1. Heamon Williams
Prof. Richardson
Finance Project Individual Paper
Solar Subsidies
4/11/16
What is a subsidy?
A subsidy is a benefit given by the government to groups or individuals usually in the form of a
cash payment or tax reduction. The subsidy is usually given to remove some type of burden and
is often considered to be in the interest of the public. Politics play an important part in
subsidization. In general, the left is more in favor of having subsidized industries, while the right
feels that industry should stand on its own without public funds (Investopedia.com). Solar
energy is only an attractive option due to its cost saving benefits in the minds of the rational
consumer, who worries more about the money they will save, than the environmental impact
they have. Right wing politicians tend to feel that subsidies give an unfair advantage to
companies that receive them. This ethical argument whether or not to subsidize certain
industries will be discussed later in the paper after we deal with the current state of solar
subsidies today in 2016. For now all one needs to understand that if you go solar you receive
not only a free installation covered by the state (varies state to state exactly) but a tax break in
addition to the ability to sell back any unused energy for a further reduction in cost. This three
part package in essence is the government subsidy to the solar industry.
What is happening to Solar subsidies?
The solar investor tax credit (ITC) was scheduled to run out in 2016. However in December of
2015 Congress passed an extension for this tax provision. Under the legislation, the 30 percent

2. ITC for solar will be extended for another three years. It will then ramp down incrementally
through 2021, and remain at 10 percent permanently beginning in 2022 (Bloomberg SEIA). This
was one of Congress’ biggest fiscal policy moves in recent years in an attempt to stimulate the
economy. This move was well timed because the economic reverberations a solar energy
collapse would generate would wreck our economy at a time when it is still recovering from the
’07-’08 recession. As evidenced by the market’s slow response to a rise in interest rates in early
2016, our economy is not ready for any more stress to be put on it. A collapse of solar energy
due to a lack of subsidies would certainly bode ill for the markets and investors. For a clearer
look at what could have happened had Congress not intervened is evidenced by the following
graph, which shows the drop in solar project levels predicted (Provided by Bloomberg Solar
Energy Industry Association).

3. This drop would cut investment in solar energy projects by about 70 percent! A drop that large
in an industry would be reminiscent of the dot.com bubble that burst in the late 90’s/early
2000’s.
But why would a drop in solar installations really impact our economy so hard? The
answer lies in the loss of potential jobs solar installation creates. According to SEIA Bloomberg
an estimated 100,000 American jobs will be lost without an extension on the ITC in 2017.
80,000 of these jobs will be in the solar field with 20,000 estimated lost jobs in related fields
and these numbers are only for the year 2017. The economic impact several years down the
line has the potential to send unemployment back to 2008 levels. Investing too, will slow
without an ITC extension. According to the SEIA: “Total investment in the U.S. economy from
solar during 2016-22 is projected to be more than $124 billion, $39 billion more than if the ITC
expires (SEIA Bloomberg).” Basic economics tells us that as investment slows so too does GDP.
During this period of global turmoil, in terms of market stability, cutting our GDP growth would
be equivalent to cutting off our right arm. The solar energy industry, as well as other
renewable sources of energy, are key components to driving our economic growth. The race to
find alternatives to non-renewable energy sources that do not endanger our environment is
one that our generation can’t afford to lose. Not only does our economy hang in the balance,
but so too does our future as a species on a planet that until several decades ago we cared very
little about. To cut subsidies to solar installations would be to cut down our economy at a time
when it is vulnerable.
Why does Solar get special treatment?

4. The aforementioned disagreement politically about the ethical basis of subsidies is one
that divides the democrats and republicans seemingly against all the facts. First and foremost
those who do not support solar subsidies on the grounds that it is “special treatment” for an
underperforming industry conveniently overlook the subsidies other energy industries receive
as well. In The Conservative Case for Solar Subsidies article by the New York Times it is pointed
out that: “There’s nothing unique about the government’s support for solar. According to the
Congressional Research Service, total government support for the oil and gas sector over the
years dwarfs the amount of support for the solar industry (New York Times).” So it would
appear that the solar industry’s acceptance of government subsidies is simply a response to
keep its head above water. This can be thought of similar to a baseball player who uses
steroids because his only other choice is to be sent down to the minors for not performing as
well as the rest of the steroid-using league. Manny Frishberg echoes this sentiment in his book
Research Technology Management when he writes: “Indeed, subsidies for alternative energy
may simply level the field, given the level of government support fossil fuels have received.
Certainly the energy sector is not immune to government influence in any form, whether it is
oil, coal, natural gas, solar or wind. So, the fact that solar does have access to this investment
tax credit and direct spending is not out of step with the level of support that's given to other
energy sources, Indeed, the petroleum industry gets a wide range of government funded
benefits, including the oil depreciation allowance, federal drilling subsidies, and low-cost
mineral leases on federal lands (Frishberg 7).” Support from the government can come in
several forms from tax benefits to flat out government handouts (think bank bailouts) so why

