As Tesla-owner Elon Musk moved to consolidate his cousins' embattled SolarCity company last month through a merger with Tesla, one economist said that the company could be the victim of government subsidization, whether it received those subsidies or not.
“The whole Elon Musk business model relies on government subsidies, even though he’s acknowledged that he doesn’t necessarily need those subsidies,” Veronique de Rugy, an economist and senior research fellow at the Mercatus Center at George Mason University, told Arizona Business Daily. “The real question is, who are the losers when you have an industry that is picked as a winner by the government.”
California-based SolarCity, founded in 2006, specializes in developing solar panel systems and was, by 2009, referred to as Arizona’s largest solar installer in an article from the Arizona Daily Star.
Arizona has seen a number of initiatives come to its borders to subsidize solar, but recent laws have moved to more tightly regulate an industry that critics see as unprofitable without federal subsidies.
De Rugy said that such subsidies could make even profitable companies less stable. “If the only reason to invest somewhere is because you pull government subsidies, it means people tend to not actually take the risk that they would need to come up with creative ideas,” she said.
Musk argued to investors that the move wasn’t an effort to shore up an embattled company but rather to consolidate a business that collects clean energy and puts that energy to work powering cars. The stock-only deal, if approved, would inject roughly $2.8 billion into the solar company. SolarCity is currently hampered by approximately $2.6 billion in debt, according to the New York Times.
But the move also hints at another problem with solar subsidies - unequal access to the industry. Musk’s personal wealth, estimated at approximately $10 billion, has allowed him to buy back stock and reduce risk for shareholders in the companies he owns and manages. Despite this, he and many other larger companies continue to be the larger beneficiaries of federal and state money for innovation.
“Not everyone is the solar industry is getting the same amount of handouts,” de Rugy said. “The government creates an unfair playing field … for very large and very well connected companies, these guys are often getting cheap loans, even though they often have access to capital.”
One of the biggest programs subsidizing solar investment is the U.S. Department of Energy’s Section 1705 loan program. SolarCity received a Section 1705 loan in 2011 as part of its SolarStrong program, a five-year initiative proposing to install solar panels on approximately 120,000 military housing units at an estimated cost of over $1 billion.
De Rugy argues that projects that are sought exclusively for government funding tend to have bad results. The fallout from those bad investments, she said, can actually make it more difficult for players in the industry to continue working.
“Who are the losers when you have an industry that is picked as a winner by the government?” de Rugy asked. “The truth of the matter is, a lot of the time taxpayers end up being the losers, consumers end up being the losers, because they end up having to pay much more money for subsidized good then they would otherwise… and innovation ends up being the loser.”