Having a successful business takes a lot of hard work, good market analysis, a better product or service than the competition, and advertising. Add in a bit of luck, and hopefully it will grow. 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 largess, 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, the company founded by Elon Musk and brothers Lyndon and Peter Rive still loses millions of dollars.
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. 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.”
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 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.”
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.
The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc., and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). She hosts a weekly radio program: America’s Voice for Energy—which expands on the content of her weekly column. Follow her @EnergyRabbit.