Many Americans are familiar with federal, taxpayer-financed fiascos in the solar industry such as Solyndra and Abound Solar, but they are less familiar with state and local solar projects that have failed. Like federal fiascoes, these local fiascos have also wasted millions in tax money or bond debt that needs to be repaid. Taxpayers in three counties in New Jersey could be on the hook for up to $88 million in bonds that investors hold for a project to put solar panels on schools and other public buildings.[i] In Oregon, state officials wrongly awarded almost $12 million in state tax credits to a solar project based on phony documents. The Oregon project was also plagued by an international trade war, a bitter corporate rivalry and a labor shuffle that resulted in prison labor at 93 cents an hour being substituted for what was supposed to be high-paid Oregon jobs.[ii]

All in all, the government-created market for solar power now appears like a free-for-all for companies seeking questionable government deals that in some cases appear fraudulent or run counter to the rules and laws governing projects. The government seems to be aiding and abetting fraudulent behavior as much as it is creating the new “green economy” that so many politicians suggest they are pursuing. In the end, the taxpayer is coming up short.

The NJ Solar Project

Three counties in New Jersey—Morris, Somerset, and Sussex—borrowed $88 million to install panels on public buildings with plans to pay off the debt using the revenues obtained by selling the excess electricity that was not used by the buildings. Nearly four years later, work has stopped due to cost overruns and lawsuits, leaving taxpayers on the hook for up to $88 million that the counties owe the bondholders if the project does not resume.

After a deal was struck with the developer and contractor to add solar panels to 71 public facilities, the market for state solar-energy tax credits, which was a key part of the deal financially, declined steeply—by about 70 percent. (Click here for the market prices.) When cost overruns occurred and the developer and contractor became embroiled in lawsuits, work stopped on the project. While most of the work in Somerset was completed, only about half was completed in Morris and Sussex counties. The contractor, Power Partners Mastec of North Carolina, was awarded $66.3 million for the solar panels and the installation that had been completed. The counties are trying to salvage the project and are entering into the dispute. A potential bankruptcy could happen, which would complicate matters.

While the project in Sussex County is not complete, officials indicate that solar revenues total about $1 million annually. Never the less, the bond payments are a notable chunk of the annual county budgets. In 2014, Sussex paid $2.7 million toward the amount borrowed and still owes $24 million of the $27.7 million it borrowed. Morris made a $3.4 million payment on the bonds last year, which was 10 percent of its $33.1 million bond. And, Somerset paid off $1.3 million of the borrowed $26.8 million.

Oregon’s Signature Solar Project

Oregon touted that its $27 million collection of solar arrays would be a boon for the economy as well as the environment. For almost $12 million in tax credits, the project developer was to buy and hire local products and labor, create energy savings and jobs, and reduce greenhouse gases. The solar arrays went on line a year ago, generating power at the Oregon Institute of Technology and the Oregon State University. However, state officials had wrongly awarded $11.8 million in state tax credits based on phony documents.

Officials at the Oregon University System envisioned 14 solar installations over seven campuses. The University System, however, had no funding, no experience and no in-house talent to develop the project. Instead, the University System was able to use Oregon’s Business Energy Tax Credit program–the most generous state tax incentive program in the nation—obtaining half the cost of the project from Oregon taxpayers.

In 2008, the state hired a renewable energy consultant, but the economic downturn and the possibility that the state Legislature was considering killing the tax credit, resulted in the first developer walking away from the project. The second developer picked by the state had no experience in producing successful solar projects and the company went bankrupt. The bankruptcy meant that there was insufficient time for the project to be completed and still legally claim the $11.8 million in state tax credits. However, project backers submitted phony and misleading documents to keep the project alive.

Despite no design plans or building permits for the project by the end of 2011, university officials tried to establish that construction had begun in early 2011 in order to receive the tax credits before the deadline and to obtain an extension that was allowed under the state tax program. The documentation provided for the extension was less than required and based on documents that supposedly offered proof that construction on the solar arrays had started in time to make the deadline. But, the documents were not credible.

In the spring of 2012, the university system hired its third developer—SolarCity—a company that was in business for five years and supposedly the largest installer of solar systems in the world. Under the new contract, SolarCity would own the project, selling power to the universities to recoup its investment.

SolarWorld was to make the solar panels that would provide new jobs. Oregon authorized a $60,000 study that concluded manufacturing solar panels in the state would generate $10 million in local wages.

SolarCity and SolarWorld were bitter rivals in an international trade war. SolarWorld was the leader in defending American manufacturing from “illegal trade” by the Chinese that were supposedly selling solar panels below cost. SolarCity, on the other hand, needed the low-cost panels for its business success and was threatened by any effort to stop Chinese solar panels from being sold in the United States.

The U.S. Department of Commerce sided with SolarWorld and imposed tariffs on solar panels from China. Despite the tariffs, the Chinese solar panel manufacturers dominated the industry and at least 14 American solar companies went bankrupt or shuttered manufacturing plants. SolarWorld was in a shaky financial position and SolarCity fired the company.

SolarCity’s alternative to SolarWorld producing the solar panels was prison labor. A subcontractor was hired to make the panels using inmates that were paid 93 cents an hour to assemble the panels at the Federal Correctional Institute in Sheridan. That was in contrast to SolarWorld’s factory starting pay of $11 an hour. While using prison labor was not what was intended by the tax credit program, state officials knew that prisoners were being used as labor on the project though they did not admit it originally.

New Oregon Governor Kate Brown has asked the Oregon Department of Justice to investigate the questionable state tax credit award, but the Justice Department has not indicated whether it will investigate the matter. According to Oregon rules, the Energy Department is to revoke tax credits obtained by fraud; but the Energy Department has no record of going after questionable energy tax credits once they have been issued.[iii]

Conclusion

While some Americans feel that solar energy is a benefit to the economy since sunshine is “free”, it is expensive and cannot make it economically without tax credits and special government treatments as these examples in New Jersey and Oregon indicate. Thus, not only are federal taxpayers on the hook for the tax credits and subsidies that the federal government allows for solar power, but so are state taxpayers whose governments also provide credits for the solar industry. The “green economy” turns out to be a troubled mix of political connections and fraudulent behavior.

[i] NJ.com, Taxpayers in 3 counties could be on hook for millions after solar project fizzles, February 15, 2015, http://www.nj.com/morris/index.ssf/2015/02/taxpayers_in_3_counties_could_be_on_hook_for_millions_after_solar_project_fizzles.html and NJ.com, Where did the money go?, February 18, 2015, http://www.nj.com/sussex-county/index.ssf/2015/02/where_did_the_money_go_duo_calls_for_investigation_into_stalled_solar_project.html#incart_river

[ii] The Oregonian, Oregon’s signature solar energy project built on foundation of false hopes and falsehoods, February 27, 2015, http://www.oregonlive.com/politics/index.ssf/2015/02/oregon_signature_solar_project.html

[iii] The Oregonian, Gov. Kate Brown: Investigate $12 million in tax credits for solar scheme, March 4, 2015, http://www.oregonlive.com/politics/index.ssf/2015/03/gov_kate_brown_urging_state_in.html#incart_most-read_politics_article

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