by Andrew Walden

“Free Solar” may sound like music to the ears of low-income Hawaii homeowners and non-profits, but to the General Fund it sounds more like a vacuum cleaner.

The culprit? Senate Bill 464 of 2009, which amended HRS 235-12.5, creating an optional 24.5% cash payout to solar installers in lieu of the state’s already-existing 35% tax credit. Now, not only has DoTax allowed installers to create multiple “systems” receiving multiple tax credits, but with the 24.5% cash payout, millions of dollars in taxes already collected in Hawaii are being sent to mainland companies.

The amendment was pitched to legislators as a boon to non-profits, retirees, and other local residents for whom the non-cash tax credits were useless because they have little to no income tax liability. But the real beneficiaries are turning out to be mainland companies such as SunRun and Solar City -- and the banks, insurers, Wall Street brokerage houses, and mainland utilities financially backing them-- which began pushing residential “free solar” deals in September, 2010.

SB464 reads:

For solar energy systems, a taxpayer may elect to reduce the eligible credit amount by thirty per cent and if this reduced amount exceeds the amount of income tax payment due from the taxpayer, the excess of the credit amount over payments due shall be refunded to the taxpayer; provided that tax credit amounts properly claimed by a taxpayer who has no income tax liability shall be paid to the taxpayer….

Reducing the 35% State tax credit by 30% yields a 24.5% cash payout.

With residential installations limited to $5,000 tax credit per $14,285.71 “system” installation, the maximum cash payout per “system” becomes $3,500. For “commercial” installations—those designed solely to sell power to HECO—the tax credit is limited to $500,000 per $1,428,571 “system” installation and the cash payout option would max out at $350,000 per “system.”

Solar City is also getting a large chunk of the $1B in solar to be installed at military bases nationwide—including about $500M in Hawaii.

Because the mainland companies own the “free” solar installations, they also collect the federal tax credits—money which would otherwise go to Hawaii homeowners.

The creative use of excess inverters allows both residential and commercial installers to make one solar installation into multiple solar “systems” in the eyes of the Hawaii Department of Taxation. And SB 464 specifies:

A separate election (to choose the cash payout) may be made for each separate system that generates a credit.

In his New Day Plan, Neil Abercrombie defined energy independence as “retaining a major portion of the billions of dollars that we now spend on imported oil so we can reinvest it here at home.” The “free solar” companies are hiring local subcontractors and local workers to do the installations. But in addition to the cash payouts for tax credits, the next 20 years of utility bills leave Hawaii as well.

The sales pitch for SunRun’s free solar deal explains: “You purchase the power produced at a rate that is up to 25% lower than your current electric rate…. Pay a fixed monthly fee for 20 years.”

In other words, instead of paying HECO for electricity, solar consumers will be paying a California company long after their local Hawaii installers have been laid off. Meanwhile, thanks to “decoupling”, a shrinking pool of remaining HECO ratepayers bears the entire cost of maintaining the grid. A $200 monthly electric bill over 20 years equals $48,000 per household which is not going into the local economy. Instead, 75% of that amount--$36,000--is shipped to California. This comes on top of the $3500 cash per “system” from the General Fund and the 30% federal tax credit.

The Hawaii Solar Energy Association supported the refundable tax credit, but a local solar contractor speaking on condition of anonymity tells Hawai`i Free Press:

“We think that this is going to burn itself out…. In about a year and a half or two years the State’s going to be broke. There's going to be no more capacity (on the grid).

“It has to be a balanced approach. We’re doing fantastic, but we’d rather be doing less fantastic for a longer period of time…. Until there was a 24.5% refundable tax credit, their (free solar) business model wouldn’t work.”

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Related:

Why Stop at $500K? DoTAX Quietly Multiplies Hawaii Solar Tax Credit

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

SB464: Bill Text