Diary

End welfare for the well-to-do!

From The Wall Street Journal:

Solar-Panel Installers Face Clouded Future

Solar-power incentives for homeowners shrink as local utilities pressure state regulators

By Cassandra Sweet | March 25, 2016 1:21 p.m. ET

Many U.S. states are considering dialing back solar-power incentives amid growing pressure from local electric utilities, potentially dealing a blow to the companies that install home solar systems around the country.

More than 900,000 homes across the U.S. are equipped with solar panels, with most of those homeowners able to sell any excess electricity their houses generate back to the utility, helping reduce the cost of home solar panels by up to 30%. But the price solar customers get paid for that extra renewable power through so-called net metering is starting to fall, as several states, including Nevada and Hawaii, have slashed their solar subsidies.

Utilities in Arizona, Colorado, Louisiana, Utah and many other states are currently proposing measures that include changing their net metering programs or raising the monthly fees charged to home solar users for hooking their equipment to the power grid. The utilities argue that the ever-smaller base of traditional power customers shouldn’t get stuck paying all the costs of maintaining the grid.

“What is in danger of being overlooked is the harm inflicted on the 96% of our customers who do not have solar,” said Donald Brandt, chairman and chief executive of Arizona Public Service Co., which wants the state regulator to change its solar payment scheme. “This is about a sustainable model for both rooftop solar and the electricity grid, but it’s also about basic fairness for customers.”

Overall, two dozen states are weighing changes to their incentives for rooftop solar power and other renewable-energy policies, according to the North Carolina Clean Energy Technology Center, which tracks such policies. Incentive payments have been the backbone of home solar firms’ business model.

In Nevada, which ranks eighth in home solar adoption in the U.S., SolarCity Corp. and Sunrun Inc. pulled up stakes in December, laying off hundreds of employees after the state abruptly ended generous incentives for homeowners with solar arrays on their rooftops.

There’s more at the original, but one thing is obvious: without government subsidies, the residential solar energy market business model fails.

Personally, I’d love to see a good, workable solar and wind energy system which can be installed for residential users, but I don’t want to see such a system dependent upon government subsidies. At least so far, these systems cost a lot of money to install, putting them out of the reach of most Americans, resulting in the subsidies being welfare for the well-to-do, tax dollars coming out of the pockets of poorer people to give wealthier people yet another benefit.

However, in a lot of cases, it isn’t the homeowner who gets the benefits. The federal tax credit of 30%, which was extended in the omnibus budget bill last December, benefits corporations as well:

The credits go to homeowners who buy solar arrays. If they lease solar equipment from providers like SolarCity Corp. and Sunrun Inc., the tax credits go to those that finance home installation projects, which are often banks such as Goldman Sachs Group Inc and J.P. Morgan Chase & Co. That is also true for big industrial projects.

Further down:

“SolarCity applauds the bipartisan agreement that prioritizes the growth of solar in the United States,” said Lyndon Rive, chief executive of the largest U.S. home solar company. The company’s stock soared 34% Wednesday to close at $53.69.

I pointed out that last paragraph, because the first article noted that SolarCity was pulling out of Nevada after the state was ending generous subsidies, even though the federal tax credit still exists. SCTY closed at $22.22 on Thursday; if you bought at the $53.69 in December of last year, you’ve lost 58.6% of your money. Investors have been taking their decisions not based on whether the company or its product is any good, but on whether the taxpayers are going to help them out.

Think about how a tax credit works. The taxpayer must make the investment on his own, out of his own resources, which means that he must have, or finance, the entire purchase price of the system. Then, when he files his income taxes the following year, he will realize the tax credit. This means that the homeowner must be able to bear that cost himself from the time of purchase until he does his taxes, which, depending upon hen he purchases the system, could be slightly more than a year.

So, just how much does it cost to get solar panels installed. Unfortunately, internet searches lead mostly to sales pitches, in which you have to include your name, e-mail address and zip code, at which point te company will e-mail you an estimate. Going to this source, I got a guesstimate of an upfront cost of $21,250, softened by “awesome incentives” of $7,506, for a first year cost of $12,494. This was a general estimate for Kentucky, where our retirement farm is,¹ and the Bluegrass State is rated very poorly for providing incentives. The median family income in Kentucky is only $42,610 per year, meaning that the guesstimated upfront costs would be half a year’s gross income at the median income. Even with the “awesome incentives,” most Kentucky families could never even think of affording a solar installation.

The obvious question: just how much do the various federal and state incentives push the price of solar upward? After all, if the feds are going to give homeowners an up to 30% tax credit, homeowners can afford to pay more for the systems. Any business school graduate will tell you that price is normally a greater contributor to profit than volume, so the incentive for SolarCity and the other companies is for higher prices more than it is for an increased number of sales; the various government subsidies and credits enable the companies to seek higher prices!

The real answer is to get the government out of the solar power industry, and let the industry succeed, or fail, on its own. The possibility exists that the solar panel industry will fail, will be unable to come up with the technology and business plan which allows it to make a profit on its own, but that’s still a better outcome than taking money from working-class Americans to subsidize those who are already a lot better off.
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¹ – The farm would be an excellent place for solar panels due to the south-facing sun exposure; our current home in Pennsylvania is situated very poorly for a solar installation.