Gaming Solar Subsidies

A recent Wall Street Journal article highlighted how shrewd investors are using government subsidies, i.e., tax payer money, to promote investments in solar rooftop installations.

A report published this February by GTM1 research, and Solar Energy Industries Association (SEIA) disclosed that 50% or more of residential PV installations in major markets in 2012 were leased installations using tax-payer funded subsidies.

This report put a spotlight on the practice.

Rooftop PV Solar Installation
Rooftop PV Solar Installation

It’s difficult for the typical homeowner to spend $20,000 for a rooftop solar system, but a wily investor can. Investors can offer to install the roof top system while also significantly cutting the homeowner’s electricity bill.

The homeowner signs the contract and saves money, while the investor also makes money from an otherwise bad investment.

The investor makes money by taking advantage of government subsidies – here’s how2.

Under the best of conditions, PV solar rooftop panels can produce 0.75 kWh of electricity per square yard of panel.

A two-story, 3,000 square-foot home will have a total roof area of approximately 1,500 square feet. But, since only half can face the sun, the available area is 750 sq. ft.

With electricity costing 11 cents per kWh, this installation can save $6.88 every day the sun shines.

However, the sun does not shine every day and this is one reason why the economics are bad.

In Phoenix, Arizona, where the sun shines 211 days each year, an installation on a two-story, 3,000-sq.-ft. home would save $1,451.

Dividing $20,000 by $1,451, we arrive at a payback period of nearly 14 years. This is a bad investment that only gets worse as we look at the results in other cities where there are fewer sunny days.

In Atlanta, GA, the payback would be over 26 years.

In Lincoln, NE, it would be 25 years.

In Washington DC, it would be nearly 32 years.

In Albany, NY, it’s over 42 years.

The results for a ranch-style house with more roof area would, of course, be better.

In many instances, PV panels might only last for 20 to 25 years, so homeowners might never recover their investments.

It’s true that there would be partly sunny days that might improve the picture, but few homes can have their solar panels aimed directly at the sun all day, and this would reduce the efficiency of the rooftop PV panels. (Equipping rooftop panels to follow the sun during the day and as the sun moves north and south during the seasons would substantially increase costs.)

Even with panels now costing half of what they did a few years ago because they are made in China, installing them makes no economic sense.

The entrepreneur, however, reaps important benefits from a $20,000 investment.

  • First, he receives $8,000 to $10,000 of tax payer money as subsidies.
  • Next, he receives the agreed upon monthly payment for electricity from the homeowner.
  • Next, he can depreciate the cost of the installation.
  • Next, he can sell any electricity that’s generated in excess of what the homeowner uses, to the utility. If net-metering is in place, the electricity is sold to the utility at the same price the utility charges, say 11 cents per kWh. If there are feed-in tariffs, the utility will pay the investor much more for the excess electricity.

It should be noted that utilities are paying 11 cents/kWh, or more, to the investors for electricity the utilities could have generated for around 4 cents/kWh. In addition, the utilities also have to pay for overhead, such as maintaining the distribution system, which the investor doesn’t pay for.

South Carolina currently doesn’t permit leasing of solar panels, but Senator Paul Campbell, R-Goose Creek, is one of several cosponsors of a bill that would change that and allow investors to game the system.

Rooftop PV solar systems are a bad investment being subsidized with tax-payer dollars.

The SEIA report predicts that the rooftop PV solar business will increase to $5.7 billion in three years. Unless subsidies are eliminated, a significant portion of the $5.7 billion will be derived from tax payers.

 

Notes:

  1. Greentech Media, Inc.
  2. The financial and solar data was also used in the March, 2012 article, Feeding on Solar Subsidies. The new SEIA report adds emphasis to what was reported last year.

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