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SolarCity Sues Treasury Over 1603 Payments

In an interesting turn of events, solar third-party ownership company SolarCity is suing the Treasury Department in Federal Claims Court, alleging that it received less than expected from the now defunct 1603 Treasury Grant Program. This follows the Treasury investigation of SolarCity over whether or not it correctly valued the solar arrays the company installed under its third-party ownership programs when it applied for grants through the 1603 program. 

In the suit SolarCity alleges its subsidiaries have already received about $8.1 million less than promised under the 1603 program for just two projects. One, filed by Sequoia Pacific Solar, covered 115 residential and 31 commercial solar energy projects. The other, filed by Eiger, covered 2,036 residential solar energy projects.

That’s just two projects out of the roughly $400 million in projects SolarCity and its subsidiaries filed for grants under the 1603 program, according to the Wall Street Journal, which first reported the story earlier this week. So the overall impact to SolarCity could be in the realm of tens of millions of dollars less than anticipated, drastically reducing the company’s earnings shortly after it became public in late 2012.

There are a number of issues at play here, chiefly the rapidly falling costs of solar and the increased scrutiny the Obama Administration’s support of clean energy has come under. The 1603 grant program allowed owners of solar and wind projects to monetize the 30 percent Investment Tax Credit upon project completion and interconnection, earlier than they otherwise would be able to. Eligible projects had to break ground by Dec. 31, 2011 and must be completed by Dec. 31, 2016. SolarCity is among many companies that filed for $100s of millions of projects under the program. 

The program, established as part of the American Recovery and Reinvestment Act of 2009, is arguably successful in creating new jobs and spurring economic growth. In an April 2012 report, the National Renewable Energy Laboratory (NREL) found that the program had already provided $9.7 billion in funds by Nov. 10, 2011, supporting 14.5 gigawatts of new, clean energy. “This represents a total of 150,000 to 220,000 job-years. These expenditures are also estimated to have supported $9 billion to $14 billion in total earnings and $26 billion to $44 billion in economic output over this period. This represents an average of $3.2 billion to $4.9 billion per year in total earnings and $9 billion to $15 billion per year in output,” NREL said

However, other efforts by the Obama Administration to spread the adoption of clean energy and jobs as the U.S. recovered from the Great Recession—namely the loan guarantee program, which was largely used to help get newer technologies to commercialization—were not as successful. They tainted programs like 1603 and made it harder for them to renew and subject to deeper scrutiny, which is among the likely reasons that last July the Treasury Department looked into whether SolarCity was overvaluing the costs of its installations. 

SolarCity alleges that the Treasury delayed payment then reduced the payment on applications pending reducing in Arizona, for instance, the amount it valued solar installations from $7 per watt to $5 per watt, which reduced the amount it would reimburse for systems dramatically. “[The] Treasury gave no explanation for the change at the time, and has given none since. It made this change without even revising the guidance. The effect of this change, if applied to all pending applications, will run into the millions of dollars,” SolarCity said in the filing.

The Treasury is likely trying to reduce its outlays to the program because the cost of solar is falling so quickly, and if it doesn’t respond to reduced costs of solar rapidly it may come under fire for overspending taxpayer money. On the other hand companies like SolarCity may break ground on a project in 2011 to meet the initial 1603 deadline, but may not complete or install solar on a property until years later. In that interim, costs can change, but the company may have anticipated higher earnings on a project because of its initial and subsequent project cost expectations. 

The original article was posted on the SolarReviews blog


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