise having to pay up front or borrow money to do it on my own. I ended up going with Verengo largely because they offered a cheaper rate per kWH than Solar City or several other similar companies with identical business models. This market-based competition limits the rates they can charge (and their profit margins), and circumvents the heavily tiered rate structure from government-regulated utility companies like Edison.

    • so you and your solar provider benefits at the expense of the tax paying public(including yourself.actually a double taxation for you.) is there really aneed for any government intervention into our economy?there is no reason for it but it has been done for so long,it's now considered sound business.politicians love the power of creating more taxes and creating tax incentives. ideally,we should conduct any commerce strictly between the consumer/customer and business without any government involvement.but of course there are too many special interests and it may always be a crony-capitalism into the foreseeable future.anyway I will never interfere or support laws which will take away your choices for electricity.i hope only that people will come around and accept free and open markets and genuine capitalism.

      • I agree with you. As I said, I'm against any government subsidies of solar power (or for that matter any other government intervention into our economy). If lack of subsidies made solar power more expensive for me, or uneconomical altogether, so be it. But in the meantime I'm not going to turn down the solar tax credits any more than I would turn down a refund on my taxes at the end of the year, or refuse to drive my car on a government-paved street. And unlike the author of this article, I see no substantial difference between solar tax credits which go directly to me as opposed to my assigning those tax credits to a company like Solar City to to install solar panels on my roof and thereby reduce the kWH rate for the electricity generated by those panels.

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