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Spurt in Hawaiian solar use leads nation, but conflict threatens program

MARINE CORPS BASE HAWAII -- On a sun-drenched spring day, Brent Arakaki drives into a neighborhood where military families live here. It's an enclave at the foot of the mountains, featuring new homes with porches, verdant lawns and white picket fences.

But as he steps from his van, it's the roofs Arakaki highlights. He gestures up, where long stretches of solar panels gleam in the afternoon light.

Forest City Enterprises of Cleveland, where Arakaki works as project developer, manages these homes and opted to add photovoltaics. Within a few years, he said, the panels could top more than 5,000 Marine and Navy dwellings.

"The sky's the limit," Arakaki said, explaining that Forest City ultimately hopes to have solar on 80 percent of its military buildings. "If we're able to accomplish this, then it will be among the largest, if not the largest rooftop PV development in the state."

This is part of a solar surge that is happening across Hawaii.

The Aloha State now leads the nation in the portion of its electricity that comes from solar. Solar represents 2.6 percent of that power, surpassing Arizona's 2.4 percent.

The boom has been resounding. Solar installations in Hawaii jumped 169 percent last year from 2011. More than 4 percent of households have installed photovoltaics.

It's a green energy push powered by the greenback. The Aloha State burns oil to make electricity, and prices for the fuel have jumped in recent years. That's ignited demand for alternatives. The state's tax credit for solar energy made it additionally appealing.

Hawaii’s Legislature last week passed a measure aimed at buttressing the expansion further. The state will sell bonds to provide loans for residents wanting solar. Consumers will repay the debts through their monthly electric bills (ClimateWire, May 3).

"It's growing by leaps and bounds," said Leslie Cole-Brooks, Hawaii Solar Energy Association executive director. "It's a great place to install solar. It's paradise, right? We have great weather, tons of access, and people want their independence."

The embrace of solar has hit a recent setback, however, and it's not clear whether growth will stall as a consequence.

Tax credit controversy

Hawaii wants to have 40 percent locally generated renewable power by 2030. To encourage that, it offers a tax benefit that many say helped power the boom.

The state gives roughly the lesser of 35 percent of costs or $5,000 for a residential system and $500,000 for a business-sized project. But that incentive came under fire last year amid charges that it was being abused. Some households and businesses were claiming the benefit multiple times for the same location.

Democratic Gov. Neil Abercrombie's administration issued a temporary administrative rule reinterpreting what qualifies for the credit. That change has cut in half how much people can deduct for installing systems, solar supporters said.

There also has been a push to limit or change Hawaii's net energy metering, in which households with solar earn credit for electricity produced and draw from the balance for their needs. That clash has hit Arizona and California as well (ClimateWire, April 2). Utilities argue that solar customers don't pay their fair share of fixed costs.

States across the nation are likely to see similar conflicts as they embrace more solar, said Mike Duda, president of the Hawaii PV Coalition, a trade group. "If solar is going to be successful anywhere else, they're going to end up at this point. It's just not an easy point to be at."

Hawaii's solar expansion took off after the March 2011 earthquake in Japan. The temblor prompted that country to cut nuclear and start buying more low-sulfur fuel oil to make electricity. The demand pushed up costs in Hawaii, said Peter Rosegg, a spokesman with Hawaiian Electric Co., or HECO.

"It was high before, but now it has just gone through the roof," Rosegg said. The oil has to come from the Middle East or Southeast Asia, he said, and it's "very expensive to ship this stuff here."

Hawaii's utilities are allowed to adjust rates monthly to cover the higher costs of oil, making bills volatile, Cole-Brooks said.

Oil price spike launched solar market

That's "created a very fertile market for the solar people," Rosegg said. "Every day that we have high rates is every day that it's easier to sell a solar system."

Solar companies began advertising more heavily. Honolulu resident Berlin Valdez saw one of those spots in 2011, around the time she also was hearing news reports that electricity bills would continue climbing.

