A generous state tax credit that helped fuel the growth of solar but led to accusations of abuse would be reconfigured under a compromise pending before state lawmakers today.

The 35 percent state income tax credit for solar, paired with a 30 percent federal credit, has provided a tempting incentive for many consumers to convert to photovoltaic power systems. The law also capped the tax credit at $5,000 per system, but conflicting tax guidance and opportunistic sales pitches by the solar industry have resulted in consumers installing several systems and claiming multiple tax credits on single properties.

The state Department of Taxation imposed temporary administrative rules in January to contain the tax credit after the cost to the state increased from about $35 million in 2010 to $174 million last year.

Under the compromise, the credit would be reduced to 30 percent this year and gradually lowered to 15 percent by 2018. Consumers could claim the credit on a per-property, rather than a per-system, basis for systems that produce up to 1 megawatt of electricity.

For businesses and others that install larger systems of between 1 and 5 megawatts of capacity, a production tax credit would be available tied to the kilowatt-hours of energy produced for sale or to offset on-site energy demands.

Sen. Mike Gabbard (D, Kapo­lei-Maka­kilo), lead Senate negotiator on Senate Bill 623, said lawmakers have been working on the compromise for two years. He cited the estimated 20,000 photovoltaic systems installed in Hawaii and the positive impact that solar has had on the construction industry.

"We see eye to eye on how important this is for helping us meet our energy goals," Gabbard said.

Rep. Chris Lee (D, Kai­lua-Lani­kai-Wai­ma­nalo), the lead House negotiator, said the bill would provide clarity after two years of confusion about the fate of the solar tax credit.

"We’re going to have certainty in the solar industry so people will be able to go out and know what they can afford in the years to come," he said.

The compromise bill, which is awaiting approval from House and Senate budget negotiators and would be up for final votes next week, would offer an exemption for solar projects in progress at 14 public schools on Kauai. The bill would also exempt projects by the Kauai Island Utility Cooperative from the 5-megawatt cap on the production credit.

Solar industry leaders and environmental advocates who wanted to preserve a meaningful solar tax credit support the compromise.

"In my view it’s a very elegant way of addressing the kind of double challenge of reducing the subsidy over time but not throwing away the investment the state has made to get the solar industry to the point that it has," said Mark Duda, president of the Hawaii PV Coalition and a principal at Revolu­Sun, a solar firm.

The Sierra Club’s Hawaii chapter and Earthjustice had filed a legal challenge to the Department of Taxation’s temporary restrictions on the solar tax credit.

"We’re happy with the result," Robert Harris, director of the Sierra Club’s Hawaii chapter, said of the bill. "We think it’s a carefully crafted compromise that tries to advance clean energy but do it in a financially prudent way."