10 February 2024

What Happens When You Turn an Industry into a Financial Product

It used to be that residential solar power installation was an industry primarily geared toward selling and installing solar power installations.

These days, it is primarily a way to create complex financial instruments which either generate profit directly or through the resale of those pecuniary instruments.

It turns out that, like every financialized industry this has created an unsustainable petri dish for fraud, and now the "Unsustainable" part is coming to the fore:

A decade ago, someone knocking on your door to sell you solar panels would have been selling you solar panels. Now, they are probably selling you a financial product—likely a lease or a loan.

Mary Ann Jones, 83, didn’t realize this had happened to her until she received a call last year from GoodLeap, a financial technology company, saying she owed $52,564.28 for a solar panel loan that expires when she’s 106, and costs more than she originally paid for her house.

In 2022, she says, a door-to-door salesman from the company Solgen Construction showed up at her house on the outskirts of Fresno, Calif., pushing what he claimed was a government program affiliated with her utility to get her free solar panels. At one point, he had her touch his tablet device, she says, but he never said she was signing a contract with Solgen or a loan document with GoodLeap. Unbeknownst to Jones, the salesman used "yoursolarguyujosh@gmail.com" as her purported email address—that of course, was not her email address. She’s on a fixed income of $960 a month, and cannot afford the loan she says she was tricked into signing up for; she’s now fighting both Solgen and Goodleap in court.

Her case is not uncommon. Solar customers across the country say that salespeople obscure the specific terms of the financial agreements and cloud the value of the products they peddle. Related court cases are starting to pile up. “I have been practicing consumer law for over a decade, and I’ve never seen anything like what we are seeing in the solar industry right now,” says Kristin Kemnitzer, who represents Jones and says her firm gets “multiple” calls every week from potential clients with similar stories.

This is why it does not make sense to incentivize private actors to address public goods.

The goal of the private actors is NEVER to provide those public goods, it is to maximize the profit from the incentives provided.


Still, the residential solar industry is floundering. In late 2023 alone, more than 100 residential solar dealers and installers in the U.S. declared bankruptcy, according to Roth Capital Partners—six times the number in the previous three years combined. Roth expects at least 100 more to fail. The two largest companies in the industry, SunRun and Sunnova, both posted big losses in their most recent quarterly reports, and their shares are down 86% and 81% respectively from their peaks in January 2021. (This isn’t because of an economy-wide trend; the S&P 500 has grown 26% over the same time period.) Sunnova is also under the microscope for having received a $3 billion loan guarantee from the Department of Energy while facing numerous complaints about troubling sales practices that targeted low-income and elderly homeowners. Another solar giant, SunPower, saw shares plunge 41% on Dec. 18 after it said that it may not be able to continue to operate because of debt issues. Sunlight Financial, a big player in the solar finance space, filed for Chapter 11 bankruptcy in October; it also faces a lawsuit alleging that the company made false and misleading statements about its financial well-being.  

Lending long and borrowing short stops working when interest rates rise, and you end up paying more in interests than you get from borrowers.

Whatever the Fed raising interest rates have done, it has pulled the rug out from all sorts of irresponsible, and frequently criminal, actors in our economy.

At the root of these struggles is the complicated financial engineering that helped companies raise money but that some investors and analysts say was built on a framework of lies—or at least exaggerations.

Enough with the, "Or at least exaggerations," bullsh%$.  This is flat out lying.

Since at least 2016, big solar companies have used Wall Street money to fund their growth. This financialization raised the consumer cost of the panels and led companies to aggressively pursue sales to make the cost of borrowing Wall Street money worth it. National solar companies essentially became finance companies that happened to sell solar, engaging in calculations that may have been overly optimistic about how much money the solar leases and loans actually bring in. 


Residential solar has always faced a big impediment to growth: installing and maintaining solar panels is expensive, and few consumers wanted to spend tens of thousands of dollars in cash to pay upfront for what was a relatively untested product. To get around this problem, a company called SolarCity came up with a new model in the early 2010s—leasing solar panels to customers, allowing them to pay little to no upfront cost. Companies like SunRun quickly followed; by 2014, this “third-party owned” kind of leased solar accounted for around 70% of total residential installations.

You remember SolarCity, run by Kimball Musk, and bailed out by his brother Elon, who was also a major investor, using Tesla shareholder money.

Funny, innit?

Besides enabling sales, there were other, even bigger, financial benefits of this practice for SolarCity. Since the company, not the consumer, owned the solar panels, SolarCity could claim the hefty 30% tax credit for solar panels the government approved in 2005. It then took those tax credits and sold them to companies like Google or Goldman Sachs who, unlike SolarCity, were making a profit and so owed money on their taxes. Those sales helped fund SolarCity’s further growth.
So even with SolarCity ripping off the taxpayers, they still flamed out.

The problem is with the whole model, which always fails like this.

By contrast, the Rural Electrification Program, begun in 1936, gave loans to cooperatively owned rural electric utilities, actually got the infrastructure built quickly and fraud free.


SolarCity ran out of money in 2016 and was acquired by Tesla, but the problems created by its expensive model have persisted. (Tesla did not respond to a request for comment.) Even today, about one-third of the upfront cost of a residential solar system goes to intermediaries like sales and financing people, says Pol Lezcano, an analyst with BloombergNEF. In Germany, where installation is done locally and there are fewer intermediaries, the typical residential system costs about 50% less than it costs in the U.S. “The upfront cost of these systems is stupidly high,” says Lezcano, making residential solar not “scalable.”

That was never the goal.  The goal was to allow Wall Street to get their vigorish.


In some ways, the current situation in the residential solar market is analogous to the subprime lending crisis that set off the Great Recession, though on a smaller scale. Like in the subprime lending crisis, some companies issued loans to people who could not—or would not—pay them. Like in the subprime lending crisis, thousands of these loans—and in solar’s case, also leases—were packaged and sold to investors as asset-backed securities with promised rates of return. The Great Recession was driven largely by the fact that people stopped paying their loans, and the asset-backed securities didn’t deliver the promised rate of return to investors. Similar cracks may be forming in the solar ABS [Asset Based Security] market. For instance, the rate of delinquencies of loans in one of Sunnova’s asset-backed securities was approaching 5% in the fall of last year, according to an October 2023 report issued by KBRA, a bond ratings agency. Historically, delinquencies in solar ABS had been around 1%. 

Tell me that this does not sound a lot like what led up to the implosion of Angelo Mozilo's Countrywide Financial.

Whenever you try to subsidize a government priority, you get fraud and corruption, because the goal of the for-profit actors involved is to maximize profit.  (Econ 101)

They maximize profit by gaming the subsidies, which mitigates against their actually doing productive work.


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