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University of Hawaii

Electrical Engineering

A Policy Analysis of Hawaii’s Solar Tax Credit Incentive

Date: 2013-10-17           Add to Google Calendar
Time: 4:30PM - 5:30PM
Location: Holmes Hall 244
Speaker: Makena Coffman, Associate Professor, Department of Urban and Regional Planning

Solar photovoltaic (PV) is an attractive renewable energy technology because of its carbon neutrality and ease of locating. It is still costly relative to other sources of renewable energy, such as wind. Policy support is the main deployment mechanism of PV throughout the world. The U.S. offers a residential income tax credit that covers 30% of the cost of PV systems and many states offer additional subsidies.

Hawaii offers an interesting inquiry into the role of state subsidies in PV deployment. Hawaii has electricity rates nearly four times the national average and is clearly in a good solar location. Hawaii has a 35% tax credit for PV, or $5,000 per system. We examine the role of Hawaii’s tax credit policy in PV deployment. We also look at the distributional and tax payer impacts of
Hawaii’s PV tax credit program. Using census data, we estimate 1) the household “payback” period for a typical PV installation, 2) the internal rate of return (IRR) for household PV installation, and 3) the maximum amount of PV capacity that might be installed on owner-occupied single-family homes.

We find that PV is an excellent investment for Hawaii’s homeowners, even without the state tax credit. For a representative household (3-person, $75K household income), the current rate of return is between 14% and 18%. Even with no state tax incentives, the rate of return is between 10% and 13%. Moreover, we find that the vast majority of installations are demanded by households with the median income ($75k) and higher. We estimate that single-family home-owner’s in Hawaii may demand as much as 1,100 MW of PV. With no constraints on the electric grid’s ability to accept intermittent sources of energy, and at current levels of electricity demand, this would account for 17% of statewide electricity demand. There are, however, tremendous constraints on the grid. Policy currently limits PV generation to be no more than 15% of peak load for any given circuit, or approximately 3% of aggregate electricity demand. Although this policy is being challenged, where some circuits have gone much past the theoretical quota, it would have to be lifted nearly five times over to meet PV demand. As such, the tax credits do not necessarily increase the overall levels of deployment, but rather spread the cost of installation from homeowners to taxpayers.