Solar Fraud? SolarCity Settles with the Feds Over Tax Fraud Investigation

On Friday, September 22, powerhouse solar company SolarCity entered into a $29.5 million settlement agreement with the Department of Justice to end its joint investigation with the Treasury Department into allegations of SolarCity’s financial misrepresentations related to its participation in an economic stimulus program following the 2008 recession.

From 2009 through 2016, a program under Section 1603 of the American Recovery and Reinvestment Act of 2009 offered solar companies cash amounting to thirty percent of eligible costs related to the construction and acquisition of qualifying solar projects. The program required that solar companies submit cost bases to the federal government for reimbursement and certify that these cost bases were founded on accurate and supported by “true, accurate, and complete” information. The program was intended to promote the solar industry as part of economic recovery efforts in the wake of the 2008 recession.

The federal government had alleged that, in its participation in the Section 1603 program and receipt of grants thereunder, SolarCity lied to the federal government by overvaluing the cost of solar installations in thousands of its claims for grant reimbursement under the program. Submitting inflated values for solar installations in its claims would have resulted in larger federal grant payments to SolarCity. SolarCity installed 29,000 qualifying solar systems under the program, resulting in $510 million in federal grants to the company.

SolarCity maintains that it accurately valued solar projects and did not engage in cost inflation it its claims under the Section 1603 program. The settlement’s terms do not include an admission of wrongdoing. The settlement ends the federal investigation, which had been ongoing since 2012. As part of the settlement, SolarCity has also dropped its lawsuit against the Treasury Department concerning its previous revaluation of SolarCity’s total claims, which lowered the total value of the claims from $1.8 billion to $1.7 billion. In this lawsuit, SolarCity claimed that it was still owed substantial sums of grant money under the program. The $29.5 million payment to the federal government amounts to around five percent of the total grants SolarCity received.

This settlement marks an interesting development concerning allegations of tax fraud by solar firms in their use of state and federal renewable energy incentive programs.

SolarCity was only one of many solar companies reviewed in the investigation. One economic study suggested that under California’s solar incentive program, California Solar Initiative, solar firms overvalued the cost of installed solar systems by $3,900 per installation. The study further estimated that between 2007 and 2011 California Solar Initiative granted solar companies an excess of $25 million from overvalued solar installations.

While increasing renewable energy is a politically desirable policy objective for many, large-scale abuse of incentives programs will cost taxpayers lots of money and reduce the desirability of such programs in the future. Political opposition to solar energy gains fuel from overvaluation and fraud in such programs. As a Senator, Jeff Sessions often cited accusations of fraud as a foundation for his opposition to solar incentives. Accountability measures such as watchdog efforts by politicians such as Sessions and agencies, as well as agency and congressional investigations, should serve to deter fraud in future renewables tax incentive programs.