5. should solar be punished for accepting one of the many ways in which the government acts to
stabilize our economy?
One might then counter with the statement: “If solar is so beneficial why is it not
reflected in the market value of each solar company’s stock price? The market is designed to
reflect accurately the true value of each company and industry.” To answer this objection I
would first say that the market is rarely an exact correct valuation of any industry, hence the
lucrative nature of buying and selling stocks that get “hot”. But moving past this obvious point,
solar energy has benefits that some people may overlook when valuing a solar company that
should be taken into consideration. Beyond the ability of solar users to add excess energy back
into the power grid, solar energy contains another major benefit to any society that embraces
it: environmental. Solar panel companies have an immense amount of positive externalities,
which can be thought of as social benefits that do not get put down on a balance sheet. The
New York Times article referenced earlier, discusses these positive externalities that the solar
industry contains: “Solar panels, and the companies that make them, are replete with such
benefits: They eliminate redundant power plants that otherwise lie idle, empower consumer
choice and have fewer negative consequences than most other forms of energy. But markets
don’t always reflect these, which is why it makes sense for subsidies to enter the picture (New
York Times).” In a sense, government subsidies are a balancing act meant to counteract the
inherently profit centered tendency that investors and consumers have. When deciding
whether or not to purchase solar energy for one’s home, one is most likely to pay more
attention to the price and money that can be saved, than the jobs one is creating or the positive
environmental impact of the decision. To help make the cost savings worthwhile in a

6. consumer’s eyes the government subsidizes solar energy in the form of tax benefits should you
install solar.
Alternatives to Government Subsidies
Money can come from alternative sources than the federal government. Wealthy
private investors have the capital necessary to keep the industry afloat through 2020 should the
government subsidies fall through. Also financial intermediaries have enough clout to step in to
save solar. The financial power of Wall Street certainly is large enough to fill the gap that would
be left by a reduction in subsidies. The solar industry itself is at a point where it may outgrow
the proverbial training wheels of subsidiaries by the time this renewal runs out. Due to
increasing technology, the cost of not only installation but technological advancement in the
form of more efficient panels is driving the cost of solar down. By 2020 according to Lazard’s
Levelized Cost of Energy Analysis, Version 9.0 (PDF), the cost of solar will have reached a par
with unsubsidized gas. This is the tipping point that solar has been waiting for to leave the
subsidies behind and stand alone as a viable energy alternative that consumers can really trust
to be around for the long term. The current plan does contain a form of leveling off that is
designed to allow the economy to avoid the “boom and bust cycle that would occur as solar
prepared to stand on its own (Lazard 3).” Through a gradual decline analysts can track the
economic effects of an ITC slowdown on the solar industry as well as other effected industries
as opposed to a sharp cutoff in the form of a non-renewal of the ITC law.
Where are we today?
With the three year extension of the solar ITC, economic growth looks stable over the
next five to ten years according to MJ Shiao who is the director of solar research at Greentech

7. Media. Business groups and analysts say the extensions will support tens of billions of dollars in
new investment and hundreds of thousands of new jobs throughout the U.S. “There’s no way
to overstate this -- the extension of the solar ITC is the most important policy development for
U.S. solar in almost a decade (MJ Shiao GMT.com).” Shiao goes on to state “the ITC extension
will help spur nearly 100 cumulative gigawatts of solar installations by 2020, resulting in $130
billion in total investment. More than $40 billion of investment will be directly attributable to
the passage of the extension.” Clearly despite the disagreement between the left and right the
correct choice economically has been made. Of course the only true way to tell whether the
industry will live up to the predicted numbers is to wait five years and revisit this issue.

8. Citations
The Conservative Case for Solar Subsidies - The New York Times. (n.d.). Retrieved from
http://www.nytimes.com/2016/01/05/opinion/the-conservative-case-for-solar-
subsidies.html?_r=0
Subsidy Definition – Investopedia. (n.d.) Retrieved from
http://www.investopedia.com/terms/s/subsidy.asp
Frishberg, Manny. Research Technology Management. 2nd ed. Vol. 57. Industrial Research
Institute, 2014. Print.
Lacey, Stephen. "Congress Passes Tax Credits for Solar and Wind: ‘Sausage-Making at Its Most
Intense’." Web. 15 Mar. 2016.
"Congress Extends the Renewable Investment Tax Credit: What Now." GreenBiz. Web. 15 Mar.
2016.
"Energy Subsidies." Downsizing the Federal Government. Web. 22 Mar. 2016.