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In 1976, Hawaii’s first tax credit legislation was signed into law to stimulate the purchase of solar energy systems, reduce the importation of fossil fuels and promote greater energy independence.
George Ariyoshi was serving his first of three terms as governor. Gerald Ford was president. Hawaii’s population was 900,000; today it’s about 1.4 million. And most of today’s workers in Hawaii’s solar businesses were not even born when this legislation went into effect.
This tax credit legislation was originally designed to be a “limited time only” incentive for homeowners and businesses to go solar. Yet, it has become a 37-year and counting, seemingly endless subsidy for the solar industry. We have reached the point that our industry and customers have a powerful addiction to these subsidies even as the hit to the state’s general fund most likely ballooned to well over $200 million in 2012.
Such is the power of, and dependence upon, government largesse. Once dependency starts, irrational behavior begins. A constituency that perceives its very existence as reliant on that financial support flowing from the state or federal coffers can end up being irrational. Why? As conditions improve and goals are met, the goal posts are moved for phasing out this financial support.
According to the Solar Energy Industries Association, this strategy has resulted in dramatic cost reductions and over 100 percent compounded annual growth in the installation of photovoltaic systems in the past several years; in 2012 alone, there was more solar electric capacity installed in the state compared to the previous 20 years combined. With the low costs of going solar electric, the time is now to phase out overly generous and no-longer-needed solar subsidies in the mature solar market of Hawaii.
With retail electricity prices in Hawaii over 30 cents per kilowatt-hour, our analysis now shows that high quality solar is now cost-effective without state subsidies. (Regardless of what the state does, the 30 percent federal tax credit will continue through at least 2016.) Making the transition to a subsidy-free deployment strategy may not be easy, but phasing out these subsidies will lead to greater long-term public support for renewable energy and a more stable marketplace for the solar industry.
Many argue that since fossil fuels are still significantly subsidized, why should solar subsidies be phased out now? Shouldn’t we wait until there’s a level playing field in the energy market? No, we should not wait. Instead, Hawaii can be a model once again, but this time for phasing out subsidies. In reality, a truly level playing field in all energy resources is unlikely in the foreseeable future, if ever. The welfare subsidy payments to the oil industry will end at some point, but we should create a model for the solar industry not based on unending government support.
In order to get us where we need to go, we propose the following:
>> Reduce the state solar tax credit to 15 percent starting this July 1 with a fixed cap dollar amount on that credit, similar to Gov. Neil Abercrombie’s current proposal;
>> Further reduce the credit to 10 percent starting Jan. 1, 2015, and 5 percent starting Jan. 1, 2016, and eliminate it entirely by Jan. 1, 2017; and
>> Eliminate the potential gaming of the system by removing multiple tax credits per photovoltaic facility site and limit the tax credit to one per tax map key plot.
Eliminating confusing subsidies will expand one of the largest wealth-creation opportunities on the planet — solar energy. The Hawaii solar industry can phase out the state tax credit and lead the way to a sustainable and fiscally prudent Hawaii.
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