THIRD PARTY ROOFTOP SOLAR & ENVIRONMENTAL JUSTICE

INTRODUCTION

Rooftop solar is an ingenious way to eliminate energy fuel costs, decrease grid congestion, reduce reliance on fossil fuels, and slow global warming.¹ For those who can afford to purchase rooftop solar panels and a battery storage system (average costs range from $25,000 to $35,000),² it is possible to meet household power needs and even turn a profit selling surplus generated electricity where states and utilities allow net-metering.^{3 4} Yet, rooftop solar remained financially unfeasible for most Americans until third-party-owner (TPO) solar panel leasing and solar power purchase agreements⁵ (SPPAs) became the norm. In some states, a homeowner can have solar panels installed on their home, connect to the grid, and begin net-metering with no money down. Unfortunately, such arrangements come with a 20-year contract disadvantageous to the homeowner and a lien on the property until the system is completely paid off.⁶ What appeared to bring the promise of inexpensive renewable energy to low-income homeowners has often become their nightmare. Predatory TPO solar companies reap the federal and state tax incentives, then leave the homeowner without customer service while the local utility delays grid connection. Utilities have little incentive to connect new rooftop solar systems as they represent lost income,⁷ especially in states where net-metering allows homeowners to use the local utility’s transmission lines for free.⁸ Even once connected, TPO solar company fees and gradually increasing rates, utility connection and service charges, and net metering caps often cause electricity bills to increase—sometimes significantly—instead of the promised savings. Many low-income homeowners enter into these predatory contracts not understanding that if they want to sell their home, the full cost of the 20-year SPPA will have to be paid off or their buyer will have to assume the contract. Rather than an asset that increases home value, the UCC-1 liens that TPO solar companies use are a serious impediment to sale.⁹

Cognizant of this problem, some U.S. states have outlawed TPO solar leasing.¹⁰ Several others are investigating the solar companies that operate in their state. Most state investigations and even complaints end in quiet settlements, but there are some exceptions. New Mexico is suing Vivint Solar for engaging “in a pattern of unfair and unconscionable business practices, fraud and racketeering.”¹¹ Connecticut has several ongoing investigations of rooftop solar companies in their state and has issued a public statement warning against SPPAs, false advertising, and high pressure sales practices.¹² North Carolina and Virginia are currently investigating Pink Energy (a.k.a. Power Home Solar) over complaints of high electrical bills, ineffective or unusable solar panels, and home damage during installation.¹³ On the federal level, the Securities and Exchange Commission (SEC) began investigating SunRun Inc. and Tesla-owned SolarCity in 2017 for concealing customer cancellation rates from investors; the SEC had received hundreds of complaints about the companies’ aggressive sales methods as well.¹⁴ The SEC is also investigating SolarCity for not informing solar panel customers and investors that its product was defective and could start fires.¹⁵ In 2020, the Department of Justice successfully prosecuted the owners of DC Solar for fraudulent business practices amounting to a $1 billion Ponzi scheme; one owner is now serving a 30-year prison sentence¹⁶ and the other was recently sentenced to eleven years.¹⁷ In addition to government prosecutions and investigations, consumer watchdog groups (the Public Citizen and the National Consumer Law Center) warn that TPO solar companies’ SPPAs are exploitative of low-income consumers. The Campaign for Accountability reviewed more than 1,200 complaints submitted to the Federal Trade Commission since 2012 and found “a widespread pattern of apparent fraud and abuse by solar companies,” especially SolarCity and Vivint Solar.¹⁸

Despite the disreputable state of solar panel leasing, it’s still an idea with merit. If investor owned electric utilities (IOUs)¹⁹ were under federal mandate to offer the option of solar panel leasing to their customers, and Inflation Reduction Act (IRA) incentives were fully utilized to help public utilities do the same, it would benefit the utilities, solve an emerging environmental justice issue, and drive fraudulent solar panel renting companies out of business. Congress could modify the Public Utility Regulatory Policies Act (PURPA) to mandate that IOUs acquire rooftop solar panels and lease them to their customers. State public utility commissions (PUCs) would regulate the leases as well as ratemaking. Current SPPAs with their 20-year property liens and escalating costs need to be made illegal under federal law. Local utilities could then be encouraged to buy out any TPO solar company’s SPPAs within the utility’s service area under modified terms that PUCs would determine. IRA provisions could be used to fund contract buyouts as well as purchase solar panels to lease to customers.

