Environmental and solar-energy interests urged state lawmakers Tuesday to gradually reduce the state's generous solar tax credit and undo the temporary rules imposed by the Abercrombie administration that many believe have undercut the growing solar industry.
Consensus appears to be moving behind legislation to ramp down the state's 35 percent renewable energy tax credit for consumers and businesses over several years, preserve a feature that allows the tax credit to be taken as refundable at a lower rate — a rebate that encourages leasing and lowers the upfront costs of solar installation — and offer a production tax credit for utility-scale projects that spreads the cost to the state over time.
The Abercrombie administration imposed temporary administrative rules in January to restrict the solar tax credit after lawmakers last year failed to address the rising cost of the tax incentive. The rules, which expire in 18 months, allow homeowners to claim one tax credit — 35 percent, with a cap of $5,000 — for each five kilowatts of photovoltaic generating capacity. Businesses can claim one tax credit — 35 percent, with a cap of $500,000 — for each 1,000 kilowatts of generating capacity.
Under previous tax guidance, some consumers were claiming multiple tax credits for solar projects, leading to criticism from lawmakers and Gov. Neil Abercrombie that the tax incentive was being abused. The Sierra Club Hawaii chapter and Earthjustice, however, have filed a lawsuit challenging the temporary rules as an overreach by the state.
State economists have estimated that the cost of the solar tax credit grew to $173.8 million in 2012 from $34.7 million in 2010, although solar industry experts now believe the cost last year was likely closer to $115 million. The 35 percent state tax credit can be taken along with a 30 percent federal tax credit, producing a sizable tax break.
Environmentalists, solar executives and others worry that the attention to the cost of the tax incentive has obscured the positive effects of the solar industry's growth. The state energy office estimates that 26 percent of construction spending in 2012 was tied to photovoltaic projects. A study prepared for the Blue Planet Foundation found that every $1 the state invests in tax credits brings back $2.67 in additional tax revenue for commercial projects and $1.97 in additional tax revenue for residential projects.
"We can't keep talking about the tax credits. We need to get a solution that will work for the whole industry," Leslie Cole-Brooks, executive director of the Hawaii Solar Energy Association, told lawmakers.
Sen. Mike Gabbard (D, Kapolei-Maka¬kilo), chairman of the Senate Energy and Environment Committee, and Rep. Chris Lee (D, Kailua-Lani¬kai-Wai¬ma¬nalo), chairman of the House Energy and Environmental Protection Committee, are drafting a potential compromise.
"We want to make sure that the solar industry can stay on its feet, that people can get cheap energy for their homes," Lee said. "And make sure, at the same time, that we're going to protect the revenues coming into the state and not let it lead to a budget shortfall."