Solar Socialism 2.0: The Subsidy Saga Continues

On December 1, 2015, Citizens Against Government Waste (CAGW) published a report, “The Sun Should Set on Solar Socialism.”  The report reviewed the history of federal energy subsidies, particularly the dramatic increase in funding following the passage of the Energy Policy Act of 2005.  Between 2004 and 2015, tax expenditures for alternative electricity generation cost $13.7 billion, according to the Internal Revenue Service; meanwhile, the University of California at Berkeley Energy Institute at Haas Business School stated that total tax expenditures for the four largest clean energy tax credits had cost more than $18 billion since 2006.

At the time the CAGW report was released, a 30 percent commercial energy investment tax credit (ITC) was available for the construction of property generating electricity from solar energy, geothermal deposits, or wind energy, and a 10 percent credit was available for various other sources of renewable power.  A 30 percent residential tax credit was available for qualified solar electric systems and water heaters, as well as fuel cells, wind, and geothermal heat pumps.  The residential tax credit was due to expire on December 31, 2016, and the commercial tax credit would be 10 percent for all sources of energy, rather than 30 percent for some and 10 percent for others.

CAGW’s report cited, among the many reasons that the tax credits should be allowed to wane as (then) scheduled, a May 5, 2015 Massachusetts Institute of Technology (MIT) Energy Initiative report which found that, “there is no authoritative compilation of total spending to support the deployment of solar technologies – at the national level or for any particular state – let alone a breakdown of total spending across subsidy programs.” The MIT report determined that solar energy only provides 1 percent of electricity generation in America and globally, despite tens of billions of dollars in subsidies.

Nevertheless, in the give-and-take of Congressional compromise during negotiations on the omnibus spending bill, numerous sources reported that the Republican leadership acceded to Democrats’ demands for the extension of these tributes to corporate welfare (more than a year before they were to expire) in exchange for lifting the ban on oil exports.  The bill, which was signed into law on December 18, 2015, allowed the tax credits to, disappointingly, live to see several more sunrises.

The solar ITC will remain at 30 percent through 2019, then decline to 26 percent in 2020, 22 percent in 2021, and finally to 10 percent for non-residential and third-party owned residential systems, with no tax credit at all for host-owned residential.  The bill includes a “commence construction” provision, allowing projects to come online by the end of 2023 and still qualify for larger credits.

As noted in CAGW President Tom Schatz’s December 16, 2015 commentary in The Washington Times, “there are few things in Washington that last longer than a temporary tax credit or subsidy. They are renewed rather than retired…”  So it is again.

The deal made by Republican leaders to trade lifting the oil export ban in exchange for the ITC extension made it appear, at least to a casual observer, that only Democrats wanted the tax credits to be extended.  But there is, unfortunately, plenty of support for the ITC among Republicans.  For example, Ben Ho, an economist at the White House Council of Economic Advisors during the George W. Bush administration, penned an op-ed in the January 5, 2016 edition of The New York Times, entitled “The Conservative Case for Solar Subsidies.”  Among other things, he argued that “there’s nothing unique about the government’s support for solar,” given the considerable level of federal support for oil and gas.

But Ho missed the point.  Free market advocates, including CAGW, support the elimination of subsidies for all forms of energy, including fossil fuels, so that every energy source can stand on its own without taxpayer support, and consumers can choose whichever energy source they wish.

And while Democrats allegedly support “the little guy” and the middle class, a July 23, 2015 Congressional Research Service report confirmed that “[r]esidential energy tax credits also tend to benefit higher-income taxpayers…”  Simply put, the wealthy have the wherewithal to purchase the costly solar equipment in the first place, a circumstance that does not fit comfortably with the Democrats’ usual pandering to the left.

To compound this disparity, the practice of “net metering” (NEM) shifts a considerable cost burden from wealthy solar power users to less wealthy non-users.  As noted in CAGW’s report, an October 2013 study on the cost-effectiveness of NEM by the California Public Utilities Commission Energy Division found that residential “customers installing NEM systems since 1999 have an average median household income … of $91,210, compared to the median income in California of $54,283…”  In other words, the median household income of NEM customers was 68 percent higher than the median California household income.

Under the NEM scheme, residential solar customers generate energy from rooftop solar panels.  But they sell any surplus energy back to the grid at retail rates, not the wholesale rate received by grid-scale generators.  To compensate these typically higher-income sellers at the higher rates for their surplus energy, the utility shifts the cost to the utility bills of the non-solar customers, who are not disproportionately wealthy.

But facts are inconvenient things, particularly for Washington’s big spenders.  Notwithstanding the arguments against continued federal support for solar energy (including calls for their termination from some renewable energy company CEOs), the zombie-like tax credits survive.  The renewable energy industry, having won for now an extension of taxpayer largesse, must be scrutinized and made to justify the unjustifiable over the next five years.

In the course of their analysis, the MIT researchers confirmed a simple, but often unwelcome, truism.  They recognized that popular support for a particular program can be fleeting when juxtaposed against other priorities and necessary tradeoffs, writing that “it is easy for citizens to be in favor of government spending on renewably-generated programs when this spending is not linked to personal costs or to reductions in other programs they also support.”  In other words, when confronted with actual costs (absent outside assistance, such as that provided by the federal government), consumers are perfectly capable of voting with their pocketbooks, especially if the funding of more justifiable federal responsibilities is at stake.

In the meantime, taxpayers can only hope that the imperative to end these billion-dollar boondoggles will finally dawn on federal lawmakers.  Now, that would make for a sunny day.