Valdez and her husband, Sam, were paying about $450 a month to power their 2,800-square-foot home. That was even though she hung their clothes to dry and relentlessly unplugged items not in use, Berlin Valdez said.

In May 2011 the couple opted for a lease with San Mateo, Calif.-based SolarCity Corp. and now pay $250 per month for the 39 panels on their roof. Every month since then, Valdez said, they've paid the electric company only a service charge of $14.

"To me, it's just better for a family," said Valdez, 49. "Living in Hawaii, everything's so expensive."

She's been so pleased, she's encouraged eight other people to add solar to their homes.

Forest City runs the military housing on Oahu where solar is being added. As part of its 50-year contract with the military, the company covers utility costs, and Marine and Navy families pay rents with those included.

In 2009 electricity expenses were running as high as $500 per month for a modest-sized home, Arakaki said.

"You can imagine that times 6,700 units," Arakaki said, referring to the number of military homes Forest City manages in Hawaii. "It's a lot of money."

The company launched a conservation incentive program and installed energy-efficient windows, appliances and insulation. Then last May it brought in SolarCity to add photovoltaics. Forest City for the next 20 years will pay SolarCity for the power its panels produce.

In addition to the consumption by residents, Arakaki said, Forest City pays for the electricity used by streetlights, community centers, auxiliary offices and warehouses. Because of that, the company wants as much solar as possible.

"There's a lot of anticipation for this project to grow," Arakaki said while standing in a neighborhood on the Marine base. SolarCity's contract is to "install as much PV as they can."

Given ambitions like those and projections for more solar, utility HECO has multiple research projects on renewables and grid management, said Rosegg with that company. In addition to photovoltaics not providing energy when the sun isn't shining, many systems have trip wires that cause them to shut off automatically in self-protection when they sense a problem on power lines, he said.

"It is a constant challenge to keep the grid reliable with more and more solar coming on board," Rosegg said.

Claims of tax benefit abuse

The future of Hawaii's solar tax credit isn't clear. Problems arose with it because the state awarded benefits per "system." Some companies and residents counted each connection to an inverter as a separate system and claimed the tax benefit for each.

The state in 2007 had said that was allowable, said Robert Harris, executive director of Sierra Club Hawaii. But state Sen. Sam Slom (R) said people exploited the credit.

"I have friends in the solar industry, they admit it, that there were abuses," Slom said. "They would break projects up into segments and get credit for each one."

The benefit cost Hawaii $65.4 million in 2011, based on tax returns. There were projections it would grow to $170 million last year, an estimate based on permits taken out. An analysis from the Economic Research Organization at the University of Hawaii forecast it could swell to $2.1 billion without a policy change.

The state Department of Taxation last year said it would issue new policies on the benefit because earlier guidance had "created uncertainty among taxpayers, an unlevel playing field within the renewable energy industry, and presented difficult tax enforcement issues." The agency's temporary rule effective this year defined a residential system as 5 kilowatts and a business one as 1 megawatt. It said that benefits exceeding $5,000 or $500,000 must be prorated based on a formula.

"That kind of changed the whole game," said state Sen. Mike Gabbard (D), a supporter of solar incentives.

The rule threatens larger projects, many of which had been planned years in advance, said Duda with the Hawaii PV Coalition. "The utility-scale stuff has been pretty comprehensively damaged."

The Legislature wrestled with a bill that would have superseded the administration's rule, but that died in committee last month.

Gabbard's S.B. 623 would have aligned the tax credit with the federal incentive -- 30 percent of costs -- while paring the benefit gradually. By 2018 it would have dropped to 15 percent. The bill also would have changed the industrial incentive to a credit based on production.

Legislation now can't be attempted again until 2014. In the meantime, the 35 percent incentive with the $5,000 and $500,000 caps stays in effect.

Even with the rule changing the definition, that could become costly, said Lowell Kalapa, president of the Tax Foundation of Hawaii, a spending watchdog group. "There's no termination to the credit, and it remains at 35 percent," Kalapa said. "So it could add up to $1 billion."

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