The World's #1 Renewable Energy Network for News, Information, and Companies.
Untitled Document

Treasury Dept. Fingers SolarCity in Exploration of the Dark Underbelly of Solar Leasing

A new government investigation of SolarCity on the eve of its initial public offering (IPO) may explain how solar leasing is fleecing federal taxpayers and making U.S. residential solar more expensive than in other countries.

The Treasury Department inspector general is probing solar leasing company SolarCity (and others) for its use of “fair market value” pricing on leased systems.  At issue is the federal 30 percent tax credit for solar, based on the installed cost of the system.  As an accepted practice, many leasing companies have reported the “fair market value” to the federal government in lieu of the actual cost.  But in the case of Solarcity’s California operation, in particular, that reported price was often much higher for leased systems than for customer-owned solar arrays.

Solar leasing lowers the barrier to entry for many people, allowing them to get solar on their rooftop without enormous upfront costs or the necessity of navigating local, state and federal incentives.  In fact, the vast majority of residential solar being installed in the nation’s largest market (California) is leased, not owned.  It’s not unexpected when installing and financing solar is so much more complex here in the U.S., with 50 different state markets and complicated tax-based incentives.

But this leasing middleman is the issue for Treasury because he’s allegedly inflating the cost of leased solar arrays to pocket unfairly large tax incentives.  Solar leasing companies are reporting “fair market value” installed costs that are far higher than the actual cost of installing solar.  This nets them a larger 30 percent tax credit (which is based on that reported cost), that largely goes to the bottom line rather than to the leasing customer.

ILSR first covered this issue in May 2011, when I wrote about this phenomenon, tipped off by Jigar Shah from Carbon War Room that solar leasing companies inflated project cost estimates in order for their bank financiers to collect out-sized tax credits.  But Jim Jenal at Solar Feeds added powerful evidence, culled from analysis of data from the California Solar Initiative.

The data shows the reported installed cost for customer-owned and leased solar arrays that participated in the state incentive.  It fingers SolarCity in particular, whose leased systems costs 50 percent more than residential solar projects that are owned by the customer.  The following chart shows the average installed cost of leased and owned residential systems for four different solar contractors in California, using the California Solar Initiative Data from 2010 for smaller than 10-kW residential solar PV projects in Southern California Edison territory.

The practice of higher-priced leased systems is not new.  Mr Jenal finds that SolarCity has had a significant price premium on its leased systems since 2008.  His chart is reproduced below.

There are explanations, of course.  SolarCity is one of the few vertically integrated solar leasing firms, handling everything from installation to financing.  But the premium seems extraordinarily large even with the additional services.  The Treasury Department seems to agree.

Since the federal solar tax credit pays 30 percent of the system cost, and the significant markup on SolarCity’s leased system means a much larger tax credit.  Mr Jenal calculates that SolarCity has cost federal taxpayers over $10 million in inflated tax credits since the beginning of 2008.  SolarCity and its financiers (which include PG&E and U.S. Bank) presumably also took the federal depreciation bonus (also based on the system installed cost).  At a 20 percent tax rate, the depreciation bonus would have a value of about two-thirds of the tax credit, adding another $6 to 7 million to the tally.

The taxpayer cost may represent malfeasance, but in some ways it’s a side effect of a more pressing problem of leasing.  In places like California, solar power already costs less than utility electricity (with incentives), and the gap is growing.  But leasing companies don’t have an incentive to pass along the growing savings. If the utility sells electricity for 15 cents a kilowatt-hour and Solarcity sells it for 13 cents, customers feel like they get a good deal.  But what if SolarCity can generate that power for 9 cents (or less)?  As more customers turn toward leasing, it may mean that U.S. solar prices will never fall to levels in the most advanced solar markets because middlemen will pocket the difference between low-cost solar and high utility rates.

Even if Treasury finds SolarCity and other middlemen guilty of misusing the fair market value provision, it won’t solve the larger issue.  Perhaps the solution isn’t just a consistent standard for middlemen to report the cost of solar.  Perhaps it’s not having a middleman at all.

This article was originally published on Institute for Local Self-Reliance (ILSR) and was republished with permission.

Lead image: Panels on roof via Shutterstock

Untitled Document

Get All the Renewable Energy World News Delivered to Your Inbox

Subscribe to Renewable Energy World or email newsletter today at no cost and receive the latest news and information.

 Subscribe Now

RELATED ARTICLES

Solar water heating

California Regulators Propose Expansion of Eligibility Requirements for Solar Water Heating Program

Jennifer Delony The California Public Utilities Commission has proposed expanding the eligibility requirements for customers seeking ...
Solar

Florida Supreme Court Takes Up Solar Question

Wayne Barber Because Florida remains one of only four states where current laws expressly deny citizens and businesses the freedom...
solar net metering

Lithuanian Net Metering Hits Snag from Outset

Linas Jegelevicius The much anticipated net metering in Lithuania has hit a major snag from the very start – the introduced network oper...
Solar energy

Colorado PUC Orders No Changes to Solar Net Metering

Vince Font In what is being lauded as a “fair outcome” for consumers, utilities and the solar industry alike, the Colorado Publi...

PRESS RELEASES

Canadian Solar Wins Five Solar Power Projects Totaling 185 MW in Brazil

These power projects were won under a 20-year Power Purchase Agreement (PPA) with the B...

$100 Off of 5-day Advanced PV Project Experience. Download a Topic Schedule.

Assemble, ground, energize, and commission a complete grid-tied SolarEdge system from s...

Former Australian Prime Minister Kevin Rudd talks politics of fear vs. politics of hope

Rudd, who led the Australian parliament from 2007 to 2010, told the Summit audience tha...

Intersolar AWARD „Solar Projects in India“ – Applications being accepted until September 18

The Intersolar AWARD in the category Solar Projects in India honors projects in the fie...

FEATURED BLOGS

Washington, DC Bridges the Solar Gap

The District of Columbia has enjoyed 15 years of strong economic growth. But prosperity is spread unevenly across the...

Sell Through Hypothesis

You first learned to hypothesize, or make educated guesses, in grade school science class. Now it’s time to ref...

Cronimet / THEnergy study: In solar for mines size does not always matter - Reducing CAPEX with energy efficiency and load shifting

Munich, September 2015. Mining companies are constantly gaining interest in solar solutions because frequently solar ...

Final Program Now Available for GRC Annual Meeting & GEA Geothermal Energy Expo

GRC Annual Meeting & GEA Geothermal Energy Expo - Final Program from

FINANCIAL NEWS

John Farrell directs the Energy Self-Reliant States and Communities program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His latest paper, Demo...

CURRENT MAGAZINE ISSUE

Volume 18, Issue 4
1507REW_C11

STAY CONNECTED

To register for our free
e-Newsletters, subscribe today:

SOCIAL ACTIVITY

Tweet the Editors! @jennrunyon

FEATURED PARTNERS



EVENTS

Successfully Integrating Solar: A Proactive Approach

•      What does the increasing solar penetrati...

Solar Frontier Offsite Office at Solar Power International (2 mins....

Solar Frontier will be hosting an offsite meeting room offering our gues...

PV-Diesel Hybrid Systems to Reduce Diesel Demand

Substantial fuel cost saving potential has made PV technology the centre...

COMPANY BLOGS

Vacancy? No Problem!

Have you ever tried to sell an efficiency product or service to a prospe...

Going The Extra Mile

Selling efficiency takes perseverance, creativity, and a willingness to ...

How To Get People To Do Stuff

It’s no secret that psychology and sales go hand in hand. If you u...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS