Does Elon Musk's SolarCity Need Uncle Sam to Survive?

The ITC has made solar competitive against utility electricity prices, but New York's subsidy could give the company a leg up over competitors. The manufacturing plant SolarCity is building in Buffalo, New York hasn't been completed yet; but when it is, SolarCity is expecting to make solar panels that are more efficient than conventional competitors at a lower cost. This, in part, is because the company doesn't have to pay to build the building, or buy the equipment needed for the plant.

If SolarCity's solar panels deliver as promised, SolarCity should be able to garner higher margins than competitors like Vivint Solar , Sungevity , and Sunrun . In effect, New York could be giving SolarCity a leg up on the competition.

SolarCity isn't the only beneficiary

The New York subsidy is specific to SolarCity, but the way the company uses the ITC isn't. The ITC has helped every U.S. solar installer since it was enacted, and installers like SunPower , who own pieces of the supply chain, use it in similarly advantageous ways.

No one should imply that SolarCity is the only one being made competitive because of the ITC. Everyone who builds solar plants in the U.S. benefits.

The big question for Elon Musk

Where would SolarCity be without government help? Simply put, the company wouldn't exist in the form in which we now know it -- but neither would anyone else in the solar industry.

I outlined above how the government effectively subsidizes about half of the cost of SolarCity's installations through the ITC, and tax benefits like accelerated depreciation. If SolarCity's costs doubled overnight, there's no way it could be competitive in solar leases, loans, or cash sales to residential consumers without losing money.

The great growth SolarCity has experienced during the last five years is because it can offer solar systems for less than the cost of electricity from the grid. But it's beating the grid by pennies, not 50%, so the gap isn't big enough to exist without subsidies.

Residential solar needs the government

From a cost perspective, residential solar energy wouldn't be approaching 1 million rooftops installed without government tax subsidies, and it still needs government assistance to compete with utility electricity prices. The industry is getting close to parity with the grid, but costs have to be lower than $2.95 per watt --

In the case of SolarCity, Elon Musk is surprisingly dependent on the government. That may not be the case forever, but for now, his $1.3 billion stake in SolarCity has gotten a huge helping hand from Uncle Sam.

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The article Does Elon Musk's SolarCity Need Uncle Sam to Survive? originally appeared on Fool.com.

Travis Hoium owns shares of SunPower. The Motley Fool recommends SolarCity and Tesla Motors. The Motley Fool owns shares of SolarCity and Tesla Motors. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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