For many years, Hawaii has been home to one of the strongest solar PV markets in the US. The state has offered renewable energy tax credits since 1976 and at 35% today, the credit is one of the largest in the country. Additionally, the market has been bolstered by the high cost of electricity, which at an average between 33 and 42 cents per kilowatt hour is triple the national average. With residential solar energy costs averaging between 16 and 21 cents per kWh, the associated savings are often dramatic enough to justify a solar installation investment even without a 35% tax credit.
When you combine the cost per kilowatts savings, the state tax credit and the 30% federal tax credit, it is not surprising to hear that solar installations in Hawaii have increased exponentially since 2005. Homeowners receive a sizeable up-front discount on an energy system that provides long-term savings. They also support clean energy and Hawaii’s renewable energy portfolio goals.
Wide adoption of solar has been a very positive trend for the state, however new legislation around solar tax credits in Hawaii has recently stirred controversy. A new tax credit law, implemented at the beginning of the new year, ensures that homeowners can only take one state tax credit per system. As a result, the price of certain solar systems will increase which has caused some to question if it will impede the overall solar adoption in Hawaii. In actuality, the new law lightens the financial burden for the state and allows Hawaii’s solar market to grow in a more sustainable way. It also will enable a more competitive inverter market in which solar products will be chosen based on their safety, reliability, and ease of maintenance rather than on which earns the highest tax credit.
A Brief History of Hawaii’s Solar Tax Credits
In 1976, Hawaii implemented a tax credit which was intended to provide a credit for each solar system installed, but the word “system” acquired new meaning when the first commercially successful micro-inverter was introduced into the market in 2008. Micro-inverters convert direct current (DC) electricity from one or two solar panels to alternating current (AC). The output from several micro-inverters is combined and fed to the electrical grid. String inverters, on the other hand, are connected to multiple solar panels. As a result of this difference , and of the new tax credit, homeowners installing micro-inverters claimed each micro-inverter as a separate system in order to receive more than one renewable energy tax credit. Hawaii tried to close this loophole by issuing several Tax Information Requests (TIFs):
“THE INVERTER ALONE DOES NOT DICTATE THE NUMBER OF SYSTEMS” (TIF 2010-02 p. 2)
“THE NUMBER OF CONNECTIONS TO THE ELECTRICAL SYSTEM IS THE PROPER TEST” (TIF 2010-02 p. 3)
The state included several examples of what a qualified system looked like, but the clarifications did not solve the oversubscription of rebates. Instead, Hawaii started to find systems installed with multiple connections to the electrical grid for no apparent electrical purpose.
Hawaii needed to find a new solution to continue to encourage solar adoption while also curbing the draining of renewable energy credits. The credits were causing so much damage that the state council was obligated to reduce their estimated tax revenues for the year, citing energy credits as a primary contributing factor. Credits are estimated to have cost Hawaii $170 M in 2012 and are expected to cost $230 M for 2013. To reverse the trend without ending the generous 35% tax credit, the state enacted a new law for 2013.
The Path to a Sustainable Solar Economy in Hawaii
The new 2013 law redefines the “system”. The system is no longer defined by the number of inverters or connections to the electricity system. Instead, the system is defined by “total output capacity,” or, the amount of kilowatts a system produces. If a homeowner has multiple systems, they are required to add the outputs together for one total capacity. This effectively prevents homeowners from claiming multiple credits, from one effective installation.
Some solar advocates cry out that the new 2013 law limiting tax credits will significantly hurt the solar industry. According to the calculation included below, with the new law in effect, most homeowners installing micro-inverters for a 5kW system will see a 30% rise in the initial cost because they can no longer claim a tax credit for each inverter. In actuality, the new law only hurts those who were abusing the state renewable credit laws. The credit was never intended to be based on the number of inverters.
The new law takes the burden off the state and leads the way to a sustainable solar economy in Hawaii while making for a more competitive inverter market. Instead of choosing a solar product based on which earns the highest tax credit, the market is free to choose products that are safer, more reliable and more easily maintained.
With more freedom to choose, the number of string, or central, inverter installations will rise in Hawaii. String inverters are less expensive than micro-inverters; more so now that micro-inverters have lost their cost advantage with the elimination of multiple tax credits. In 2012, a micro-inverter system cost 5-10% more than a string-inverter system, but received almost 25% more in tax rebates. See the comparison in this calculation for a 5kw system:
| Micro-inverter, 2012 | String inverter, 2012 | Micro-inverter, 2013 | String inverter, 2013 | |
| Installed price (est) | $24,000 | $22,500 | $24,000 | $22,500 |
| 35% state tax credit | $8,400 | $5,000 | $5,000 | $5,000 |
| 30% fed tax credit | $7,200 | $6,750 | $7,200 | $6,750 |
| Price after credits | $8,400 | $10,750 | $11,800 | $10,750 |
There are several other important benefits for installers and homeowners. String inverters are easier to service because the inverter is typically installed at ground-level and easily accessible. For the same reason, they are also safer; requiring no roof-top maintenance. Quality string inverters offer the same amount of shade tolerance as a micro-inverter. These benefits are enticing to installers, and there exists a great opportunity for those who recognize early how the Hawaiian market is shifting and quickly seek out training and products which will benefit their customers in terms of price, safety, quality, and support.
String inverters are generally considered to be a superior solution to micro-inverters by many larger companies that can offer bankability. This is important, because as the solar industry grows at a rapid pace and new players enter the market, installers and homeowners have a growing number of vendors and solar solutions to choose from. However as competition increases in the market, weaker players occasionally disappear, leaving installers and homeowners with solar solutions that have worthless warranties. Warranties are only as good as the bankability of a company. Since many of the larger companies that can offer bankability consider string inverters a superior solution, they are more likely to come backed with warranties and service that customers can trust.
Hawaii now joins other states in offering a tax credit that promotes a sustainable and competitive solar market. Other states should consider raising their own renewable tax credit to 35% to obtain the high solar adoption rates that Hawaii has been seeing since 2005. With its recent changes to tax code and installation guidelines, the state of Hawaii has developed a model that many states would do well to implement.
By Ray Barbee, Director of Channel Development, US Solar, Schneider Electric
