by Andrew Walden

Mainland solar contractors are pouring into Hawaii to launch every solar project imaginable. Gigantic solar farms are proposed for Pearl Harbor—part of a $500M deal with the Navy. Other commercial solar farms are in the works on Kauai. Honolulu construction permitting records show that rooftop installers—including many newly arrived from the mainland--may commence nearly $100M of work this year.

The looming December 31 expiration of the “Section 1603 Cash Grant”—Obama ‘stimulus’ money given to solar installers equal to 30% of a project’s cost-- is a key driver of the solar bubble economy.

But information provided to Hawai`i Free Press by a Hawaii-based solar contractor points to an additional cause—massive DoTAX-authorized abuse of State Renewable Energy Technologies Income Tax Credits (RETITC) by both residential and commercial solar projects.

RETITC is a state tax credit worth up to 35% of the actual cost of installing a solar system. It is capped at $5000 per system. But in May, 2010, after solar installers started trying to claim that solar panels equipped with “micro-inverters” were each an individual system, the Hawaii Department of Taxation (DoTAX) responded with Tax Information Releases 2010-02 and 2010-03. Rejecting the micro-inverter scam, DoTAX instead mandated that “The number of independent connections into the building's electrical system is the determining factor.” According to DoTAX, an installation with “a single 6,000 watt … inverter” was “one system” entitled to one tax credit worth up to $5000. But a system with “two 3,000 watt … inverters” was “two systems” and therefore could be eligible for up to $10,000 in tax credits.

The result, according to our source, is that many solar contractors wire their jobs to maximize the number of inverters, often using four 2,000 watt inverters where one 8,000 watt inverter would do. Instead of collecting a single $5000 tax credit, a single job wired in this manner would now be considered four systems and therefore entitled to as much as $20,000 in tax credits.

The DoTAX releases made the Hawaii Solar Energy Association see dollar signs:

The Hawaii Solar Energy Association is pleased that the Department of Taxation has released a new Tax Information Release (TIR 2010-03) that provides additional clarification on the use of the Renewable Energy Technologies Income Tax Credit (RETITC). The RETITC is a critical source of support for Hawaii’s solar industry

But the bonus for residential installers was only a warm-up exercise. RETITC also grants a $500,000 state tax credit for each commercial solar system installed. Commercial systems are those which sell power directly to a utility without also serving as a power source for a utility customer.

A February 11, 2011 DoTAX “Letter Ruling”--in which the phrase “REDACTED TEXT” appears 38 times—redefines the meaning of “solar system” to the benefit of commercial solar farm developers. According to DoTAX, a solar farm can be considered to be consisting of numerous “solar systems”—each worth $500,000 in tax credits—as long as each “system” has:

• "A central inverter rated at [REDACTED TEXT] ("Inverter"), which converts the DC electrical energy produced by the photovoltaic panels into alternating current ("AC") at an output voltage of approximately [REDACTED TEXT] (there are no micro-inverters, as described in TIR 2010-02, being utilized in the Project);
• "A step-up transformer, which increases the output voltage from the PV System's Inverter from [REDACTED TEXT] to approximately [REDACTED TEXT];"

Inspite of the redactions, the result is not difficult to discern. All of the massive solar projects which have so suddenly been proposed for Hawaii since February are being subdivided with otherwise unnecessary inverters and transformers in order to maximize the number of $500,000 state tax credits. These credits will go to the banks, insurance companies, Wall Street investment houses, utilities, and tobacco companies backing these projects. They will also go to the hordes of politically connected Hawaii insiders behind many of the solar farms.

35% of the $500M in solar planned for Hawaii military facilities equals $175M taken out of the State’s income tax revenue stream. Maximizing the tax credits is just a matter of calculating the optimal number of inverters and transformers. Our source tells us this may become a focus of budget debate during next year’s legislative session.

Hawaii has the most regressive taxation structure in the nation. When the Legislature returns, they will find a big fat hole in the budget because once again the tax system is being used to redistribute wealth from the poorest to the richest.

---30---

RELATED: Hawaii Wind, Solar projects: Millions for Wall Street, Banks, maybe even Big Tobacco

Background:

RETITC Law: HRS 235-12.5

DoTAX TIR 2010-02 May 3, 2010

DoTAX TIR 2010-03 May 21, 2010

February 11, 2011 DoTAX “Letter Ruling”

Oahu Total Permitted Amounts (by Contractor) Jan 1- June 30, 2011 (LINK)