Some TPO solar businesses might be financially harmed by the proposed federal mandate, but the legislation will take time to pass through Congress and to implement. By the time electric utilities are prepared to offer their customers rooftop solar panel rental, the TPO solar companies will have had time to divest or shift to traditional solar panel sales and alter their fraudulent SPPAs to legal leasing agreements. Despite the anticipated market for their divestiture and the option of converting SPPAs to fair leasing agreements, some TPO solar companies may challenge the mandate and SPPA prohibition in court. Since their profits were primarily achieved by defrauding low-income homeowners, it’s reasonable to hope their claims will be successfully defended.

BENEFITS OF UTILITIES SERVING AS LESSORS

Because IOUs are heavily regulated by both the Federal Energy Regulatory Commission and state PUCs, they are far less likely to engage in the fraudulent behavior common to TPO solar companies. Customers and solar array lessees would be protected by PUC ratemaking, keeping their electricity rates low. Having state PUCs set rates also prevents IOUs from making exorbitant profits.²⁰ Yet, leasing solar panels to their customers would still be profitable for IOUs. Most states have renewable energy goals or mandates that rooftop solar power would help the IOUs meet. With adequate battery storage systems, surplus solar electricity can offset or even eliminate the IOU’s need to buy outside electricity or fire up an expensive natural gas plant to meet peak demand. Rooftop solar would also reduce grid congestion and line loss, not only by reducing the need to buy from outside sources, but by having the source of generation already within the utility’s customer area. Increasingly, rooftop solar panels are cutting into utility companies’ profits, as consumers generate their own electricity instead of buying from the utility. This loss of revenue forces utilities to recover their power generation investment costs from fewer customers, and prices go up. As electricity prices increase, more people buy or rent solar panels to generate their own electricity, and prices go up again for the remaining customers, leading to an IOU death spiral. Consumers who can’t afford solar panels are subject to ever increasing rates. Under the proposed mandate, the financial health of the IOUs is improved and low-income customers enjoy lower rates. Additionally, siting new power generation plants (even renewable sources) has become increasingly difficult due to public opposition (not-in-my-backyard!) and environmental statutes and regulations. With rooftop solar, dormant rooftops are transformed into voluntary energy production sites.²¹ And instead of the sometimes years-long queue of rooftop solar waiting to be connected to the grid (especially in low-income communities), utilities will have every incentive to connect their own solar panels promptly and keep them well-maintained. IOUs charging large connection fees will no longer have a financial incentive to do so—at least not for their own solar panel-renting customers.²²

UTILIZING THE INFLATION REDUCTION ACT INCENTIVES

Properly utilized, the IRA’s generous grants and loans to states, localities, tribes, and electric cooperatives can make rooftop solar possible on a broad scale and even reach low-income communities where home ownership is rare. The IRA provides an investment tax credit up to 50% to fund community solar projects in low-income communities.²³ Such projects allow qualified renters to subscribe to a solar power generating project, reducing their electric bill, and bringing cleaner energy to their community.²⁴ The $12.7 billion allocated for rural electrification and grants could be used to upgrade transmission lines where necessary to allow current to travel both ways for net-metering.²⁵ The $290 billion in loan authority for clean energy infrastructure could assist IOUs, municipalities and electric cooperatives to buy solar panels and even battery storage systems to rent to their customers, and production and investment tax credits (the latter now at 30%) will help IOUs stay profitable and appealing as investments. Tax-exempt entities like state and local governments as well as Indian tribal governments can transfer renewable electricity production credits to taxpayers in exchange for direct payments. The IRA also gives the U.S. Department of Agriculture $9.7 billion to assist rural electric cooperatives, and could be used to get solar panel leasing started.²⁶ The $1.72 billion for the Rural Energy for America Program could be used for the same purpose.²⁷ Finally, HUD homes could be upgraded with rooftop solar panels and battery storage systems with the $1 billion from the IRA.²⁸

