A Dangerous Precedent Third-Party Solar Financing and Hidden Dangers Partnership for Affordable Clean Energy - March 1, 2016 Nothing should stop homeowners from installing solar if they want to do so, but the language of HB 277 regarding power purchase agreements sets a dangerous precedent in Alabama. This bill would allow financial agreements between for-profit solar companies and homeowners based, in part, on the sale of electricity generated from rooftop solar panels. The type of contract HB 277 allows is far more than a simple lease of equipment; it allows for electricity sales that would be totally unregulated by state regulators. - PACE, as quoted in part by Energy & Environment News, 2/26/16 A DANGEROUS PRECEDENT SOLAR 3RD PARTY FINANCING 1
Introduction In states from coast to coast in recent years, issues surrounding solar power have come before state legislators and members of regulatory bodies. The most fruitful solar markets - California, Arizona, Nevada, and New Mexico - were among the first to see debate over the treatment of solar and its integration into the market. However, as the price of solar panels dropped and federal subsidies encouraged rooftop solar s widespread expansion, elected officials and regulators in new markets such as the East Coast and the Southeast began to see themselves confronted by public policy issues concerning residential solar power and the electricity marketplace. Florida, for example, currently has two competing ballot initiatives that will decide the direction of solar power in that state. Lawmakers in Georgia, Mississippi, and Louisiana have been asked recently to weigh in on solar issues, as well. In Alabama, the Public Service Commission has taken action to approve significant large-scale solar projects that will add as much as five hundred megawatts to the state s electricity grid. Recently, as well, a piece of legislation was introduced in the Alabama Legislature that would allow third-party financing of solar panels by electricity customers. This bill, House Bill 277, has been referred to the Transportation, Utilities and Infrastructure Committee. Often, pieces of legislation such as HB 277 are presented by solar advocates as matters of consumer choice that pit energy customers against their regulated utilities, positioning solar power as a right that should be available to all customers. Such is the case with House Bill 277, which has been entitled the Solar Power Free-Market Financing and Property Rights Act of 2016. The bill seemingly creates a financing marketplace in which customers can gain greater access to solar technology, but there a number of other negative unintended consequences contained in the language of the bill - consequences that could be potentially go overlooked by lawmakers. A DANGEROUS PRECEDENT SOLAR 3RD PARTY FINANCING 2
Far More Than Just Leasing Equipment Legislation to allow third-party financing of solar technology often presents the premise that many customers cannot afford solar rooftop systems, many of which range as high as $30,000 or more. This is true, of course. However, it is important for lawmakers to realize that bills like HB 277 often go far beyond simple lease agreements for equipment. Consider the language of HB 277, for example, as it addresses the proposed new rights of electric customers: A retail electric service customer may install or have installed solar technology for the generation of electric energy for use primarily on property owned or occupied by that customer. The solar technology and its installation may be financed by the retail electric service customer through a solar financing agent utilizing a loan, lease, power purchase agreement, or any other form of financing agreement. [emphasis added] Under the proposed new law, a customer would be allowed to enter into a contract with a for-profit solar leasing company based, in part or in whole, on a power purchase agreement. In other words, customers would be allowed to lease rooftop solar technology by selling the electricity they generate to the leasing company. This is a far different arrangement than simply paying for the solar technology over time with a fixed interest rate, similar to a vehicle lease; this arrangement involves paying for technology through the contracted sale of electricity to a non-utility. Unlike utilities whose contracts and electricity sales are closely regulated, electricity sales to for-profit solar companies under the arrangements allowed by HB 277 would be free from regulation by any state authority in Alabama. electricity sales to for-profit solar companies under the arrangements allowed by HB 277 would be free from regulation by any state authority in Alabama. A DANGEROUS PRECEDENT SOLAR 3RD PARTY FINANCING 3
In a statement published in part by Energy & Environment News on February 26th, 2016, PACE expressed its position on the danger of the bill, stating - Nothing should stop homeowners from installing solar if they want to do so, but the language of HB 277 regarding power purchase agreements sets a dangerous precedent in Alabama. This bill would allow financial agreements between for-profit solar companies and homeowners based, in part, on the sale of electricity generated from rooftop solar panels. The type of contract HB 277 allows is far more than a simple lease of equipment; it allows for electricity sales that would be totally unregulated by state regulators. Potential Dangers If past experience is any indicator, opening up Alabama consumers to new financial arrangements with for-profit solar companies based on electricity sales could have real unintended