Silicon Valley is in the midst of another boom and gullible reporters are buying anything the alleged tech geniuses throw at them. The latest example is this bit of hyperbole from Bloomberg reporters Mark Chediak and Chris Martin on the latest innovation from the valley:
Silicon Valley has something to offer the world in the drive toward a clean energy economy. And it’s not technology.
It’s a financing formula. In a region that spawned tech giants Apple Inc. and Google and is famous for innovators and entrepreneurs like Steve Jobs, a handful of startups began offering to install solar panels on the homes of middle-class families in return for no-money down and monthly payments cheaper than a utility bill. This third-party leasing method — which made expensive clean energy gear affordable — ignited a rooftop solar revolution with annual U.S. home installations increasing 16-fold since 2008, according to the Solar Energy Industries Association and GTM Research.
Really? Do these twits really think Silicon Valley invented lease financing? Do they really think that’s why roof top solar is now “affordable”?
What makes roof top solar “affordable” is low interest rates and massive government subsidies. And, oh yeah, the other thing that makes it “affordable” is that shareholders don’t seem to care that the companies involved, even with the massive subsidies, can’t seem to figure out how to turn a profit.
Tax credits subsidize roughly 50% of the cost of these installations so it isn’t creative financing for homeowners that is making this industry “viable”, it’s taxpayers. Throw in some cheap debt – Solar City for example has $2.5 billion in debt outstanding – and voila, homeowners can suddenly afford the luxury of feeling good about themselves. At least until the gravy train runs out; the subsidies and low interest rates will come to an end someday. I think that is the opposite of sustainable. It is also what Austrian economists call malinvestment but that’s another post.
And by the way, when it comes to Solar City, the tax credits for solar and low interest rates only scratch the surface. The state of New York is building a nice new factory for them in Buffalo at a cost of $750 million, charging them a grand total of $1 in rent and waiving property taxes to boot. I guess that’s the only way to get someone to build a factory in Buffalo.
There is innovation in the solar industry. Panel efficiencies have improved dramatically over the last three decades since I started following the industry. But the truth is that the rooftop solar industry would not exist absent government subsidies. There is no creative financing scheme that would make people buy these things at twice the price. We can debate, as a society, whether we should be subsidizing the industry or whether the government ought to fund the research directly, but let’s not pretend that it is Silicon Valley’s discovery of some kind of lease financing perpetual motion machine that makes this worthwhile.
By the way, the Twitter handle for Chris Martin, one of the authors, is cleantechchris. How about that for some unbiased reporting?