Hawaii’s solar energy industry rallied last month to preserve renewable energy tax credits that were targeted for elimination by lawmakers looking for ways shore up the state’s shaky fiscal position.
A bill (SB 756) that would have ended renewable energy tax credits by 2015 and impose a one-year delay on tax credits claimed in 2012 died when legislators failed to bring it before a conference committee in the last days of the legislative session.
Current law allows homeowners and businesses to claim state tax credits of up to 35 percent for solar and 20 percent for wind energy systems.
The Hawaii Solar Energy Association launched an unprecedented effort in late April to fight the bill, asking employees and customers of its 50 member companies to call a group of key lawmakers and register their opposition to the bill.
"Since I’ve been involved we have never taken this direct approach on a broad scale but it can be very effective," HSEA President Mark Duda said in an email to its members.
While the defeat of the legislation was a victory for renewable energy firms and their customers, the effort to maintain government subsidies is sure to become increasingly difficult in the years ahead. As renewable technologies mature, supporters will have a harder time making a case that the industry needs to be propped up at taxpayers’ expense.
Authors of SB 756 wrote in the bill that the tax incentives have been successful in "encouraging the development of renewable technologies and helping to establish an important new industry in the state’s economy."
"Nonetheless, as with all measures intended to help support a nascent industry to achieve scale and become self-sustaining, the legislature is concerned that the incentive … will remain in place after the industries it supports no longer require it for financial vitality," the measure read.
It’s just a matter of time until the tax credits fade away, said Marco Mangelsdorf, president of ProVision Solar Inc., a Big Island company that designs and installs commercial and residential photovoltaic systems.
"Sooner or later the training wheels will have to come off, and we in the renewable energy industry will have to be able to stand on our own two feet."
The federal government is already heading in that direction, having set a date of Jan. 1, 2016, for eliminating the 30 percent federal tax credit for solar and other forms of renewable energy.
The combined 65 percent state and federal tax credit has fueled an explosion in installations in Hawaii over the past five years. On Oahu alone the amount of photovoltaic (PV) generating capacity installed under Hawaiian Electric Co.’s net energy metering program grew to 4,650 kilowatts in 2010 from 74 kilowatts in 2006.
For local homeowners and businesses, the subsidies have effectively allowed them to produce their own electricity for less than what they would be paying their utility when the cost of the PV system is amortized over an extended period.
For PV companies that own the rooftop systems and sell the electricity back to the homeowner or business, they are able to price the electricity rates below what the utility charges.
While there’s no question that phasing out tax credits will reduce the financial attraction of buying a PV system, some experts say the precise impact won’t be known until the credits are gone and the market for renewables adjusts.
The "true" price of renewable energy systems is not known because tax credits and other incentives have distorted the market, said Kenneth Green, a resident scholar at the American Enterprise Institute, a conservative Washington, D.C., think tank.
"If the calculation is that you put solar panels on your roof and they’ll generate enough savings to recoup your cost in, let’s say, five years, then certainly they should be selling themselves," he said. "The subsidies were put in place to address what’s called the infant industry argument. The problem is that PV is 40 years old if not older than that."
The post-tax credit adjustment will be more difficult in many states where utility-generated electricity is relatively inexpensive. In places like Idaho and North Dakota, where utility-generated electricity costs 7 cents a kilowatt-hour, it will be harder for higher-priced PV-produced electricity to compete without a subsidy.
That should be less of a problem in Hawaii, where the high cost of electricity from the state’s two main utilities makes power from renewable energy sources more competitive. Residential electricity costs ranged in April from 29 cents a kilowatt-hour on Oahu to 43 cents a kilowatt-hour on Kauai.
The effective cost of electricity from a residential rooftop PV system in Hawaii varies depending on several factors, including the amount of sunshine where the system is located and the number of years over which the cost of the system is amortized.
The comparison is easier to make at the wholesale level, where prices are more transparent. For example, Hawaiian Electric recently signed a deal to buy electricity at an average price of 22.8 cents a kilowatt-hour over a 20-year period from IC Sunshine, which is building the first utility-scale PV project on Oahu.
That compares with HECO’s average cost of 22 cents a kilowatt-hour to produce electricity in its generators last month.
Hawaii is not alone in considering the elimination of renewable energy tax credits, said Larry Sherwood, a consultant who tracks solar programs for the Interstate Renewable Energy Council.
"In general the level of incentive payments has been going down," he said. "The costs (for solar systems) have been going down, so the need for incentives is less."
The average installed cost of a residental photovoltaic system fell to $6.83 per watt last year from $7.84 per watt in 2009, he said.