SolarCity and its Impact

A lot has been written in the past week or so about the SolarCity project in South Buffalo. A lot of it has to do with OMG THAT’S LIKE $300k PER JOB. It’s being sold as an excessive investment for dubious return.

Here’s something to consider: the state of New York is not paying a subsidy to SolarCity. Under its contract, SolarCity will create approximately 3,600 brand-new high-paying jobs in Buffalo alone.  In order to do that, the state is buying the equipment that SolarCity will use to manufacture its products, and building the factory facility. The state will own it all.

While it’s well within the populist fashion of the times to decry public-private partnerships such as these – especially given examples where the private beneficiaries fail to uphold their end of the job-creation bargain with impunity – the simple fact is that municipalities compete with each other for this type of project, and Buffalo needs to be able to compete. 

It’s not just about 3,600 jobs. It’s about the economic activity that each one of those well-paying jobs generates

Let’s backtrack for a second and talk about supply-side/trickle-down theory versus demand-side/trickle-up; I believe in the latter and not the former. 30+ years ago the country started a grand experiment, simply put that lowering the tax burden on the very wealthy would result in them amassing more wealth, and that this would “trickle down” to the economy-at-large and create great wealth for everyone. It was what George H.W. Bush in 1980 called “Voodoo Economics”. Yet the country has stuck with this notion that easing the tax and regulatory burden on the rich would bring about great things for the middle and working classes. It simply didn’t happen. In fact, the working poor stayed that way, and the middle classes have borne the brunt of this experiment in terms of less pay for more work. 

Think of it this way – we heard a great deal in the last few Presidential elections about the vaunted “job creators” – these magical John Galts who have amassed great success and wealth and who demand less regulation and more tax relief (and none of this “Obamacare” nonsense) in order to … well, it gets a bit fuzzy at this point. 

It gets fuzzy because lax regulations have simply led to poor oversight and environmental catastrophes like the chemical spill in West Virginia last year. Arguably, the public cost in money and suffering that resulted from that disaster far exceeded the cost properly to inspect and enforce health and safety regulations in the first place. 

But with respect to the ultra-wealthy “job creators” in this country – let’s say I have a fortune of $150 million. With that sort of money, my opportunity to participate in the economy is limitless. Many of the people with this sort of money pay a fraction of a percent of their income to the authorities as compared to the nut you and I pay, because the tax code is designed by these people to help these people. Let’s say, instead, that I actually earn a paycheck rather than amass a fortune through inheritance or investment, and that I make $4 million per year. Technically, I’m supposed to pay 35% or so of that money to the IRS, but through creative accounting and other loopholes, we can whittle that down substantially. But even if, hypothetically, I paid the full 35% nut to the feds, I’m still bringing home $2.6 million. What does that mean, in terms of the trickle-down theory? That I won’t get a Maybach and instead opt for an S600? That I’ll have to cut back on my NetJets account? Seriously, what is it about $2.6 million versus, say $3.4 million that will adversely affect my ability to spend? Whether you earn $2.6 or $3.4 million, you’re making all the money in the world and you can buy anything you need, and everything you want. 

By contrast, if you put an extra few thousand dollars in the pocket of someone who’s working class or middle class, you just added a new appliance, or a better car, or a nicer vacation. By giving tax relief to the middle class, you can suddenly give average people more freedom to participate in the economy, and they’ll spend it – everyone benefits.  We could simplify the tax code tomorrow and the economy would skyrocket. OK, everyone earning over $500,000 pays 35% straight up, regardless of income source – paycheck or capital gains. Anyone making $200 – 500k pays 25% straight-up. Anyone making $100k – 200k pays 17%. 50k – 100k, you pay 10%, and if you earn less than 50k you pay zero.  Add a VAT and you’ve just funded universal health care. 

But I digress. 

