Tax Credits & Incentives

Both the Federal Government and the State of Hawaii offer generous tax incentives to businesses that invest in solar electricity and solar hot water heating.  The primary incentives are tax credits that together offset 65 percent of the installed cost of the project. In addition, businesses can use a front-loaded, five year accelerated depreciation schedule to account for full the system cost.

1. Federal Business Solar Tax Credit. The federal government allows businesses to take a credit worth 30 percent of the installed cost of solar thermal or photovoltaic systems for the tax year that the system is placed in service.  The credit is scheduled to sunset at the end of 2008, returning to 10 percent, where it had been prior to 2006.

Key Provisions:

  • Covers 30 percent of system cost (10 percent after 2008)
  • Applies to installed cost of system and up to five years of included maintenance
  • Available for tax year the system is ‘placed in service’
  • Unused portion can be rolled over to subsequent tax years
  • Utilities excluded

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2. Hawaii Renewable Energy Tax Credit. Hawaii allows businesses to take a credit worth 35 percent of the installed cost of solar thermal or photovoltaic systems for the tax year that the system is placed in service.  The credit has no sunset date and can be carried forward to offset taxes in subsequent tax years.

Key Provisions:

  • 35 percent of installed system cost
  • Credit available for tax year the system is ‘placed in service’
  • No sunset date  
  • Multifamily property limited to $350 per unit
  • Must pay federal tax on state tax credit in subsequent tax year

More Information
http://hawaii.gov/dbedt/info/energy/renewable/solar

3. Accelerated Depreciation (Modified Accelerated Cost-Recovery Systems – MACRS). Both the Federal Government and the State of Hawaii allow solar systems to be fully deducted over a five year lifetime.  The schedule for this ‘five year property’ actually unfolds over six years to account for the fact that systems are not operational from the first day of Year 1. The value of the accelerated depreciation schedule depends on the tax rate of the entity purchasing the credits. Under MACRS, solar equipment is treated for depreciation purposes as follows:

Depreciation is front loaded in 2008 relative to previous years because solar equipment qualifies for 2008 ‘bonus’ depreciation of 50%. This bonus reduces the remaining depreciation schedule by half in Years 1 through 6.  In 2009, the depreciation schedule is the same as in earlier years, however, when the federal tax credit falls to 10% the depreciable basis of the project rises from 85% to 95% of the installed cost. 

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See a representative cash flow and tax credit flow analysis for a $1 million investment.


4. Net metering. Net metering refers to the ability of power producers, called customer-generators, to receive credit at the full retail rate for excess power that they send into the utility grid.  When this happens the utility meter spins backwards.  Net metering is particularly useful for solar because it allows power produced during the day to be consumed at night when the system is not producing power. The customer-generator benefits by using the utility grid as its ‘battery,’ while the utility avoids the cost of producing and distributing power to its other customers located near the customer generator.  Although it is a win-win situation, not all systems qualify for net metering. The current size limit on net metered systems for HECO, MECO, and HELCO is 100 kW per meter. For KIUC it is 50 kW. Further, electric utilities are only required to offer net metering until total net metered capacity is equal to 1.0 percent of peak demand, half of which is reserved for systems under 10 kW and half for systems between 11 and 100 kW (11 to 50 kW on Kauai).

Key Provisions

  • Requires net metering agreement with public utility
  • Excess carried over monthly and settled annually
  • Available for solar, wind, hydroelectric, and biomass projects
  • Utility provides new meter free of charge

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