It makes more economic sense for the state to promote private-sector initiatives to help Hawaii residents pay for rooftop solar systems than to rely on tax credits, which are a drain on state revenues, according to a study released Tuesday by the University of Hawaii Economic Research Organization.

UHERO researchers estimate that installing a solar photovoltaic system on every owner-occupied single-family home statewide could theoretically cost the state as much as $1.4 billion in lost tax revenue based on new renewable energy tax credit rules that went into effect Jan. 1. Under the older, more generous rules, lost tax collections could have been as high as $2.1 billion. The study did not take into account technical constraints on PV installations, such as circuit capacity issues.

Solar photovoltaic tax credits have become a hotly debated public policy topic in Hawaii over the past year. Members of the state Council on Revenues have expressed concern that the tax revenue being lost as a result of an exponential increase in PV installations is hurting state finances.

The amount of time it takes for a PV system to pay for itself through electric bill savings depends on a variety of factors, including the cost of utility-provided electricity, the cost of the PV system and the size of the tax credit, according to the report. Even in the worst-case scenario with no tax credit, the average payback period for a PV system in Hawaii is 10 years or less, according to the report. In the best-case scenario the payback can be as quick as 31⁄2 years, the report said.

"In purely economic terms, and assuming that the net-metering agreement remains unchanged, the rational household decision is to make the PV investment regardless of tax credit policy," according to the report.

"Because systems are warrantied for 25 years or more, a payback period of 10 years or less makes the PV installation a very lucrative investment. Given the magnitude of the estimated taxpayer burden, the relatively short payback period for household investors, and the large potential for rooftop PV and its subsequent greenhouse gas emission reduction benefits, a more appropriate role for state policy is to facilitate PV deployment rather than make direct payments (tax credits)," the report’s authors wrote.

A leading private-sector solution is a program called "on-bill financing" that allows residents to borrow money to install a PV system and then pay back the loan with savings from their electric bills.

The state Public Utilities Commission earlier this month approved a framework for on-bill financing. There is a bill being considered in the Legislature this session that would establish a funding mechanism for the program.

"This ‘pay-as-you-save’ mechanism is a way to potentially deploy PV to a wider population while limiting the state’s tax credit expenditures," according to the report.