Loss of tax credits might dim solar industry

The stampede by local homeowners and businesses to install solar photovoltaic systems maintained its blistering pace in 2012 with Hawaiian Electric Co. reporting more PV installations than in the six previous years combined.

HECO customers in Oahu, Maui and Hawaii counties installed 92.8 megawatts of PV-generating capacity last year as they looked for ways to blunt the impact of the state’s high electric rates, which are triple the national average. The increase was more than double the 38.3 megawatts installed in 2011, and brought the utility’s cumulative PV capacity to 171.3 megawatts, or enough electricity to provide the needs of about 35,000 homes using 600 kilowatt-hours a month.

However, the outlook for 2013 is less certain as a result of changes in tax rules that limit the amount of tax credits that homeowners and businesses can claim for PV installations.

"We expect continued growth in 2013 for the residential solar business as a sector, but the industry as a whole in Hawaii will slow down dramatically," said Alex Tiller, CEO of Sunetric, one of the state’s largest PV installers.

"The sudden change in tax code stranded a number of large-scale projects that have long development cycles and complicated financing structures. These big solar farm deals will likely die on the vine as investors and lenders seek other solar opportunities with less incentive volatility in other markets," he said.

The surge in PV installations is helping Hawaii move toward its clean energy goals, but the trend has not been without controversy. Members of the state Council on Revenues have expressed concern that a 35 percent state tax credit for PV installations is having a negative impact on the state’s ability to balance its budget. Also, as HECO customers generate more electricity themselves, they contribute less to the utility’s rate base.

HECO estimates that the utility and its subsidiaries "lost" 136 million kilowatt-hours of electricity last year due to the increase in PV installations by customers under the company’s Net Energy Metering (NEM) program, up from 81 million kilowatt-hours in 2011.

As a result of the lost kilowatt-hours, HECO pro­jects that it won’t be able to collect $12.1 million in revenue in 2013 that would have gone to pay for systemwide fixed costs, such as employee salaries and maintenance for transmission lines and power stations. That was up from $7.7 million in uncollected revenue estimated for 2012. The estimate of uncollected revenue is called "lost contribution to fixed cost," and HECO is required by the state Public Utilities Commission to report it as part of an annual review of the NEM program.

Although owners of photovoltaic systems are able to generate their own power when there is enough sunlight hitting their panels, they still have to rely on HECO’s grid when clouds roll in, as well as at night. HECO is obligated to provide them with electrical service even when they aren’t helping pay for the fixed costs that HECO needs to collect to keep its system functioning.

HECO said in the report that the lost revenue estimate for 2013 would be the equivalent to one-tenth of 1 cent per kilowatt-hour, or about 60 cents a month for a typical residential bill. However, there is not a direct correlation between that amount and potential future rate increases, according to the report.

"Some of this amount may already be reflected in rates through past utility rate cases. Any remaining lost contributions to fixed costs have no bill impact unless and until the utilities propose and receive Commission approval to adjust rates," according to the report.

Still, policymakers have said the situation raises issues of fairness because not all HECO customers can afford to install PV systems, or live in homes that can accommodate PV panels.

Several bills have been introduced at the Legislature this session aimed at addressing the equity issue, said Jeff Miku­lina, executive director of the Blue Planet Foundation, a Hono­lulu-based nonprofit working to end the use of fossil fuels.

One of the most promising measures (HB 856) would finally bring to fruition the concept of "on-bill financing," whereby utility customers receive a loan to install a photovoltaic system and then pay it back with the savings from their electric bill. The Public Utilities Commission last week issued a decision giving regulatory approval to the concept after studying it for 18 months.

"As we move forward, the rising tide should lift all boats. We have to make these programs as accessible as possible," Miku­lina said.