SolarCity Corp Leases Let Firm Pocket Consumer Solar Tax Credits

SolarcityBy BrokenSphere (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons

According to Jason Stverak of the Hawaii Reporter, says that SolarCity Corp (NASDAQ:SCTY)’s business model is somewhere between questionable and a legal scam.

He points out that the up and coming solar energy firm collects tax subsidies intended for its consumers as part of its “solar lease” business model, a policy which maximizes SolarCity Corp (NASDAQ:SCTY)’s profits, but which leaves consumers vulnerable to sudden spikes in their utility bills.

“Worst type of cronyism”

Stverak pulls no punches in describing the unethical business model SolarCity is predicated upon. According to him, SolarCity Corp (NASDAQ:SCTY) is “one of many solar firms that relies almost entirely on government handouts and credits to generate profit–exploiting loopholes to pocket federal tax breaks intended for homeowners who install solar panels.”

He admits this business practice is not technically illegal, but he argues that “companies that employ business models of this nature engage in the worst type of cronyism, simultaneously pocketing taxpayer money while leaving their customers with needlessly high energy bills.”

SolarCity’s solar panel lease model

Stverak argues that SolarCity Corp (NASDAQ:SCTY) exploits the Solar Investment Tax Credit (ITC), a federal program that was expanded in 2008 allows homeowners who install solar panels a tax credit of 30% of the costs. He says that the solar ITC is “far from the best use of our tax dollars, but this program is at least defensible…presuming that the tax credit actually goes to the homeowner, who pays for and gets electricity from the panels.”

SolarCity Corp (NASDAQ:SCTY) offers consumers 20-year leases on solar panels instead of selling them. Leasing the solar panels to consumers means the firm retains ownership of the panels for the entire two decades, and means the firm can take advantage of a loophole in the ITC and take the consumers’ tax credits. Stverak says that given SolarCity takes the 30% tax break on every panel it installs, that means Elon Musk’s solar firm has “milked the federal government out of $411 million–on top of more than $10 million in funds from the stimulus, and untold state-level subsidies.”

Last but not least, Stverak points out SolarCity Corp (NASDAQ:SCTY) clients are locked into 20-year leases regardless of how well their solar panels work. He also points out given the fact that solar panels don’t always provide all of the promised energy savings, instead of lower utility bills, some California customers have seen a nearly 50% increase in their energy costs.

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6 Comments on "SolarCity Corp Leases Let Firm Pocket Consumer Solar Tax Credits"

  1. What a crock of alarmist nonsense. The customer’s tax credit essentially becomes a sort of down payment that makes the whole relationship worthwhile for SCTY. Don’t get me wrong, you’re wasting money signing up with these guys, but let the consumer decide the product that’s best for them. It’s plenty transparent.

  2. I was just curious how many people have 15-25K to throw down in cash to get a system like this put into their homes. Also I was wondering if they didn’t have that money to put down in cash how much it would cost in financing over the 20 years of the system. Also even if you did have the extra money in cash wouldn’t it be possible to invest that money into something a little better than a 2.9% increase. Also I was wondering how much money it would cost to install a system like this on a home, as well as permit fees, city inspectors cost, ect?

  3. A solar lease or PPA ranks among the top woest investments that you’ll probably ever make and here’s why:

    1. Add up your lease payments and when compared to an outright purchase you’ll find that you’re easily paying up to 3 times more on a $0 down solar lease versus a purchase.

    2. You’ll pay so much more for a lease than a purchase that’s it’s actually you who will be over-paying for your own maintenance, monitoring and insurance not the leasing company.

    3. You’ll probably have trouble selling your home because what home buyer in his right mind will want to assume your lease payments on a used, outdated system when they can buy a brand new system with the latest technology and keep the 30% federal tax credit for thousands less.

    4. After making 20 years worth of leasing payments, you won’t even own the system. It will still belong to the leasing company.

    5. Check that quote from the solar leasing company and you’ll find that most of the time they won’t even tell you what brand of equipment they’re installing on your home. I wonder why?

    6. Most if not all $0 down solar leases include an annual payment escalator that will increase your monthly payment by up to 2.9% per year for 20 years.

    7. You’ll be stuck with the same aging solar system without the ability to upgrade for the full 20 year term of the contract. If you bought your system instead, you can sell it at any time and take the proceeds from the sale and upgrade to the latest and greatest equipment. You can’t do that with a lease because it’s not your system to sell.

    8. You’ll have to forfeit the 30% federal tax credit and any applicable cash rebate to the leasing company and you won’t get tax deductible interest on your lease payments. Only a $0 down solar loan or $0 down PACE financing will give you tax deductible interest and let you keep all of your incentives for a much better return on your investment.

  4. SolarCity leases come with a production guarantee, so the entire last paragraph is wrong. If the panels do not provide the energy guaranteed by SolarCity, your lease payments are refunded. Therefore, SolarCity is motivated to keep your panels working properly, or they lose money. SolarCity has published it’s lease documents here:

    http://solar.solarcity.com/downloads/SolarCity_Residential%20Solar-Lease%20Contract_sample.pdf

    The relevant section is Exhibit 2. You should of course read the fine print and do the math and make sure that production guarantee makes sense for you.

    And getting “locked into 20-year leases” is one of the key benefits of a solar lease. Unlike your electric utility, which provides no guarantees of future pricing, a solar lease guarantees your payments in a predictable fashion, while your electric utility rates are likely to rise significantly over those 20-years. It is a hedge against future electricity rate increases.

  5. @Cayman, they are obviously not passing on much of the benefit of the pricing to the consumer because their pricing is so much higher than what a consumer can purchase a system for from many of SolarCity’s competitors. Yes they do cash sales but again at what price? Today a consumer can purchase a high quality system for around $3.25 per watt before the 30% federal tax credit. SolarCity’s pricing is much higher than this. The last time I checked SolarCity’s system purchase pricing on a 7.35 kW system was at $4.77 cents per watt.

  6. This article is a little less informed or logically argued than I would expect from ValueWalk. Seems more of a biased rant. Yes there is a 30% credit. Yes it goes to the legal owner. No it does not go to SolarCity. They wouldn’t get any benefit from it as they don’t have taxable income yet. It goes to one of their investors they keep announcing. Yes the credit is there to promote the solar industry to help it get critical mass. No it was never intended to be restricted to the consumer. No, there are no loopholes. Allowing the use of an asset for a regular payment without transferring tax ownership is older than the USA. The size of the solar market including Solar City’s growth indicates the incentive is doing its job. Yes these companies would not make a profit without the benefit of the credit, but isn’t that an argument for the fact that they are passing on the benefit in the pricing to the consumer. I.e. the incentive is working. Plus, isn’t there a sunset clause where the credit drops to 10% in 2016? Also the article indicates that SCTY only leases panels which is false as they do cash sales as well. People can do their own math to see whether they prefer to buy or lease just as they make that decision when buying a car. I’m sure the SCTY salesperson with both a lease and cash-sale product would be happy to guide them through the analysis.
    However, if I was to install solar panels on a house I would probably buy them rather than lease them as I expect my cost of funds is cheaper than an operating lease rate. I would still do the comparison of lease v buy.

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