Government helps big corporations make billions off green energy. How about cutting the average family in on the deal?
Like a lot of aging Baby Boomers these days, Rob Robinson and Sherrill Berger of Washington, D.C., are what you might call semiretired. That is to say, they work when they can, at whatever short-term gigs they can rustle up—he in communications, she in administration and fund-raising. Otherwise they struggle to get by on income from a small rental property they own. That rental property and the home they live in are their only assets.
A few years ago they made a smart move that has helped them get a better return on those assets. They bought a three-kilowatt solar electric system and hired a contractor to install it on the roof of their home. The solar unit was $24,000, but a generous renewable energy grant from the D.C. government and a 30 percent federal tax credit for renewable energy reduced their net out-of-pocket cost to around $5,000.
That investment saves the couple about $1,500 a year on their electric bill. But the financial advantage doesn’t end there; since they are producing green energy and feeding it back to the electric grid, they actually make money, around $1,200 annually. In just three years the couple has earned back their original investment, and Sherrill now uses the $325 quarterly checks to pay the mortgage and phone bill. “I never realized how great it would be,” she says. The solar panels have been low maintenance so far (the technology is less complex than the average air conditioner). Indeed, things worked out so well on the house that they recently installed a second solar system, on their rental property. After the system is paid off, they expect a combined return of about $4,500 a year off their electric bill and close to $3,600 in additional income—and those returns are guaranteed by contract for five years. Rob and Sherrill don’t just use solar to help the environment, they also use it to help make ends meet, and increase the value of their only assets.
A solar investment opportunity like this, in which owners get paid a fixed amount for the green energy they produce, is one many hard-pressed Americans would doubtlessly welcome for themselves. With CDs paying less than 1 percent and the stock market highly volatile, it’s hard to think of another savings vehicle that offers the same secure rate of return. Such opportunities are desperately needed, with incomes flat, jobs in short supply, millions of homes under water, and most Baby Boomers financially ill-prepared for retirement. And with the price of solar panels having plummeted (if Rob and Sherrill were to buy their equipment today, it would cost them half as much), more and more Americans can afford to get in the game.
Trouble is, such opportunities aren’t available to the vast majority of Americans, and won’t be anytime soon without changes in energy policy. There’s plenty of money to be made producing solar energy. But the way the rules are currently written, corporations, not individuals, reap the gains.
The renewable energy business has exploded in recent years. The growth has been mainly in large, corporate- owned wind and solar farms in places like Texas and Nevada. These ventures have generally been built to take advantage of various government incentives, including billions in federal grants and tax breaks and, at the state level, mandates called Renewable Portfolio Standards. RPSs require utilities to supply a certain percentage of their electricity from renewable sources. To meet these requirements, utilities sign long-term contracts to buy power from the wind and solar farms or renewable energy “credits” that the farms generate when they put the energy on the grid (the credits cover the higher cost of producing energy from renewable sources like solar compared to, say, coal).
Financing for these projects has generally come from major Wall Street banks looking for lower tax burdens on their huge profits. More recently, cash-rich firms like Google and Warren Buffett’s Berkshire Hathaway have been putting big money into solar ventures, attracted by rates of return of 15 percent or higher. “A solar power project with a long-term sales agreement could be viewed as a machine that generates revenue,” an attorney who helped arrange a solar deal for Buffett told Bloomberg this spring.
Buffett, of course, has famously complained of the unfairness of a tax system that lets him pay a smaller portion of his income in taxes than his secretary. But a similar unfairness governs U.S. energy policy: for the most part, only corporations and rich guys like Buffett get to invest in solar energy production ventures that promise high long-term rates of returns. Exceptions can be found only in D.C. and a handful of states like Colorado, California, New Jersey, and Vermont, where governments have put two key policies in place. The first is the enactment of rules that require utilities to accept onto the grid any power homeowners and other small players produce themselves, a practice known as “net metering.” The second is the setting of renewable portfolio standards that are designed to allow average families to be paid for that extra green energy they produce, just as the big boys are. Since late 2008, D.C. has had both, which is how Rob and Sherrill got into the market.
Yet even in places like D.C. and New Jersey that are friendly to small-scale green energy producers, big corporations are muscling into the market. In the last two years, Wall Street behemoths like Morgan Stanley and Bank of America Merrill Lynch have joined forces with new national solar panel leasing companies like SolarCity and Sungevity to offer homeowners a hassle-free way to go solar. For little or no money down, these companies, often operating out of big-box retailers like Home Depot, will put their company-owned solar panels on your roof. In return, you sign a long-term lease to buy electricity from the company, usually at a lower rate than what you are currently paying for power from your utility. For homeowners interested in only lowering their electric bills, it’s not a bad deal. But it’s the leasing companies and their Wall Street financiers who reap the biggest gains, by pocketing the tax credits and the revenue earned from selling the green energy back to the grid. That is money that could be going to homeowners if they knew they had a choice (which the leasing companies seldom tell them about).
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