SolarCity and Solyndra: Redemption or Repeat?

David Williams

March 19, 2015

This article originally appeared in The Hill on March 18th, 2015

The renewable energy world was abuzz a few weeks back over news that Elon Musk’s SolarCity, the 800 pound gorilla of the residential rooftop solar business, is now leasing California office space formerly occupied by Solyndra, the most notorious of numerous “green stimulus” debacles.  It was seen in some industry circles as long-sought redemption—proof that Big Sun finally is emerging from Solyndra’s long shadow.  “Solar is moving on” was the message dominating Twitterworld as news of the move spread. But is solar moving on? Was Solyndra just an aberration? Or are new Solyndras—the Sons of Solyndra and Grandsons of Solyndra—still out there, just waiting to have the plug pulled?

The same week that brought news of SolarCity’s symbolic move also brought news of its mounting losses, which continue despite infusions of tax dollars and other industry preferences that would seem to make profitability a cinch.  SolarCity reported a net loss of $141 million for the 4th quarter of 2014, despite a 52 percent increase in revenue, strong demand and clear dominance in the market.  That compared to a nearly $40 million loss during the same period in 2013.

Look past the company’s audacious ambitions and explosive growth, ignore for a moment the Musk mystique and media hype that lends it cache and keeps customers and investors mesmerized, and what you see are mounting losses and an untested business model that relies heavily on handouts and financing schemes of baffling complexity.

SolarCity these days operates more like a lending company than a solar power provider.  Its primary innovations come not on the technical, but on the financing and marketing sides of the rooftop solar business.  The company installs its rooftop solar equipment on residential rooftops, at no or very low initial cost to homeowners, then signs that customer to a 20 or 30-year lease or loan, based on the promise of lower future utility bills.  The company then bundles its rooftop solar leases and loans into securitized investments, a la sub-prime loans of recent fame, backed by a steady future flow of customer lease and loan payments (including financing charges and interest), government tax credits and whatever revenues are generated when surplus power is fed back into the grid.

Perhaps this Rube Goldberg business model eventually will generate profits.  But there are a lot of moving parts here—and potentially a lot that can go wrong if any one of those parts malfunctions.  The risks, pitfalls and moral hazards potentially at play here may not become obvious for years.  And the fact that taxpayers are partially complicit in this, as subsidy-paying silent partners, will only strengthen the arguments for a future bailout if the solar house of cards implodes.

While the industry receives virtually no federal oversight, officials in solar energy boom states like Arizona are beginning to see a shadier side to solar that the rest of the country misses.  Arizona’s Attorney General recently led a crackdown on one company, the aptly-named Stealth Solar, fining it for deceptive business practices.

A few alert members of Congress, including a bipartisan group from Arizona, late last year wrote U.S. Federal Trade Commission Chairwoman Edith Ramirez, asking her to probe “potentially deceptive sales tactics” by rooftop solar companies.  And Arizona Sen. Jeff Flake (R) at a recent hearing asked Energy Secretary Earnest Moniz if was aware of any such problems in this taxpayer-supported industry.  He wasn’t—which only elevates the issue to an even higher level.

Just days after another dismal earnings report, SolarCity was seemingly riding high again, with Google announcing a $750 million partnership with the company to help finance rooftop solar systems.  Construction began in Buffalo, New York, on the company’s future solar panel factory, which is being bankrolled with a $750 million gift from that state’s taxpayers.  And President Obama included in his annual budget a proposal to make the industry’s single biggest crutch, a 30 percent investment tax credit set to expire at the end of next year, a permanent pipeline into the U.S. Treasury, despite repeated promises that this was just a “temporary” support.

Indeed, much of the forecast for “Big Solar” at the moment seems sunny, despite occasional dark clouds and niggling doubts, at least in some circles, about the industry’s long-term stability and sustainability if government supports go away.  For now, at least, SolarCity’s move into Solyndra’s old space is presumed to signal redemption, not a repeat.  But only time will tell about that.

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