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Matthew Traum

Are Solar Tax Incentive Loopholes Illegitimately Funding Research?

While in Tempe, Arizona visiting Arizona Student University (ASU), I noted in the local media that ASU has contracted to build the nation’s largest roof-top solar array: 2 megawatts-peak. The East Valley Tribune reported “ASU to create largest university solar project” while the Arizona Republic reported “ASU plans big rooftop solar grid”.

According to officials quoted in these articles, ASU contracted three companies, Honeywell Building Solutions, Independent Energy Group and SolEquity, to install the solar system, which will meet seven percent of ASU’s energy needs.

Instead of paying enormous up-front capital costs, ASU will pay the installation companies a fixed electricity rate; slightly lower than what it now pays the utility. This type of financing could be a win-win for the university and the companies: ASU gets low, fixed utility rates and the installation triad gets a guaranteed income stream.

Nonetheless, there is at least one critic, Scott Gustafson of Mesa Community College and Scottsdale Community College, who sees problems with the financing scheme. In a blog post, “Who is paying for ASU’s solar panels?”, Gustafson points out that the electricity bills alone yield a shortfall on the order of $30 to $50 million over the lifetime of the project. Gustafson says that a big share of this shortfall could be covered by federal and state tax incentives (see also my recent post “Expiring Tax Credits May Sink Major Arizona Solar Project”).

In other words, our tax dollars are going to support ASU’s solar panels. You might say: what’s the big deal? The Federal government reallocates money all the time to stimulate progress in high-risk, low-return technologies (such as renewable energy) deemed critical for U.S. competitiveness in the global economy.

Here is the big deal. I am a professor, working in a brand new engineering college at an emerging research university. My colleagues and I are bending over backward to attract federal money to our school for energy research. To win federal money, university researchers must compete in open proposal processes to prove their university is the best place to investment the money.

At this point, the ASU deal goes sour for me. Jonathan Fink, director of the Global Institute of Sustainability at ASU, said that besides saving the school money, the solar-generating system will provide an important teaching and research tool.

If ASU gets federal tax incentives, they will have essentially exploited a loophole to win federal dollars for energy research in the guise of a tax credit for their massive solar installation. ASU may be the best university in the country to perform the “important teaching and research” that coexists with hosting the country’s largest roof-top solar array. However, ASU did not compete with other research universities to demonstrate their superiority to receive this funding.

What’s done is done, and in a way ASU should be praised for this clever scheme to finance energy research through solar tax credits. I guess my next task should be to follow ASU’s lead and try to get some government-subsidized solar panels for my university before the federal tax incentives expire.