Report: Solar Industry Heading Toward a Financial Bubble

Published September 29, 2015

Myriad government schemes designed to promote or require the use of solar energy threaten to create a financial bubble similar to the one that befell the housing sector in 2007–08, concludes a new report by the Taxpayers Protection Alliance (TPA).

The TPA report, titled From Washington to Wall Street: How Government Policies Are Skewing Solar Investments, describes the housing bubble of the 2000s as follows: “[G]overnment-imposed rules that incentivized banks to securitize mortgages that in a free market would have been undesirable (low quality and high risk), along with the government purchases of those mortgages, burned the house down.”

TPA sees a similar pattern emerging in government promotion of solar power through subsidies, mandates, and other programs.

“Much like the government-created housing bubble, … handouts at the federal and state level are creating a solar bubble that taxpayers are propping up, and it will be the taxpayers and investors who take the hit when the industry comes crashing down,” the report states.

Financial Maneuvers

Companies are using financial maneuvers to take advantage of the subsidies, analogous to the bundling of risky mortgages and other actions that led to the housing crisis, according to the study.

“In recent years, companies have used a variety of financing mechanisms, most notably third-party solar leasing, to take advantage of lavish handouts,” the study says. “Companies are then bundling and securitizing these leases to raise funds to pay the upfront costs for more home and small business installations.”

Solar companies use a wide array of government programs to make their wares commercially viable. Homeowners and businesses using the federal Investment Tax Credit (ITC), for example, receive a tax break worth up to 30 percent of a solar power system’s installation costs. Solar installers have offered to install solar systems on homes and businesses free of charge in exchange for a long-term contract to buy the electricity they generate. The installers, who maintain ownership of the system, get the ITC. This credit is scheduled to drop to 10 percent on January 1, 2017.

State Mandates

Another program popular with the solar industry and adopted by some state governments is net metering. It permits homeowners and small businesses with rooftop solar panels to sell their excess electricity back to the grid at retail rates.

“While net metering may sound like a harmless policy that promotes competition, it is more akin to a mandated wealth transfer,” the TPA report says. “In most cases, utilities must purchase the solar electricity from homeowners at retail rather than wholesale prices as they do from other electricity providers. Those cost are passed onto non-solar residents.”

The report’s authors say net metering subsidies cost residents $2 billion in 2014 in Arizona and California alone.

Federal loan guarantees also help prop up the industry. The report says these multiple incentives have spawned a nationwide array of rooftop solar systems and large industrial solar installations dependent on continual taxpayer support.

The report concludes, “Solar companies’ use of asset-backed securities with dependence on subsidies could very likely result in the next government-created bubble bursting.”

Admitted Vulnerability

Recent research by energy analyst Marita Noon underscores the vulnerability of individual solar companies. She cites the example of Sunrun Inc., which describes itself as “the largest residential solar panel installer in the United States.”

Noon says in Sunrun’s S-1 form, filed earlier in 2015 with its initial public offering, Sunrun Inc. candidly states, “Our business currently depends on the availability of utility rebates, tax credits and other financial incentives in addition to other tax benefits. The expiration, elimination or reduction of these rebates and incentives could adversely impact our business.”

“While Sunrun acknowledges its dependence on taxpayer handouts, even that isn’t enough to ensure success,” said Noon.

Noon suggests keeping an eye on Abengo Solar.

“[Abengo Solar] is the largest recipient of funding—$2.6 billion—from the 2009 stimulus bill, which is now on the verge of bankruptcy,” said Noon. “When the bursting of this bubble hits the front pages, the paltry $536 million taxpayers lost on Solyndra will pale in comparison.” 

Bonner R. Cohen, Ph.D. ([email protected]) is senior fellow at the National Center for Public Policy Research in Washington, D.C.

Internet Info

Taxpayers Protection Alliance, “From Washington to Wall Street: How Government Policies Are Skewing Solar Investments,” July 8, 2015: