Another Tax Subsidy for the Rich

On the surface, the concept of promoting rooftop solar energy, referred to as net metering, seems like a good idea, but a closer looks shows that it can produce many adverse consequences that lead to higher costs for consumers.

Net Metering is a program that allows consumers to generate energy from rooftop solar panels for their own use and to offset the cost of energy purchased from electric utilities. Because solar panels can be costly to purchase and install in homes, homeowners generally lease the cost of these solar panels and they are enticed to buy into the deal by receiving generous tax breaks. Of course, taxpayers are on the hook to cover these tax breaks.

Some states require electric utilities to buy excess solar energy from net metering consumers at or near retail prices. The problem with this idea is that when electric utilities buy this excess solar energy, it may not precisely coincide with the electric utility’s demand. This means that some of the solar energy being purchased by the utility has little or no offsetting benefit to the utility, its customers, or even the environment. Moreover, when utilities pay the retail price for solar energy they are unable to recover their full operating costs, which could affect maintenance and investment in the electric grid, and could eventually jeopardize service reliability.

In essence, this means that electric utilities are incurring added costs, which means that the utility’s customers – ratepayers – are ultimately on the hook to pay the difference. Most perverse, however, is that consumers without solar panels are subsidizing consumers with solar panels, which means that those with less income are effectively subsidizing those with higher income.

This turns out to be the case. A recent California Public Service Commission report found that households with solar panels had incomes that were 68% higherthan the average household. As recent analysis shows, even a small increase in energy costs has a disproportionately high impact on how income consumers. Essentially, net metering can be a subsidy for the rich.

Another problem with net metering is that it has harmed many consumers who, in hopes of achieving lower energy costs, enter leasing arrangements with solar panel companies. The leases appear very attractive – offering free energy and low payments – but the deals are often fraught with inaccuracies about future energy savings, overlook insurance costs, and downplay the escalation of future lease payments. The structure of many of these solar deals leaves the leasing companies as the owners of the panels, which means that homeowners have future debt obligations, complications when replacing or repairing leaky roofs, and encumbrances when selling homes.

This fraud is rampant.  A number of investigations and lawsuits have taken place in Arizona, Louisiana and in other states. There is no shortage of solar scams and consumers need to watch out for these leases. As the Energy Daily noted, the solar leasing industry’s financial success rests on duping its consumers:

The company’s [SolarCity] lease model depends largely on uninformed customers buying the unattractive lease/PPA [Power Purchasing Agreement] products. The supply of this class of customers is likely to be plentiful as the company targets new geographies, but we expect the supply of gullible customers to decline as solar penetration increases.

While encouraging clean energy use may seem to be a good policy, there are adverse consequences resulting in higher taxes, higher energy costs and consumer fraud. For net metering to be successful, it is crucial that policymakers find solutions that produce more benefits than costs. Accomplishing this requires getting the prices right, so that utilities and taxpayers are not overpaying for solar energy. In addition, to make these programs work best, increasing consumer protections against scams are paramount.

While this is a well-intended public policy, it is not working well for most consumers.

Steve Pociask is president of the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization. For more information, visit www.theamericanconsumer.org.

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