Report: Danger of Government-Created Solar Bubble Bursting When Subsidies Expire in 2016

By Barbara Hollingsworth | August 13, 2015 | 5:35 PM EDT

(AP photo)

(CNSNews.com) – Federal subsidies have created a massive “green bubble” in the solar industry that is in danger of bursting when they expire next year, leaving taxpayers on the hook for billions of dollars, according to a report by the Taxpayers Protection Alliance (TPA).

Homeowners and businesses that install a solar energy system are currently entitled to a 30 percent Solar Investment Tax Credit (ITC), which was initially passed by Congress in 2006 and extended for another eight years in 2008. 

However, the ITC will drop to 10 percent for commercial and zero for residential properties on Dec. 31, 2016.

And even members of the heavily-subsidized solar industry, which provides less than one percent of the nation’s electricity, are worried that it cannot stand on its own without government handouts.

“The reality is that we will lose 100,000 jobs if we lose the ITC — and these are conservative numbers. Ninety percent of solar companies will go out of business,” Rhone Resch, executive director of the Solar Energy Industries Association (SEIA), told participants at PV American 2015 in March.

SEIA spokesman Ken Johnson said that lobbying Congress to extend the ITC beyond 2016 is the group’s “top priority.”

According to the TPA report, entitled From Washington to Wall Street: How Government Policies are Skewing Solar Investments, solar companies are currently “bundling and securitizing” third-party solar leases, similar to the activity that triggered the housing market collapse.

“Since most homeowners do not have enough tax liability to utilize the Investment Tax Credit and some state incentives, the leasing company can take advantage of subsidies the average homeowner cannot,” the report explained.

“Solar leasing companies then take hundreds or thousands of leases and PPAs [in which the homeowner pays the company for the solar power produced] and bundle them together to offer them to investors (banks, insurance corporations and corporate investors) as asset backed securities, using the homeowner’s lease or PPA payment to service the debt.”

But the report pointed out that after 23 years, production of wind power “dropped off significantly” when a similar $12 billion annual federal wind production tax credit was set to expire, warning that “solar could well suffer a similar fate.”

“Much like the government-created housing bubble and subsequent financial crisis, handouts at the federal and state level are creating a solar bubble that taxpayers are propping up, and it will the taxpayers and investors who take the hit when the industry comes crashing down,” the TPA report predicted.

According to a March report to Congress by the U.S. Energy Information Administration (EIA), “the total value of direct federal financial interventions and subsidies [to the energy sector] decreased 23% between FYs 2010 and 2013, declining from $38 billion to $29.3 billion” even as domestic energy production “rose 10% from 73.7 quadrillion Btu in FY 2010 to 81.1 quadrillion Btu in FY 2013.”

However, during that same time period there was a $4.2 billion increase in solar subsidies, “from $1.1 billion in FY 2010 to $5.3 billion in FY 2013…reflecting a large increase in the installation of solar facilities utilizing the ARRA [American Recovery and Reinvestment Act of 2009] Section 1603 grant payments or the 30% Investment Tax Credit.”

TPA calculates that the total amount of federal subsidies, including loans, grants and tax incentives, amounts to about $39 billion annually in addition to generous state and local subsidies.

Yet despite these massive government subsidies, firms such as SolarCity, the nation’s largest solar energy provider, and other solar installation and leasing companies are operating at a loss,” the report points out.  

“We’re concerned that taxpayers and consumers are going to be caught in this web. Because homeowners will be caught." TPA president David Williams told CNSNews.com.

"Because if a company goes bankrupt, who services those panels, who services the house to make sure that the panels are working correctly, what happens to the lease or to the loan, however they purchased these panels? Taxpayers.

"Because Congress has this penchant for bailing out companies, big and small. And I think that if the bubble does burst, you’re going to have a lot of members of Congress who don’t want to accept the failure of green energy and make sure that the people that did get these panels, and that they would actually prop up these companies with taxpayer funds,” he said.

 

 

He added that many homeowners who installed expensive solar systems because they wanted to “get off the grid” and reap a financial bonanza by selling electricity back to their local utility have been disappointed with their real-world results.

“They’re not receiving as much money as they thought because the peak usage time is in the evening and at night when the sun’s not out, and they’re generating most of their electricity during the day when they’re not using it. They don’t have the battery capacity to sell much of it back to the grid right now, so we’re not seeing the big windfall coming to homeowners selling their power back to the grid.”

Other homeowners who signed long-term leases for a rooftop solar array, which can cost between $15,000 and $50,000, are finding that the added monthly cost makes it harder to sell their homes, Williams added.

"No rooftop solar customer actually leaves (the grid)," said Kevin Geraghty, NV Energy's vice president of energy supply, pointing out that solar customers rely on the grid during the times when the sun is not shining.

Electric utilities use “net metering” to allow customers with solar panels to sell their excess electricity back to the grid.

But the Edison Electric Institute (EEI) points out that “since net-metered customers are both buying and selling electricity, they are relying on the grid more than customers without rooftop solar or other DG [distributed generation] systems.”

But “they also avoid paying for all of the fixed costs of the grid that delivers power when they need it,” EEI noted, creating higher electricity costs for other customers.

The institute recommends that net-metering rates be updated to ensure that “everyone who uses the electric grid helps pay to maintain it and to keep it operating reliably at all times.” But if such policies are adopted, the cost of solar power would most certainly increase.

“We’re not against solar per se. If people want to put a solar array on top of their house, more power to them. But we want people to know exactly how much it’s costing the homeowner, the taxpayers, and the truth behind the amount of taxpayer subsidies that this industry is receiving,” Williams told CNSNews.com.

“Would the solar industry be viable without government subsidies?” CNSNews.com asked him.

“That’s the $39 billion question. We need to see that,” Williams replied. “I hope it is. I hope that we can get to a point where solar power isn’t subsidized and it survives, because we really need an all-of-the-above approach when it comes to energy. But we can’t prop up an industry just because we think it’s cool and we like it.”

The U.S. is not the only country that is phasing-out solar power subsidies.

After heavily promoting solar power, the Spanish government cut subsidies to its solar companies last year, leaving them 22 billion euros in debt.

One of those companies – Abengoa SA, which is headquartered in Seville – received $2.8 billion from the US government in 2009, making it the single largest recipient of federal stimulus dollars.

In 2013, Abengoa opened the massive $2 billion Solana Generating Station near Gila Bend, Arizona, which was designed to produce a million megawatt hours of electricity each year.

However, two years later, Solana “is putting out roughly half that,” according to MarketWatch, and financial analysts say Abengoa faces a 76.9% probability of going bankrupt during the next two years.

Last month, UK Energy Secretary Amber Rudd also announced plans to cut solar subsidies, which she said would help to reduce UK residents’ electricity bills.

“We can’t have a situation where industry has a blank cheque, and that cheque is paid for by people’s bills,” Rudd said.

Related: Oregon AG Probing Use of State Tax Credits for Solar Power Project

Related: Despite $39B in Annual Gov’t. Subsidies, Solar Produced 0.5% of Electricity in US