Economics Can’t Support the New “Solar Economy”

Kevin Glass / Townhall Columnist

What if I told you there’s a cronyist program designed to be irresistible to politicians that not very many people are familiar with? This is a policy that combines American manufacturing, high-tech startups, Silicon Valley billionaires, “green energy,” and enough layers of complexity to hide how these cronyists are fleecing Americans.

Welcome to the world of “solar leasing.” This is a new business model pioneered by a handful of solar panel companies in the last couple of decades in which the solar company “leases” panels to homeowners – sometimes covering installation and other associated up-front costs – in order to provide and sell solar energy to customers.

A key variable in this business model is what is called “net metering.” In a lot of jurisdictions, homes with solar panels that are also connected to the traditional power grid get to sell their unused solar energy back to the local utility company for a profit. In fact, in many places, the power companies are required to buy back excess solar energy. And, as you can imagine, this comes with political fights.

In places with net metering mandates, there are local regulatory authorities that set prices at which the power companies are required to buy-back this excess solar power. Naturally, power companies fight for lower prices to be set on these net metering mandates. Solar panel owners and solar panel companies fight for higher rates.

The companies involved in solar leasing have the biggest incentive to fight. In the solar leasing business model, the leasing company pockets the net metering money as pure profit.

Analysts will tell everyone that solar leasing is a bad deal for homeowners. For those who are truly dedicated to greening their home with solar energy, the good move is to purchase the panels, not lease them. The leasing model is a complicated scam by the solar corporations as a way to take minimal up-front risk and profit for years and years off of homeowners.

What the net metering pricing fights have revealed is that much of the solar leasing business model is unsustainable without central regulators setting artificially high prices for net metering buy-back.

When Nevada lowered their net metering prices from what’s called the “retail rate” (the rate that customers buy from the power company) to the “wholesale rate” (the bulk rate for power generation), many solar leasing companies protested. Some exited the market entirely.

Elon Musk, billionaire Silicon Valley entrepreneur, pioneer of high-tech darlings Tesla and SpaceX, is also at the helm of one of the biggest players in the solar leasing market, SolarCity. He’s a major investor and has consistently funneled money into the company as its chairman. And he’s continued to support the company even as it’s been described as preying on “subprime” customers in its leasing program. But the allure of Musk and the high-tech industry is often irresistible for politicians who want to claim they’re major players in the “green” economy.

Unfortunately, data doesn’t bear this out. It turns out that the entire “solar leasing” market is dependent on government subsidies. A report from Navigant Consulting in March revealed that the solar leasing companies only “choose to operate in jurisdictions where they can maximize their return by undercutting utility offset rates,” and that “providers’ project returns vary by utility service territory.” There’s only one explanation for this: government policy is subsidizing these leasing projects.  The companies pick and choose their service areas based on how much money they can extract from the government and from utility companies. The solar panel technology has potential, but the technology is unable to stand on its own without subsidy.

When Nevada changed its net metering subsidy from the retail rate to the wholesale rate this year, and Solar City announced it was exiting the Nevada market. Late last year, Hawaii ended its net metering subsidy program, and a coalition of solar companies, including SolarCity and ZEP Solar, promptly filed a lawsuit. All over the country – in California, Arizona, New York and more – these net metering fights are breaking out, and the big solar companies are throwing their weight at the political fight, nervous that they’ll have a cash cow taken away from them.

When utility companies are mandated to buy energy at artificially high prices, the people who pay the cost are people who are on the traditional energy grid – in other words, everyone who is a paying customer from the utility company. Everyone who gets an electric bill every month is paying to subsidize their neighbor with the solar panel – and often, their green-friendly neighbor is just a conduit to subsidize a billionaire-helmed solar corporation.

The allure of solar panels, like the allure of green-friendly lightbulbs and other green-friendly household appliances, should be that customers can pay something more up front in exchange for lower energy prices in the future. (And, of course, that great going-green feeling it gives you.) The current net-metering policies – and, in particular, the artificially high prices bestowed by many energy regulators – is such an over-the-top subsidy that it has created an entire crony industry. Those energy regulators should reconsider their net metering policies. It’s a cronyist subsidy and it comes straight out of the pocket of ordinary Americans.