Legislators fail to reform solar tax credit

State lawmakers for the second consecutive year failed in the waning days of the legislative session to agree on a bill reforming Hawaii’s renewable energy tax credit law.

However, reverting to the status quo this time leaves solar energy companies in a much more precarious position than a year ago.

Without a change in the law, solar photovoltaic installers will be forced to operate under temporary administrative rules that have been in effect since Jan. 1, significantly restricting the amount of tax credits their customers can claim.

PV companies and other solar energy supporters pushed for a compromise draft of a bill (Senate Bill 623) that would have racheted down the renewable energy tax credit over time. They viewed a potential legislative solution less onerous than the administrative rules put in place by the state Department of Taxation to reduce the amount of revenue that was being lost to the renewable energy credit. The administrative rules effectively slashed the tax credit in half for the average taxpayer who chooses to install solar panels, some solar energy proponents say.

But House and Senate conferees, who met last week to come up with a final version of the bill, could not reach agreement on how rapidly to reduce the credit, which currently stands at 35 percent.

“It was very disappointing, considering all the work people did to come up with the compromise to ramp down the solar tax credit while keeping solar a viable renewable energy source,” said Sen. Mike Gabbard, chairman of the Senate Energy and Environment Committee, who sat on the conference committee. “What it came down to was we lacked solid data on the costs and benefits (of the tax credit). The state Department of Taxation could not produce actual data on the revenue being lost as a result of the tax credits.”

Gabbard said the lack of action on the bill by an internal legislative deadline last Friday means it cannot be brought to the floor for a vote before the legislative session ends Thursday.

Robert Harris, director of the Hawaii chapter of the Sierra Club, said House Senate conferees were presented with conflicting information on the impact of the tax credits by the Taxation Department and the state Department of Business, Economic Development and Tourism.

DBEDT’s estimate of the tax credit’s impact on the state’s fiscal position was lower than the Department of Taxation’s, Harris said. DBEDT’s estimate anticipated a slowing of PV installations partly based on a high saturation of solar energy on circuits on Maui and Hawaii island, according to Harris.

“At end of the day, there was a lack of clarity as to what the fiscal impact would be. It’s so frustrating to get that close. We made it abundantly clear to the (Abercrombie) administration that this bill needed to pass,” Harris said. “The issue was eminently solvable, but they just weren’t able to do it.”

The Sierra Club and Earthjustice will continue to pursue their lawsuit against the Taxation Department seeking to block the temporary administrative rules. The next hearing in the case is scheduled for July 10.

The temporary rules became law Nov. 16. They were scheduled to remain in effect until May 16, 2014, unless superceded by legislative action. If the Sierra Club is successful in blocking the temporary administrative rules, the Department of Taxation would have to return to the previous, more generous tax rules for renewable-energy projects. If the Sierra Club is unsuccessful and there is no legislative remedy next session, the Abercrombie administration may be faced with having to renew the “temporary” administrative rules in May 2014, Harris said.

The final conference committee draft of SB 623 called for incrementally reducing the tax credit for PV systems with less than 1 megawatt of generating capacity to 15 percent over a five-year period. The credit would drop to 25 percent from 35 percent for systems placed in service between June 30 and Jan. 1, 2016; to 20 percent for systems placed in service between 2016 and Jan. 1, 2018; and to 15 percent for systems placed in service after that.

For systems with 1 megawatt or more of generating capacity, the bill called for calculating the credit based on the amount of electricity produced. Systems placed in service before Dec. 31, 2016, would have received a tax credit of 7.5 cents per kilowatt-hour fed into the grid; systems placed in service from then until Dec. 31, 2020, would have receive a credit of 6 cents per kilowatt-hour; and systems placed in service after that would have received a credit of 4 cents a kilowatt-hour.

Marco Mangelsdorf, president of Hilo-based ProVision Solar, said the Legislature missed a chance to responsibly deal with problems associated with the renewable-energy tax credit.

“The failure of this bill to make it to the governor’s desk reflects the real concern that the state expressed over the present and future liabilities incurred from the proposed solar tax credit bill,” Man­gels­dorf said.

“In essence this equates to the rejection of the argument that for every solar tax credit dollar lost to the general fund, the state accrues multiple dollars in other tangible benefits. Hawaii’s PV industry is ready to stand on its own two feet sooner rather than later, and the Department of Taxation’s revisions announced last November at least curtail some of the potential for abusing the system,” he said.