Most Hawaii residents will end up paying more to install a solar photovoltaic system effective Jan. 1 as a result of the state's move to tighten the rules for its renewable energy tax credit program.
The state Department of Taxation issued the temporary administrative rules last month in response to concerns that lost revenue from the tax credit was costing the state too much as PV installations soared.
High electricity prices charged by Hawaii's two electric utilities combined with generous state and federal tax renewable energy incentives have fueled a PV frenzy across the state in recent years. On Oahu alone, residents and businesses so far this year have submitted applications with the Honolulu Department of Planning and Permitting for about 15,000 PV systems, more than 150 percent of the cumulative total of the previous 10 years, according to Marco Mangelsdorf, a Hawaii island PV installer who compiles data on the industry.
Those who oppose the new rules say the changes will reduce the size of the average tax credit by 50 percent and deal a major blow to the Hawai'i Clean Energy Initiative. The HCEI aims to have the state generate 40 percent of its electricity from renewable resources by 2040. The Sierra Club and Earthjustice filed a lawsuit Dec. 11 in an attempt to prevent the state from enforcing new restrictions on solar tax credits.
The new rules base the state's 35 percent solar income tax credit -- which is capped at $5,000 per PV system for homeowners and $500,000 per system for businesses -- on the total kilowatt output capacity of a system. Under the old rules, many homeowners and businesses, working with solar companies, exceeded the caps by configuring multiple systems on their properties.
The new Tax Department rules define a single residential PV system as having up to 5 kilowatts of generating capacity. Commercial projects are defined as having up to 1 megawatt of generating capacity. Tax credits are limited to one per system.
Under the old tax rules, a homeowner with 5 kilowatts' worth of PV panels could divide the panels into two or more systems by having each "system" run through a separate inverter with an independent connection to the home's electrical system.
Homeowners claiming the 35 percent tax credit hit the $5,000 cap once the cost of the PV installation reaches $14,285. However, many residential installations cost double, triple or more that amount. By structuring their PV projects as multiple systems, homeowners were able to claim multiple tax credits and recover a larger share of their investment.
Many players in the local PV industry criticized the Department of Taxation's move, particularly its timing. The rules were published Nov. 9.
Some residential and commercial customers of Kailua-based Sunetric who based their decision to install PV systems on expectations under the 2012 tax rules found out that their net cost would actually be as much as 50 percent higher because the their systems wouldn't be completed until 2013, company officials said.
"Looking at the calendar, the tax ruling came at the worst part of the year," said Gabriel Chong, special-projects manager for Sunetric. "This largely targets the average homeowner and the average business owner."
Sunetric was able to tap into some federal funding to cover the amount in lost tax credits for owners of residential PV systems. The company promotes the program on its website under a heading that reads, "Missed out on the 2012 solar tax credits? We've got you covered."