CONCLUSION

Though the IRA’s grants, tax credits, and loans could be used to bring rooftop solar to low-income homeowners in a well-regulated, equitable manner, there’s no guarantee that they will. Without a federal law to prevent SPPAs and to mandate IOU participation in rooftop solar, this vastly untapped source of clean energy will remain underutilized and this environmental justice problem will continue to grow. Low-income homeowners must be given the means to escape the contractual stranglehold of TPO solar companies while retaining the benefits of rooftop solar energy. Then disadvantaged communities all over the country would have the opportunity to switch to renewable power and improve their environments. Pollution and blackouts more prevalent in their neighborhoods would decrease,²⁹ and PUCs would ensure that the IOUs rooftop solar rental agreements were fair. IOUs could even recover the economic losses they have endured from TPO rooftop solar. The only possible losers in this proposal are those who have unjustly enriched themselves and brought on an environmental justice crisis with their dishonesty; their justifiable loss is everyone else’s gain.

__________

1.               Melissa Powers lecture, “Distributed Generation and Net Metering,” Energy Law course at Lewis & Clark Law School, Fall of 2022.

2.               Solar Energy Technologies Office, “Should I Get Battery Storage for My Solar Energy System?” November 22, 2021.

https://www.energy.gov/eere/solar/articles/should-i-get-battery-storage-my-solar-energy-system

3.               Office of Energy Efficiency & Renewable Energy, “Homeowner’s Guide to Going Solar,” https://www.energy.gov/eere/solar/homeowners-guide-going-solar

4.               Electric utility meters can be designed to run either forward or backwards. When a homeowner has a rooftop solar array generating electricity, the meter can run backwards, adding electricity to the grid. This is especially common during sunny parts of the day when the homeowner is using very little of the electricity the solar panels are generating. Where net metering is allowed, the homeowner may make money or at least offset the electrical bill when the surplus solar electricity produced is subtracted from the cost of the electricity the homeowner purchased from the utility (Steven Ferrey, “Nothing but Net: Renewable Energy and the Environment, Mid-American Legal Fictions, and Supremacy Doctrine,” 14 Duke Environmental Law & Policy F. 1 (2003)).

5.               Solar Power Purchase Agreements (SPPAs) are contracts where a third party owns, operates, and maintains the solar panel system attached to a homeowner’s roof. The homeowner purchases the system’s electric output from the TPO for a set period (usually twenty years), and the TPO claims the tax credits. U.S. Environmental Protection Agency, “Solar Power Purchase Agreements,” https://www.epa.gov/green-power-markets/solar-power-purchase-agreements

6.               Max Aram, “Solar Scams Explained,” Solar Learning Center, Aug 31, 2022, https://www.solar.com/learn/solar-is-a-scam-and-a-big-lie/

7.               Miranda Willson, “Want more solar panels? Good luck connecting to the grid,” Energy Wire, 03/16/2022

https://www.eenews.net/articles/want-more-solar-panels-good-luck-connecting-to-the-grid/

8.               Melissa Powers, Electricity Law & Policy, page 329, © 2019

9.               Esmé E. Deprez, “What Happened When I Bought a House With Solar Panels,” Bloomberg, February 14, 2019,

https://www.bloomberg.com/graphics/2019-sunrun-solar-panels/

10.            Melissa Powers lecture, “Distributed Generation and Net Metering,” Energy Law course at Lewis & Clark Law School, Fall of 2022.

11.            The Associated Press and Tiffany Caldwell, “Vivint Solar accused of dishonest sales practices by New Mexico attorney general,” Salt Lake Tribune, March 11, 2018, https://www.sltrib.com/news/2018/03/11/vivint-solar-accused-of-dishonest-sales-practices-by-new-mexico-attorney-general/

12.            The Office of the Connecticut Attorney General William Tong, “Attorney General Tong,

DCP Commissioner Seagull Urge Caution in Reviewing Residential Solar Contracts,” June 21, 2022,

https://portal.ct.gov/AG/Press-Releases/2022-Press-Releases/Attorney-General-Tong-Urges-Caution-in-Reviewing-Residential-Solar-Contracts

13.            Julie Millet, “NC, VA Attorneys General investigating solar panel company for fraud,” Wavy News, December 1, 2022,

https://www.wavy.com/news/investigative/nc-va-attorney-generals-investigating-solar-panel-company-for-fraud/

