A Corporate Eclipse

Solar City is a company that I have followed for quite some time. As the only solar provider that manufactures and installs its products I see them as sort of an example for alternative energy companies. I began to follow them with the idea that they were the future, that they saw the end of oil coming and since they received funding it is assumed that they convinced their investors of its demise, as well. With all the controversy surrounding the sourcing of fossil fuels, I believe that renewable energy is the way to go. Unfortunately, this realization may have been too good to be true.

As the government attempts to move closer to this realization, they have put forward new legislation to further incentivize businesses to use renewable energy. They provide these incentives in the form of tax credits as a percentage of the value of the firm’s renewable assets. On an annual basis, Solar City reports the fair market value of its solar assets to receive a stipend or tax credit that is worth 30% of the asset’s value. Solar City has been accused of inflating the FMV of its solar panels in order to receive more of the taxpayer money that is used to finance these credits. At first, I was surprised to learn about the misaligned motives of one of my favorite companies. It may seem curious that Solar City values its solar panels, on average, about 29% higher than its competitors. However, these accusations begin to make sense when you analyse the financial structure of the company. Solar City is financed by some of the biggest companies in the world; this includes Google, Pacific Gas & Electric and U.S. Bancorp. At this time, Solar City does not make money so there is no taxable income for them to pay to the government. Based on this, we can derive the fact that Solar City has no use for the tax credits so it becomes clear that the credits are awarded to their investors who could benefit greatly from a tax break.

I begin to realize that Solar City is acting on the whim of their corporate sponsors. I start to question the integrity of the firm and whether or not it can actually be, or even intends to be profitable. Did these corporations simply invest so that they could receive a tax break? Is Solar City actually seeking to find a solution to the energy crisis? At this point, who do we blame? Solar City because they took the corporation’s money knowing they would be taken advantage of, or should we blame the organizations who only have their best interests in mind? According to a report, these inflated tax breaks add up to over $25 million in extra tax payer money distributed to big corporations that already have more than enough. I would never think that business men would take advantage of our efforts to sustain the well-being of our world and our society. Personally, I don’t think Solar City is to blame, as this predicament is a result of the complex process of trying to “do good” in the world. Big corporations are always at the heart of these issues, but among other things these accusations shine a light on some issues that are closer to home.


6 thoughts on “A Corporate Eclipse

  1. One thing that got me thinking about your post Zach was that you pictured Solar City to be the future. You want to be able to trust these companies, especially if you feel like they are going to have huge impacts on the future. Unfortunately, it can be difficult to do so when you research and find things like this. One thing that worries me about these “companies of the future” is that they will become part of the norm. By that, I mean companies who promote distrust and sneaky business behaviors in some manner become the prominent companies of the future, and there is no way to change it. We have started to see that in the early 21st century, as since we know how difficult it can be to alter a norm or a habit, action must be taken now to try and stop these misaligned motives.


  2. Im also interested in SolarCity and did a project on the company for one of my global management classes. They’re definitely an innovative and revolutionary company in that they are responsible for the manufacturing, installation, and service of its panel systems as you mention in your post. Also unique to SolarCity is their financing options, such as “solar bonds” and purchasing power agreements (PPAs), which allow users to pay for their electricity at a flat long term rate that is resistant to energy price fluctuations. Its interesting to read about some of the negatives that you raise about SolarCity in your post. Its not surprising that many big name companies such as Google are high-profile investors in a company run by Elon Musk and his two cousins. Google recently financed a project through SolarCity worth $750 million to fund residential solar projects. I think that although this FMV exaggeration may be a legitimate critique, SolarCity and many of its partner companies such as Google remain committed to the greater cause of eliminating fossil fuels and providing cleaner, more sustainable energy.


  3. I think this is a case that seems to be a necessary evil. Maybe it is our own naive ways, or lack of perspective, but when I read about a company doing renewable energy or any sort of sustainable venture I like to belive their main motive in creating the business is to benefit the world. Sadly, this does not seem to be true. SolarCity could very well be in it for the money only and saw renewable energy as the most efficient cash cow opportunity at the time. With the recent rise in sustainable culture, renewable energy and global warming concern, I’m afriad this could become the norm, as it is a potentially lucrative venture. Still, that may not be the worst thing. I find part of the problem with companies like this is no one wants to invest or research these topics because the thought of making money is not present. Perhaps if people see the opportunity for profit they could advance the research and development of renewables faster than the people completely devoted to it.


  4. Excellent questions you raise about how this is both about Solarcity, it’s funders, and the government regulations which can often take a good intent and use it to funnel funds to the already powerful.

    I didn’t completely understand the intricacies of the tax credit problem.

    Solar city DOES make solar panels? Not having positive income is not unusual for new companies, but how old is Solarcity?


    1. Im pretty sure they just recently began to manufacture their own solar panels. Two years, they began to vertically integrate and acquired a solar panel manufacturing company. Now, they have a huge factory in Buffalo so their product is made in the U.S.

      Its also interesting that this post discusses how SolarCity its backed by many huge companies and some of the possible negative of this. On their website homepage, they openly say they’re “Backed by Billions,” with a list of many of these companies–Google, Goldman Sachs, etc. Is this a net positive or negative? Could be hard to decide..


    2. Solar City was founded in 2006. It is not surprising that they have negative net income as the company is highly leveraged through their solar bonds. Among other things the solar market is not yet as big as Solar City is prepared for and finally with the recent decrease in the value of oil the pricing of renewable vs. oil becomes much less competitive.

      On another note, Solar City recently released their Q4 report and their stock took a loss as they missed on the expectation for number of new installations. While this is bad for Solar City as a company, this is not necessarily a negative for their investors since they now hold more renewable assets they will receive an even greater tax break.

      To try to explain the tax break, when Solar City or any solar company reports their financial to the government, as part of a bill that was passed, they will receive a tax credit that is equivalent to 30% of the value of their renewable assets (solar panels, batteries, etc…). Solar City, as the manufacturer of the renewable assets, gets to determine the FMV of these assets. They had been accused of inflating the valuations and are under scrutiny because, as a result, have received greater than 30% of the actual FMV of the renewable assets.


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