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Solar in Hawaii: the Supernova Syndrome


Marco Mangelsdorf

Hawaii has been a red hot solar success story in recent times, but can this success continue without important Federal and State incentives?

In astronomy as a star enters its nova phase, it can expand exponentially and burn thousands of times brighter for a relatively brief time before shrinking back to a much smaller dwarf state. Given what’s happening in the solar electric industry in Hawaii, not to mention the rest of mainland U.S. too, it could be argued that we are now witnessing the supernova state of the photovoltaic industry - where generous Government subsidies and a manic mania for Megawatts is causing an unsustainable feeding frenzy, which may ramp down as dramatically as it went up.

But with the local PV industry in Hawaii having yet another banner year, near record high electric rates, and the State being more committed than ever to bringing more renewable energy on-line – where do the dangers lie?

Reasons to be cautious

There are a number of question marks hanging over the solar industry industry in Hawaii, including decreased Government incentives, an increasing number of saturated electric grid circuits, and the unsustainable level of PV peddlers now in the market.

Since 2009 the IRS has allowed businesses which purchased (or invested in) commercial PV systems the ability to receive something even more valuable than the 30 percent of the cost of the system Federal tax credit: 30 percent cash back in the form of a check from the Treasury within 60 days after completion of the project.

This incentive has proved to be huge over the past three years, as small and large companies, banks, investment groups and multi-billion dollar corporations have dived headlong into the PV systems ownership game - enticed by this grant in lieu of tax credit.

This incentive disappeared on 1 January. And with it, a major factor that sparked the explosion of commercial solar electric projects here and on the Mainland. Yes, the 30 percent Federal tax credit will still be available through 2016. But a credit pales beside cash back and will likely lead to a noticeable drop in commercial PV projects, which make up the bulk of installed solar kilowatts in the state.

Along with the Federal grant and tax credit, another critical part of the equation for purchasers of (or investors in) PV systems has been the generous 35 percent (or 24.5 percent if a rebate is preferred) State tax credit. In recent times there has been much effort in the State legislature to modify, reduce, or put a sunset date on this tax credit. Up until now, every year the renewable energy industry and its supporters have rallied to defeat such efforts.

But given the condition of the State’s finances; the economy of scale now reached in the local PV industry and commensurate lower costs; and the outflow of general fund dollars to out-of- state investors; there is a reasonable likelihood that enough legislators will be convinced that the days of unending taxpayer support for a now several hundred million dollars a year state industry, could be numbered.

And who could legitimately argue with that, given the budget cutting-to-the-bone being done to essential Government programs for the poor, needy and elderly? Although it is always difficult to predict what the legislature is going to do, its next session (which starts next month) could see more intensive scrutiny of a number of tax credits that take a significant bite out of the State’s coffers.

Interconnection

The sellers of grid-tie PV systems are completely dependent on the ability of their customers to be able to interconnect their systems to their local electric utility company’s grid. As has been repeatedly reported over the past months, Hawaii’s electric utilities are seeing an accelerating number of their circuits reaching a level of high saturation of PV systems feeding into the grid. Once a certain threshold of distributed generation is reached on a circuit, the door effectively closes to wannabe PV system purchasers, unless one or more utility customers in that circuit pays for an interconnect requirement study, with no guarantee that the study will yield the desired results.

While Oahu, given the much larger size of its grid compared to the other islands, still has substantial room for more PV, the situation on the neighbouring islands is increasingly grim. Kauai’s electric utility ended its net energy metering program several years ago.

Within the next 6-12 months, most all of Lanai and Molokai will likely be closed down to more PV. Since May, at least 7 circuits in MECO territory, including parts of Lahaina, Kahului, Wailuku and Makawao, have been closed. And on the Big Island, the number of red, highly-saturated areas of the HELCO locational value map continues to grow from month to month.

Trying to figure out how to get beyond the current grid penetration caps and allow for substantially more renewable energy to feed into Hawaii’s grids is the task of the Reliability Standards Working Group. Multiple stakeholders are working in good faith to tackle this tough task and make recommendations to the Public Utility Commission (Note however that the RSWG is not scheduled to present its findings to the commissioners until December 2012, with whatever practical decisions and actions to follow at some unpredictable time after that).

In the meantime, the facts on the ground of circuit after circuit after circuit closing, bodes poorly for the PV industry, and all those home and business owners who in the short term at least will be denied their ability to go solar electric in a timely fashion.

The bandwagon syndrome

In an economic system such as ours, when there are perceived opportunities in the market to provide a product and make a profit, there will always be entrants into that marketplace seeking to do just that. Five years ago there were less than a dozen pure PV companies in the state which focused exclusively on selling and installing solar electric systems.

Now, by one count, there are more than 150 trying to grab their piece of the PV pie. From electrical contractors to plumbers to roofers to realtors to Costco and Home Depot to mom-and-pop home and garden stores to street vendors in Waikiki - well, maybe not street vendors on Kalakaua but it almost feels that way - and one’s auntie and uncle down the street, the PV business has reached a level of commoditisation and I-can-design-and-sell-PV enthusiasm like never seen before.

And with that level of cut-throat, race-to-the-lowest-price competition, a sustainable profit margin becomes harder and harder, if not impossible, to achieve, once the current boom loses steam. Larger Hawaii PV integrators which staffed up X fold will need to downsize, as they have done in the past. The companies which do PV as a sideline to their core business will see that part of their revenue stream shrink. And a number of contractors who live and die by their PV sales will not survive, or will need to return to the Mainland from whence they came.

If one reads the media reports and exuberant words from many inside and outside the solar industry in Hawaii, the casual reader might think that we are finally at the point, after decades of so many promising claims and studies about how the state is so blessed with abundant renewable energy resources, of achieving real progress as far as greater energy independence. And I hope that is true.

But in reality the size and vitality of our PV industry over the next couple of years is less certain.

About the author:
Marco Mangelsdorf is an instructor of Political Science at
University of Hawaii at Hilo and is also a member of Hawaii’s Reliability Standards Working Group, which is working to get beyond the current grid penetration caps and allow for substantially more renewable energy to feed into Hawaii’s grids.
 

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Photovoltaics (PV)  •  Policy, investment and markets  •  Solar electricity

 

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