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  • Study Shows ROI on Solar Energy Tax Credit, But Ignores Bankruptcies

    Proponents of taxpayer support for green energy are touting a new study claiming that tax credits for solar companies will pay for themselves over the long run.

    The problem: the study, conducted by the U.S. Partnership for Renewable Energy Finance, assumes that solar companies that enjoy the tax breaks in question will survive for the 30 year period the study measures. That’s no sure thing, as recent events and predictions among industry observers demonstrate.

    The tax credit in question is generally equal to 30 percent of the cost of a renewable energy project. The credit was created under the Bush administration and later expanded by President Obama’s stimulus package.

    Over a 30-year period, the study claims, the tax credit will “deliver a nominal 10% internal rate of return (IRR) to the federal government on the federal investment tax credit (ITC) for residential and commercial solar projects.” In other words, according to the study, the tax credit will pay for itself, and provide an additional 10% return for taxpayers, through the selling of Power Purchase Agreements and other means.

    One need only look at a few recent solar energy bankruptcies to understand why the study falls short. Abound Solar, which filed for Chapter 7 last month, got an $12.6 million tax credit under the provision in question. Despite that support, the company will fire its 125 employees and suspend operations.

    First Solar, which laid off 30% of its workforce earlier this year, also benefitted from the tax credit in question. Though it hasn’t fully ceased operations, whether the company can survive the 30 years necessary to produce the returns US PREF projects given recent turmoil is no sure thing.

    Even Solyndra was backed by this tax credit, albeit indirectly. An IRS ruling shortly before the company declared bankruptcy allowed solar installations that used technology produced exclusively by Solyndra to double the benefit from the tax credit – from 30% of the cost of the project to 60%. Even that ruling failed to keep the company in afloat.

    Solyndra, First Solar and Abound all produce (or produced) thin-film photovoltaic solar panels. According to the online trade publication Solarbuzz, that sector can expect the hard times to continue as it “filter[s] out uncompetitive technologies,” in the words of analyst Ray Lian. Lian expects the PV market to shrink from more than 400 manufacturers in 2011 to less than 100 by 2016.

    That means that a number of the recipients of the solar tax credit may not be around to produce the returns projected in the US PREF study.

    Troubled recipients of the tax credit in question have not been confined to thin-film producers, either. Concentrated photovoltaic producer Amonix announced last week that it had closed a North Las Vegas production facility. The company had received nearly $6 million in tax credits under the program in question to build that facility.

    Much of the federal government’s “investment” in green energy has, by design, gone to highly risky companies or projects that would not be able to attract adequate private investment. Abound, for instance, had a junk bond rating from Fitch, which called it a “highly speculative” investment.

    Given US PREF’s projected returns for green energy companies, it stands to reason that private investors would be lining up to finance these projects. But the same factors that dissuade private capital virtually guarantee that at least some of these federal “investments” will not pan out – and that taxpayers will not see the returns US PREF projects.

    Note: this post has been updated to reflect the fact that Abound Solar received a tax credit worth $12.6 million, not $11.85 million as was initially reported.

    Posted in Featured, Scribe [slideshow_deploy]

    10 Responses to Study Shows ROI on Solar Energy Tax Credit, But Ignores Bankruptcies

    1. tocelp says:

      How many of these Solar Panel and Wind Power projects actually have a 30yr lifespan. Remember the solar panels on the roofs from the Carter era–how many of these do you still working? The answer is virtually zero. Solar will not last the 30 years they use to amortize. Bad science!

      • Peter Greenberg says:

        The solar panels that were put on the white house in the Carter days, were taken down by Reagan, so they never had a chance to even last a few years.

      • Fritter says:

        I like – Perfect comparison……….

    2. Bobbie says:

      "will pay off in the long run?" my Lord, can they get anymore juvenile? These irrational, corrupt decisions are costing the economy and by logical uninfluenced sense in the present run, isn't worth what won't pay off, NOW! Solar and wind can't be controlled! Give Americans back the money and get ignorance off the payroll!
      …and on a personal note, the more solar energy the greater natural fires.

      Why these government entities get away with ruling like spoils without accountability to their pay, words and actions is 3rd world and in America, criminal!

      If the earth's core is fire than that's nature's course. Please don't litter and follow all necessary requirements that reduces pollution emissions. Thank you. A proud sponsor of natural resources properly handled for the benefit of humanity!

    3. Joe Stickney says:

      strange business model no ror either

    4. Pete says:

      The author has either utterly misread the US PREF study or not read it at all and imagined its contents. The study did not look into the question of tax credits for solar manufacturers. It looked into the investment tax credit that goes to entities that own solar power systems (which could be but only rarely are manufacturers) and either lease them to users (homeowners, government agencies or businesses) or own them and sell the power to users under a power purchase agreement. So it wouldn't matter if Abound, Solyndra or First Solar or whomever manufactured the panels went under; what would matter is that there is a long-term lease or PPA in place. The monthly payments — either the lease payments or the payments for power — are taxable income for the lease or PPA provider. What the study asserts is that the value of taxes paid on this income more than offsets the value of the ITC.

      (As for the solar panels that went on the Carter White House, mentioned by tocelp, they were removed not because they weren't working but because the White House roof was being resurfaced and a decision was made not to put the panels back up in the work was done. They were early generation solar-thermal panels, not photovoltaic, and remarkably, many of them worked (at a college in Maine) well into the 2000s. The more common photovoltaic systems fare even better. There are many from the 1970s still pumping out power, though at a reduced rate. The typical decline in power production is about 1/2 percent per year, which is factored into lease and power-purchase agreements)

    5. Sanford Olnhausen says:

      In the real world most solar installs are financed 20% by customer and 80% by feds (paid by taxpayer) and utility subsidies (paid for by increased utility prices to customer). Sounds like a ponzi scheme to me!

    6. TimAZ says:

      There was a time when ships were scuttled for profit. The new fad now is to scuttle green energy companies that are created with tax payer dollars. All participants win except the tax payers. The joke is on them. I'm sure it sometimes occurs that campaign contributions are received before the tax payer dollars are made available. Just as I'm sure that campaign contributions occur after the tax payer money exchange takes place. I bet you could even get some junior politicians to go along with it if you entice them with insider trading. No you wouldn't dare let them know that the company was destined to be scuttled. Why scuttle a business? It's just another method among many in use to collapse Capitalism. Have you a better idea on how to overwhelm the system? Have you had enough yet?

    7. Titan SolarCo says:

      I really liked your blog. I’ve been looking around for some quality information, but I always used to end up finding a junk. I found yours content on Bing and I’ll surely be back soon to find some more excellent ideas. Thanks a lot for all the info.

    8. bigballi says:

      Nice read with some great info.
      However, I would also mention an app for iOS (iPhone & iPad) that will be extremely useful to anyone in the solar/PV panel industry.
      It's called PV Master and will tell you all kinds of data relative to your coordinates and includes calculators, guides etc…
      Definitely a must have! http://bit.ly/PcaiWs

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