14.            Kirsten Grind, “SEC Probes Solar Companies Over Disclosure of Customer Cancellations,” Wall Street Journal, May 3, 2017,

https://www.wsj.com/articles/sec-probes-solar-companies-over-disclosure-of-customer-cancellations-1493803801

15.            Hyunjoo Jin and Chris Prentice, “SEC probes Tesla over whistleblower claims on solar panel defects,” Reuters, December 6, 2021,

https://www.reuters.com/markets/commodities/exclusive-sec-probes-tesla-over-whistleblower-claims-solar-panel-defects-2021-12-06/

16.            United States Department of Justice, “DC Solar Owner Sentenced to 30 Years in Prison for Billion Dollar Ponzi Scheme,” November 9, 2021,

https://www.justice.gov/usao-edca/pr/dc-solar-owner-sentenced-30-years-prison-billion-dollar-ponzi-scheme

17.            United States Department of Justice, “DC Solar Owner Sentenced to Over 11 Years in Prison for Billion Dollar Ponzi Scheme,” June 28, 2022,

https://www.justice.gov/usao-edca/pr/dc-solar-owner-sentenced-over-11-years-prison-billion-dollar-ponzi-scheme

18.            Campaign for Accountability, “CfA’s Investigation of Rooftop Solar Companies: Holding the Solar Industry Accountable,” https://campaignforaccountability.org/cfas-investigation-into-the-solar-industry/

19.            There are 192 IOUs generating 38% of U.S. electricity and 80% of transmission. Approximately 2,900 publicly-owned utilities and cooperatives account for 15% of net generation and 12% of transmission. Independent power producers (about 2,800) produce 40%. The federal government is responsible for generating 7% of total electricity and transmitting 8% (U.S. Department of Energy, Office of Electricity, “Electricity 101,” https://www.energy.gov/oe/information-center/educational-resources/electricity-101)

20.            Melissa Powers, Lecture: “Ratemaking Implications and Practices,” Energy Law, Lewis & Clark Law School, Fall 2022.

21.            Melissa Powers, Lecture: “Distributed Generation and Net Metering,” Energy Law, Lewis & Clark Law School, Fall of 2022.

22.            Miranda Willson, “Want more solar panels? Good luck connecting to the grid,” Energy Wire, 03/16/2022

https://www.eenews.net/articles/want-more-solar-panels-good-luck-connecting-to-the-grid/

23.            Green Energy Institute Webinar, “Money Money Money: How Gas Utilities Could Chase IRA Dollars,” Moderator: Carra Sahler, Panelists: Energy Innovation, Dan Esposito, Hadley Tallackson; RMI: Alex Piper, Lewis & Clark Law School, November 2022.

24.            Oregon Community Solar Program, “Low Income Participants,” https://www.oregoncsp.org/li/

25.            According to reports and webinars by the National Renewable Energy Laboratory (https://www.nrel.gov/grid/transmission-integration.html), the current transmission lines will require only minimal infrastructure changes until solar-generated electricity exceeds 35% of total U.S. electricity generated (Melissa Powers, Electricity Law and Policy, page 357, © 2019).

26.            Green Energy Institute Webinar, “Money Money Money: How Gas Utilities Could Chase

IRA Dollars,” Moderator: Carra Sahler, Panelists: Energy Innovation, Dan Esposito,

Hadley Tallackson; RMI: Alex Piper, Lewis & Clark Law School, November 2022

27.            National Conference of State Legislatures, “Inflation Reduction Act of 2022 Provisions Summary,” Prepared by NCSL Staff, page 4,

https://www.ncsl.org/Portals/1/Documents/NCSL/NCSL-Summary-Inflation-ReductionAct.pdf

28.            Green Energy Institute Webinar, “Money Money Money: How Gas Utilities Could Chase

IRA Dollars,” Moderator: Carra Sahler, Panelists: Energy Innovation, Dan Esposito,

Hadley Tallackson; RMI: Alex Piper, Lewis & Clark Law School, November 2022

29.            The New York Times, “Texas Blackouts Hit Minority Neighborhoods Especially Hard,” Feb 18, 2021,

https://www.nytimes.com/2021/02/16/climate/texas-blackout-storm-minorities.html