Potential Changes to Hawaii’s 35% State Tax Credit

25 Mar 2013

New temporary rules will place restrictions on the ability of developers in Hawaii to claim the 35% state tax credit. The new rules, issued by the Department of Taxation in November of 2012, will be in effect for no longer than 18 months, starting for systems installed on January 1st, 2013 and after. The Hawaiian House of Representatives also recently moved HB 497 to the Senate, a proposal to permanently decrease the tax credit level given to renewable energy developers.

The new structure, under the temporary rules, places a minimum on kilowatt output of PV systems, referred to in the legislation as “other solar systems” or those projects neither for solar thermal nor from wind energy. Single-family residential properties have a minimum of 5 KW per system, multi-family residential properties have a minimum of .360 KW per unit per system, and commercial properties’ systems must have a capacity of 1MW in order to receive the current 35% of costs income tax credit. There is also a cap of $5,000 of credit for residences and $500,000 for commercial enterprises.

This new minimum prevents developers from deriving an income tax credit for multiple systems by dividing the costs of construction into multiple segments. Developers have no minimum to acquire the credit if they only have one system; however, in the case of multiple systems, producers will not be able to lessen their financial burden from all systems unless each system reaches the output threshold. Only one system per application may fall below the minimum threshold – either the first system, in the case of entire projects that have a capacity smaller than that of the size limit, or the last system, totaling the remainder of the project capacity once the project is divided by the minimum capacity limit. For example, many developers currently divide their total costs among several different “systems” even if the installation is a single array for a single client, thus maximizing the number of systems placed into service for the purpose of calculating the credit. By eliminating this option for smaller installations, solar electric producers in Hawaii will have to bear a larger portion of their project costs.

The new permanent house bill, presented on the Senate floor this week, has the potential to significantly decrease the percentage of costs of construction recoverable through the income tax, if passed. HB 497 calls for a five-year, gradual decrease to 15% of costs, down from the current 35% level, for some renewable energies. This proposed bill will not affect solar projects for water heating, just systems designed to produce electricity.

Sol Systems believes that state-run tax credits are an important addition to the federal tax programs, and supports Hawaii’s history of high goals for renewable energy in its borders. While Hawaii’s new, more restrictive rules may not provide as substantial financial relief as they have for the last 30 years, the current policy still provides a strong conduit for success in the solar arena. Hawaii’s extremely high electricity prices will make it a compelling market for solar development for years to come.

If you are currently interested in discussing financing opportunities in the Hawaii market, please contact our project finance team at info@solmarket.com or 888-235-1538 ext. 2.

About Sol Systems

Sol Systems is a boutique financial services firm that offers investor clients direct access to the renewable energy asset class and provides developers with sophisticated project financing solutions. Founded in 2008, Sol Systems focuses on meeting the most critical needs of the industry, including SREC monetization, capital placement, tax equity, and New Market Tax Credits. To date, the company has arranged financing for thousands of projects and facilitated hundreds of millions in investment on behalf of Fortune 100 companies, private equity, family offices and individuals.

For more information, please visit www.solsystemscompany.com.

Print Page


Daniel Watson

Daniel Watson