Five years ago, when then-startup solar company SolarCity was getting ready to go public, it revealed something quite unusual: It was under investigation by the U.S. government. The Department of Treasury was investigating the solar installer for possibly overstating the claims it had made to a government grant program.

Now years later -- after the company has undergone dramatic changes since being acquired by electric-car maker Tesla -- the issue has finally been resolved. Although the solution isn't ideal for the developer.

Last week, the Justice Department announced that SolarCity has agreed to pay $29.5 million to settle allegations that it submitted inflated claims and received boosted payments for solar projects under the short-lived 1603 grant program -- enacted under President Obama’s stimulus package.

But as part of the settlement, SolarCity admitted no guilt. And the almost $30 million that SolarCity is required to pay is only about 5 percent of the $510 million in cash grants the company received from the Treasury.

“As SolarCity has said all along, its projects were valued correctly, and the methods used to value its projects were sound," said a company spokesperson, in a statement.

A major player in the negotiations appears to have been a lawsuit brought against the Treasury by funds affiliated with SolarCity. The lawsuit claims that the government failed to follow the law when administering the 1603 grants. As a part of the settlement, the funds affiliated with SolarCity agreed to drop the suit, which was set to go to trial in January.

The unusually lengthy investigation and countersuit shine a spotlight on a company and an industry in transition, during a highly politicized era.

In the wake of Solyndra

In the summer of 2012, the solar industry looked very different than it does today. While the sector was already benefiting from the dropping costs of solar panels, it hadn’t yet achieved the more mainstream status that it currently boasts.

Back then, the U.S. had only installed a meager 5.3 gigawatts of solar, compared to the 45.3 gigawatts that are now spread across the country converting the sun’s rays into electricity. In 2012, the price of residential solar energy was just over $5.00 per watt, compared to less than $2.80 per watt today.

At the same time, the solar industry -- and any government program that supported it -- had become highly politicized. That was due to a variety of factors, including a backlash against Obama’s stimulus program and the late 2011 bankruptcy of solar company Solyndra, which received a $535 million federal loan guarantee.

It was about 10 months after the bankruptcy of Solyndra that SolarCity, and other solar companies, received subpoenas from the Treasury asking for certain documents related to applications for the Treasury’s 1603 grant program. The Justice Department had opened an investigation into potential misrepresentations of the fair market value of solar systems submitted under the grant program. 

You’re forgiven if you don’t remember the 1603 grant program. The most well-known U.S. federal subsidy for solar is the Investment Tax Credit (ITC), which provides a reduction in taxes for investors that support clean energy projects. A solar company itself might not have enough net income to make use of the ITC, so oftentimes it sells it off to a bigger investor like a bank or Google. 

But in 2008, due to the recession and widespread losses for investors, the demand for ITC rebates dropped. In response, when Congress passed the American Recovery and Reinvestment Act in 2009, it included Section 1603, which created a cash grant program that would deliver a similarly sized grant in cash instead of in the form of a tax credit.

The grant program delivered funds from 2009 to 2013 and ended up funding more than 100,000 mostly wind and solar projects to the tune of over $25 billion. SolarCity’s $510 million in cash grants was a small part of that total. The company installed 29,000 projects that were eligible for cash grants, which it valued at $1.8 billion.

The dispute between the Treasury and SolarCity has been about how some of the company’s solar projects installed between 2007 and 2012 were valued, and thus the size of the grants that were dispersed.

Making SolarCity an example

Given that the cost of solar panels and solar energy generation has fallen significantly in recent years, the value of a solar project is a constantly moving target.

SolarCity said it went “to great lengths to determine accurate values” of the solar projects it submitted for cash grants, according to the spokesperson. The company says it hired appraisers and accountants and solicited input from government regulators and market participants to determine the values.

The Treasury, meanwhile, alleges that SolarCity inflated the valuations of the solar projects. The government branch said that the projects were above market value, and that they had received too much grant money. According to court documents, the government used data and benchmarks from a database for the California Solar Initiative to assess the valuations.

SolarCity denied the allegations and accused the Treasury of reconsidering and changing the valuations that it had previously made and paid out. The funds affiliated with SolarCity (which included PG&E and Credit Suisse) accused the government of using a valuation and grant dispersal system that the plaintiffs said did not follow the law.

The 1603 program is now expired. Nonetheless, "This demonstrates that the government will still hold accountable those who sought to take improper advantage of government programs at the expensive of American taxpayers," said Justice Department Acting Assistant Attorney General Chad Readler, in a statement.

SolarCity, it seems, is being made an example of.

It could have been worse

It’s unclear how different from market value the SolarCity prices were. The company and the Treasury have spent years going back and forth over documents, discovery, depositions and squabbles over expert witness testimony through the countersuit.

While SolarCity’s settlement fee was only a small fraction of what it was paid by the Treasury, the $30 million isn't trivial, considering that the company has been facing cost cuts, employee reductions and business-model changes in recent months. SolarCity was acquired by Tesla toward the end of 2016.

For the most recent quarter, SolarCity saw a reduction in solar installations compared to the same quarter of 2016. The company is no longer focused on growth of its installation business in the coming quarters, but rather on “profitable projects.” Last year, it cut 3,000 workers.

In fact, SolarCity has changed dramatically from the summer of 2012. At that time, on the verge of going public, the company was focused on growing its revenues and solar installations every quarter at the expense of profits. The goal was to grow fast and worry about net income later.

Today, following the Tesla acquisition, SolarCity as a standalone brand is on the verge of disappearing and Tesla’s new solar division is working on its solar roof product and solar panel factory in upstate New York. Even the original founders -- brothers Lyndon and Peter Rive -- have moved on from the company.

All of these changes and the company's current level of uncertainty make a $30 million fine particularly unwelcome. But it could have been worse.

The brand associated with the settlement is fading out, and while Tesla isn't profitable, it has deeper pockets than SolarCity would have had on its own. And perhaps Tesla’s ownership helped influence the government to finally reach an agreement after years of stalemate.