The state’s investment of $350 million from the Buffalo Billion and $400 million in conditional loans (payable if SolarCity does not meet milestones and goals as set forth in the agreement), will result in a massive trickle-up boost to the local economy.  You will have 3,600 households suddenly better able to afford to participate in the local economy, buying goods and services throughout the region. And let’s not forget that SolarCity has contracted to invest $5 billion in this project over the first 10 years, we’re not looking at some sort of idiotic handout. 

Although 3,600 jobs will be here in WNY, there will be 5,000 SolarCity jobs created throughout upstate New York.

Now, witness what some are now trying to peddle. Namely, local embarrassment Carl Paladino. Here’s an excerpt from an anti-Cuomo, pro-Astorino email he sent Thursday: 

Aside from the misspellings and factual inaccuracies (read: lies), Paladino claims that Texas doesn’t subsidize or incentivize businesses moving to Texas. Well, not every business wants to locate in an overheated place that doesn’t spend money on infrastructure or education.  But the idea that Texas doesn’t do economic incentives is simply a lie.  It takes a few simple clicks of the Google machine to find the Texas website where its incentives and subsidies are set forth. Now, Paladino would have you think that Musk went to Texas simply because it’s an overheated, be-rednecked Galt’s Gulch, right? Wrong

In Texas, Musk said the outpouring of support from local residents and government officials — who are supporting the project with at least $15.3 million in state funding — was significant: “We want to be in a place where we’re truly wanted,” he said.

By the way, Elon Musk – the guy in charge of SolarCity – recently located his SpacePort in Texas, but located his Tesla battery plant in Nevada. Part of the reason? Nevada’s business climate is more liberal than Texas‘. Also, Nevada and Texas competed against each other to land the Gigafactory, and Nevada’s package of $1.25 billion in tax breaks and incentives beat whatever Texas’ proposal was

The deal with SolarCity is different. The state (via SUNY) will own the factory and equipment, and SolarCity will be allowed to use it – for free – for 10 years. This will create 3,500 local high-tech jobs; 21st century jobs. Again – SolarCity will be investing $5 billion of its own money. If they don’t live up to their promises, SolarCity will be up to $412 million in debt to the state.  SolarCity maintains a big chunk of the risk, and isn’t getting a direct cash subsidy. 

Over 3,500 new, high-paying local jobs and all the economic activity that each one of those jobs generates is huge for this region. This is a big risk and a big expense, but you don’t undo 50 years of decline through recklessness or fear. 

Everybody’s Dancing in a Ring Around the Sun

1,000 jobs for Buffalo. Maybe more.

Not 19th century dirty jobs, but 1,000 jobs that are part of the new green economy. This could be the best news that Buffalo has received in decades, because this is a real thing involving real jobs. SolarCity is buying Silevo. 

Last November, Governor Cuomo announced that the state would build a “hub facility” for high tech and green energy businesses at RiverBend, as part of his “Buffalo Billion” plan. One of the two California companies to locate at RiverBend is “Silevo”, which would join with another company to invest $1.5 billion and locate operations in Buffalo. 

RiverBend is in South Buffalo, located on the site of the former Republic Steel and and Donner Hanna Coke facilities. The city is literally replacing its defunct, dirty industries with clean, green, state-of-the-art ones. At the November presser, Silevo was introduced thusly

Silevo is a California-based company that develops and manufactures silicon solar cells and modules, with an already established manufacturing plant in China. Phase 1 of Silevo’s project, with a $750 million investment which will create at least 475 jobs, involves a 200 megawatt production facility sole establishing its sole North American manufacturing operations at RiverBend.

The state investment of $225 million through Empire State Development would set up the necessary water, sewer, utility, and road infrastructure, as well as 275,000 square feet of building.  The state will also set up the equipment, which would be owned by the SUNY Research Foundation. No money was being paid directly to the companies.   

Zheng Xu, CEO and Founder of Silevo said, “Inspired by the bold leadership and demonstrated commitment of Governor Cuomo, and buoyed by the strong regional infrastructure and highly skilled workforce present in Western New York, Silevo is excited to bring its next phase of high-volume manufacturing operations to the United States with our new location in Buffalo. Working closely with the SUNY College of Nanoscale Science and Engineering, we look forward to accelerating innovative and cost-effective solar module technology that will position both Silevo and New York as leaders in driving the next wave of solar adoption in homes and business nationwide.”

