Navy's New Solar Installation: Lemonade Stand Economics At Work

November 2, 2012

A couple weeks ago, solar energy company SunPower announced a new agreement to provide the U.S. Navy with solar power, claiming it would save the military branch $13 million. One solar energy blog wrote this about the announcement:

The Navy’s new China Lake Solar Power Plant is expected to save about $13 million per year in electricity costs, accounting for about 30 percent of the facility’s annual electricity usage. Amazingly, there were virtually no up-front costs for the Navy and the entire thing didn’t cost taxpayers one thin dime.

The claim that stood out at me was that the installation didn't cost taxpayers "one thin dime." This is simply false.

Instead of paying SunPower to install solar panels for the Navy, they entered into a power purchase agreement (PPA) with SunPower, where the company retains ownership of the solar panels and has a guaranteed buyer in the Navy. There are reasons to do this.

SunPower earns revenue by selling energy to the Navy. SunPower told me that rate is "not public information but it is competitive with the utility rate." This rate seems to be the source of the claim that the Navy will save $13 million on its energy costs. The question, however, is whether taxpayers will save $13 million a year. That answer appears to be a resounding "no."

In addition to what the Navy pays, taxpayers also pay other subsidies.

First, the project receives the solar investment tax credit, a direct subsidy to the company generating the energy. This is one reason SunPower is the generator, not just the installer.

Second, there are also financing incentives with accelerated depreciation. There is a special depreciation schedule for solar energy which allows the full cost to be claimed over five years.

Put simply, the solar project only makes sense because it includes direct payments from the Navy, taxpayer subsidies to SunPower and tax advantages due to accelerated depreciation.

The claim that "the entire thing didn't cost taxpayers one thin dime" isn't anywhere close to accurate.

They might claim that taxpayers didn't have to pay the up-front cost of installing the solar array. This, however, is like saying a renter doesn't pay anything because they didn't pay to build the building.

Advocates of solar energy understand that recent failures of government-funded solar companies have harmed the credibility of taxpayer subsidies for renewable energy. As a result, they use tortured accounting to claim taxpayers are saving money when projects like this are created.

The fact, however, is that such accounting hides the real costs of these programs. As long as budgets are strained, funding for such programs will become more scarce, putting the whole industry at risk.

This is lemonade stand economics -- where the government plays the role of parent, paying for the venture's overhead, but the company receives the profits. Eventually, the parents' ability to pay for more lemonade comes to an end and the stand shuts down.

The need to use false accounting and claims indicates how precarious the real accounting of solar energy really is.

Comments

solar power

The low cost and abundant supply of natural gas allows electrical generation well below that of solar. All subsidies should be stopped, but research continued on improving efficiency and power leveling.