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Report: Louisiana Solar Subsidies Are Welfare For The Wealthy

A new state report claims that subsidies for rooftop solar panels in Louisiana cost taxpayers millions, and disproportionately benefit higher-income households.

The draft report, prepared for the Louisiana Public Services Commission by professor David Dismukes of Acadian Consulting Group, evaluates the costs and benefits of the state’s solar energy tax incentives, which some industry observers consider “the most generous of any state tax incentives currently allowed in the U.S.” (RELATED: US Taxpayers to Subsidize India’s Solar Energy Boom)

The subsidies, collectively known as “net energy metering” policies, were originally intended to promote the use of renewable energy sources by allowing individuals to sell excess capacity back to the power grid, thereby reducing the amount of energy they must purchase from electric utilities and offsetting the cost of the energy that they do purchase.

NEM policies were expanded in 2007, when “the Louisiana Legislature created a number of new tax incentives to stimulate in-state solar energy development,” including an income tax credit “equal to 50 percent of the first $25,000 of the cost of each wind or solar energy system.”

Shortly thereafter, Congress passed the Stimulus Act in 2009, which allowed individuals to “claim a credit of 30 percent on the total cost of a residential system,” in addition to any tax credits offered at the state level.

“The combination of federal and state tax incentives,” Dismukes wrote. “[Has] led to a significant increase in the development of … solar NEM installations in Louisiana.” (RELATED: Solar Industry Demands Extension of Subsidies)

To assess the impact of Louisiana’s NEM policies, Dismukes conducted cost-benefit analysis of their overall economic effects, cost-of-service analysis to determine the cost they impose on utilities and income distribution analysis to examine how benefits are distributed across various different income categories.

Dismukes asserts that, “The CBA results show that the estimated costs associated with solar NEM installations outweighs their estimated benefits to the ratepayers,” even after accounting for tangential benefits such as the economic activity generated by solar panel installation.

Assuming that current installation trends continue, he estimates that solar subsidies have a “net negative benefit” of $89 million, though that figure rises to between $125.5 million and $488.3 million under various state-produced forecasts.

The COS analysis likewise finds that solar subsidies incur net costs, Dismukes claims, estimating that solar customers pay only about 64 percent of their full cost of service. (RELATED: Europe’s Green Energy Industry Faces Collapse as Subsidies are Cut)

“If this cost is not being paid by solar customers,” he pointed out. “It will have to be recovered from other utility ratepayers through some form of cross-subsidization.” Currently, the cost of that subsidization is about $2 million per year, though Dismukes projects that it will rise to “between $5 million to $31.4 million in 2020.”

Moreover, Dismukes also finds that the benefits of Louisiana’s solar subsidies tend to “fall more heavily on higher-income households,” because the median household income of solar customers “is about 35 percent higher than the median statewide income level.”

As they are currently structured, with caps on the number of solar installation that can be eligible for tax credits, Dismukes concludes that Louisiana’s solar subsidies will impose total economic costs of more than $281 million between 2008 and 2043.

If those caps are removed, however, he projects that, “ratepayer bills … could increase by $809 million” over the same period.

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