consequences. Many of these dangers were outlined by the New Mexico-based Citizens Alliance for Responsible Energy in that organization s 2015 publication Solar Power in the U.S.: Lessons Learned and Guidance for Policy Makers. For example, a host of solar companies have run afoul of federal and state laws in their rush to take advantage of new subsidies and a growing appetite by some to go solar. The report explains - While the majority of solar installations sit in California and the Southwest, the industry continues to make significant inroads into other states, such as North Carolina and New Jersey, and will likely continue to grow into new markets. This has produced its share of policy, regulatory, and consumer protection issues, as the nascent industry expands into new markets. Several companies have run afoul of federal and state officials, while homeowners have been exposed to unscrupulous installers and sales teams, warranty troubles, insurance issues, maintenance complications, and property transference issues. [emphasis added] unscrupulous installers and sales teams, warranty troubles, insurance issues, maintenance complications, and property transference issues. A DANGEROUS PRECEDENT SOLAR 3RD PARTY FINANCING 4
Of particular danger are financial arrangements with solar companies based on power purchase agreements. According to the report, such agreements often include provisions that are poorly understood by customers. Low-income homeowners and senior citizens have been particularly vulnerable. For example, the report asserts Separate from federal financing programs for solar energy systems, most solar companies offer third-party leasing or power-purchase agreements (PPA) to help reduce upfront costs to customers. The companies usually purchase the photovoltaic systems, install them on the customer s home and maintain them within the limits of signed agreements. In exchange, the customer may pay a leasing fee to the company or, with the PPA, may actually buy the electricity generated back from the company. The third-party company collects all state and federal tax credits for the system, as well as any available rebates. Such business practices have resulted in fraud and other illegal activity, causing law enforcement officials to take action. The report explains - Many customers sign leases or PPA agreements without fully realizing the terms they are agreeing to when they enter into the contracts. Issues vary from length of time to install the system, length of time to perform maintenance, what maintenance is actually covered, and rates charged by the companies for power generated, to not understanding that they have given away their tax credits and incentives to the third-party company or finding out the system doesn t generate the savings expected. Numerous cases of solar companies, with questionable business practices relative to the consumer, have occurred. In Arizona, a state on the forefront of the expansion of the solar industry, the Better Business Bureau released an article in April 2014 warning about the lack of transparency in the solar industry. The article goes on to say that many solar companies use opaque marketing and sales tactics. This summer, Arizona Attorney General Tom Horne released a consumer warning related to fraud committed by solar companies and, in December of 2014, U.S. Congressman Paul A. Gosar, (R-Ariz.) D.D.S. requested that the Federal Trade Commission investigate sales practices of third-party solar companies. The Arizona Corporation Commission has also recently opened an investigation into solar leasing practices. A DANGEROUS PRECEDENT SOLAR 3RD PARTY FINANCING 5
As recently as January of 2016, customers in Nevada filed a class action lawsuit against SolarCity Corporation, one of the nation s largest solar leasing companies. Among other allegations, the customers allege that SolarCity defrauded customers through contracts that contained, in many cases, provisions related to power purchase agreements for solar rooftops. The customers allege that the third-party leasing company misrepresented potential savings from installing solar rooftop technology and did not adequately warn customers that payments under their power purchase agreement could change to their detriment. The kind of financial power purchase arrangements allowed by Alabama s HB 277, ones that use electricity sales as the basis for lease agreements, carry the same potential for harm for Alabama consumers. Conclusions In our view, lawmakers should have strong concern for the ways in which HB 277 could affect the electricity marketplace in Alabama. Particularly, lawmakers should scrutinize closely the provisions of the bill that address third-party solar leasing through power purchase agreements. Such provisions help create a new class of electricity sales that would be completely unregulated by state officials. Just as important, HB 277 creates a solar leasing marketplace that would immediately expose tens of thousands of Alabama homeowners to new solicitations from third-party leasing companies. While many in the solar industry have operated honestly, many have not. Lawmakers should take a close look at the marketplace conditions in other states that led to fraud and the targeting of vulnerable populations like seniors for dishonest business practices. These examples are instructive about what potential dangers are possible under a new third-party solar leasing environment. Lawmakers should have strong concern for the ways in which HB 277 could affect the electricity marketplace in Alabama. A DANGEROUS PRECEDENT SOLAR 3RD PARTY FINANCING 6