 Yesterday, Tesla Motors and SpaceX wunderkind Elon Musk announced that his SolarCity venture was buying Silevo for $350 million

Peter Rive, SolarCity chief technology officer and co-founder, said the $350 million acquisition will lead to a factory in Buffalo, N.Y., and create more than 1,000 jobs within the next two years.

The plant will be “one of the single largest solar panel production plants in the world,” according to the post, and it will be followed by one or more even bigger facilities in subsequent years. Rive said he hopes SolarCity will eventually create several thousand panel-making jobs.

On Twitter, Musk’s personal feed posted “SolarCity to build the world’s largest advanced solar panel factory in upstate New York” with a link to the blog post…

…Until now, SolarCity has purchased its solar panels from other manufacturers. Rive said the acquisition will finally allow the company to make its own photovoltaic panels.

Synergy!  The Buffalo News notes

That initial plant at RiverBend was envisioned to have the annual capacity to produce enough solar panels to generate 200 megawatts of electricity. But SolarCity executives said they were interested in expanding the capacity of that plant to be five times bigger than the original plan.

“At a targeted capacity greater than 1 gigawatt within the next two years, it will be one of the single largest solar panel production plants in the world. This will be followed in subsequent years by one or more significantly larger plants at an order of magnitude greater annual production capacity,” SolarCity said.

SolarCity executives said they view the Silevo acquisition as a key step in their efforts to reduce the price of solar energy systems to the point where they can compete with electricity generated from fossil fuels without the lucrative subsidies that now are needed to offset the higher costs of solar panels.

By combining Silevo’s technology, which is more efficient at generating electricity than most other solar panels on the market today, with lower production costs from the economies of scale that come from high-volume production, SolarCity executives said they believe they can make solar systems more affordable.

“What we are trying to address is not the lay of the land today, where there are indeed too many suppliers, most of whom are producing relatively low photonic efficiency solar cells at uncompelling costs, but how we see the future developing,” the blog post said.

“Without decisive action to lay the groundwork today, the massive volume of affordable, high efficiency panels needed for unsubsidized solar power to outcompete fossil fuel grid power simply will not be there when it is needed,” said the post.

Chinese companies and manufacturers dominate the global market for solar modules. Silevo and SolarCity intend to challenge that dominance by building the largest module manufacturer in the United States in South Buffalo.  

On the SolarCity company blog

[Silevo] modules have demonstrated a unique combination of high energy output and low cost. Our intent is to combine what we believe is fundamentally the best photovoltaic technology with massive economies of scale to achieve a breakthrough in the cost of solar power.

and

Given that there is excess supplier capacity today, this may seem counter-intuitive to some who follow the solar industry. What we are trying to address is not the lay of the land today, where there are indeed too many suppliers, most of whom are producing relatively low photonic efficiency solar cells at uncompelling costs, but how we see the future developing. Without decisive action to lay the groundwork today, the massive volume of affordable, high efficiency panels needed for unsubsidized solar power to outcompete fossil fuel grid power simply will not be there when it is needed.

The Buffalo plant’s planned capacity would be large enough to challenge the Chinese market with a superior product

SolarCity’s chairman who is also chief executive of Tesla Motors, said the goal is to produce solar panels capable of generating power “cheaper than coal or fracked gas power.”

Imagine a factory in Buffalo producing something that could render hydrofracking and Tonawanda Coke the NRG Huntley plant obsolete, and 1,000+ jobs, to boot. SolarCity does not yet operate in western New York, but it leases solar systems to homeowners and businesses. 

As solar systems improve in terms of energy production and storage, adoption will grow. SolarCity is setting itself up to dominate the market with a superior system that will save people money and provide sustainable, renewable energy. This is a huge deal for Buffalo and the country.