San Mateo–based SolarCity Corporation, whose financial backers include prominent Obama supporters such as Al Gore and Tesla Motors CEO Elon Musk, has received millions of dollars in federal tax credits since 2008, despite posting a net loss of more than $300 million over that same period.
Earlier this week, Senator Jeff Sessions (R., Ala.), ranking member on the Senate Budget Committee, sent a letter to U.S. Treasury secretary Jack Lew to express “concern that SolarCity might become the next Solyndra — a company propped on the back of the taxpayers, not the product produced.”
#ad#Sessions cited investigations by the Treasury inspector general and the IRS into whether SolarCity and other solar-panel firms had misrepresented the fair-market value of their products — by as much as 50 percent — in order to receive larger tax credits for investors (the higher the market value, the higher the tax credit). Sessions’s letter also expressed concerns about SolarCity’s ability to survive in the absence of those subsidies, which are scheduled to be cut by two-thirds beginning in 2017.
SolarCity officials, including Musk’s cousins and fellow Obama donors Lyndon and Peter Rive, acknowledged the company’s dependence on government support in its 2012 IPO filing. “Our business currently depends on the availability of rebates, tax credits and other financial incentives,” they wrote. “The expiration, elimination or reduction of these rebates, credits and incentives would adversely impact our business.”
A more recent SolarCity filing with the Securities and Exchange Commission notes: “[The company’s] ability to provide solar energy systems to customers on an economically viable basis depends on our ability to finance these systems with fund investors who require particular tax and other benefits.”
In this sense, SolarCity is following the same business model that Solyndra outlined in its own IPO filing in 2009, which stated that the now-defunct firm planned to achieve profitability in part by “strategically aligning our products with key government programs that provide financial incentives, export credit and project finance.” The recipient of a half-billion dollar federal loan guarantee, Solyndra filed for bankruptcy in September 2011 and is expected to return only about $24 million to taxpayers.
On another front, SolarCity appears to be succeeding at selling some products, by getting its solar panels installed at more than 100 military bases throughout the country. Solyndra executives, in an effort to keep the company afloat financially, had sought to use its contacts within the Obama administration to have Solyndra panels installed on government facilities and to establish partnership with contractors via the General Services Administration. The arrangement never came to pass, however, thanks to the company’s rapidly deteriorating financial situation.
Meanwhile, SolarCity’s stock has more than quadrupled since its IPO last December, despite the company’s posting a $61 million loss in the first half of 2013. But the company benefits from a slew of federal, state, and local incentives for green-energy production, many of which are financed by taxpayers.
The company installs most of its panels for customers free of charge and essentially leases them to the customer, who pays SolarCity for the power they generate; customers must sign a contract agreeing to cede to SolarCity “any and all tax credits, incentives, renewable energy credits, green tags, carbon offset credits, utility rebates or any other non-power attributes of the system.”
Such incentives can be particularly lucrative in green-friendly states such as California, which plans to spend billions subsidizing solar power over the next several years, including hundreds of millions granted to the California school system to improve energy efficiency by enlisting the services of companies like SolarCity.
The solar industry recently won a key battle in Arizona to preserve a policy known as “net metering.” Something nearly every state has in place in one form or another, it requires utilities to purchase excess power from solar-panel customers at retail rates, which are often more than double the wholesale rate.
Arizona Public Service Company, the state’s largest utility, had been seeking changes to the net-metering policy, which it argues unfairly shifts the costs of operating the power system to non-solar users. The Arizona Corporation Commission, agreeing that “net metering creates a cost shift,” imposed an additional charge on solar users amounting to about $5 a month, which was far less than the $50 to $100 increase the utility had asked for.
In the Obama era, many solar and other green-energy companies have proven their ability to make it look as if they are competing in the marketplace — if they are propped up by significant taxpayer support. Others have failed in spite of these subsidies. But as SolarCity’s wealthy, Obama-supporting investors can attest, such companies need not turn a profit to be exceedingly profitable.
— Andrew Stiles is a political reporter for National Review Online.