POSTED: 1:30 a.m. HST, Dec 21, 2012
In the upcoming session, state lawmakers can no longer be idle on dialing down generous solar tax credits, a clean-energy policy that was initially worthwhile to launch the photovoltaic industry, but has now resulted in millions of dollars in lost state revenue and too-fertile ground for opportunists.
Hawaii's solar industry, now robustly competitive and mature, needs to be weaned off the credits — though that should be done by policymaking legislators in the next couple of months, not abruptly by new temporary tax rules effective Jan. 1.
Legislators should have foreseen that their inaction last session would spur a frustrated state Tax Department to impose the new rules to curtail solar tax credits after higher-than-expected costs to the economy.
That lost revenue to state coffers rose significantly to $173.8 million in 2012 from $34.7 million two years earlier, spurring the state Council on Revenues to downgrade Hawaii's total revenue forecast.
We're concerned, though, that the department's temporary tax rules will cause confusion among businesses and consumers, especially those caught unfairly between the shifting landscape. Announced last month, the changing tax rules would affect photovoltaic installations that have already been contractually agreed to, assuming existing cost benefits, but not yet installed.
The Tax Department is urged to defer its new rules while lawmakers tackle the needed solar-credit readjustments. This is especially sensible since some PV projects have already gained exemptions from the Jan. 1 change.
Further compounding the confusion: Two environmental groups have filed suit over the department's new rules, which aim to suddenly reduce the number of solar tax credits that can be claimed.
Hawaii law incentivizes homeowners to install photovoltaic systems with a 35 percent tax credit — for example, spending $10,000 on a system would allow $3,500 back from the state. And that is on top of a federal 30 percent tax credit for PV installation that remains through 2016. All quite generous.
The state credit is supposed to be capped at $5,000 in a single year, but some have gamed the system by installing multiple circuit breakers and inverters, advising consumers that each constitutes a separate system to reap multiple tax credits back.
The proliferation of photovoltaics to harness solar energy in Hawaii has become the proverbial double-edged sword: PV businesses have flourished and energy consumers are becoming increasingly "green," but legal vagueness over tax benefits has opened the industry to shadiness, costing the state the nearly $174 million in lost tax revenues. This was already a problem at the start of the year, when lawmakers were urged to tighten PV-installation laws to restrict tax generosity — but they failed to act.
Solar power has become a booming, key component in Hawaii's admirable push toward natural and renewable resources. The idea now is not to kill the goals, or progress being made, on Hawaii's clean energy initiative. It should be to encourage consumers and businesses alike to do the right thing, but minus a greediness that comes at such palpable expense to the state's economy.
There is widespread agreement that many are gaming the system. It is up to state lawmakers to quickly acknowledge this, clarify its definition and intent for a $5,000 credit cap for a PV system, and start phasing down solar tax credits.