Incentives & Tax Rebates for Commercial PV
The economic outlook may be uncertain on many fronts, but 2010 holds definite promise for Hawaii business owners looking to take advantage of renewable energy — though smart investors must be keenly aware that the clock is ticking.
Change is on the horizon for both the Hawaii state and federal solar tax incentive programs. Currently federal incentives are available as either a 30% tax credit or as a 30% cash grant, but the cash grant program expires at the end of 2010. Similarly, Hawaii’s state incentives are available as either a 35% tax credit or 24.5% refundable tax credit. Unfortunately, not only is the federal grant expiring, but there is significant uncertainty as to how long the state refund program will last as well. Combined, these incentives can offer up to 54.5% cash back, or a 65% tax shield depending on your tax appetite. In addition, businesses can generally use a front-loaded, five year accelerated depreciation schedule to account for the system cost.
In a slowly recovering economy, safe investments are few and far between, and even fewer are those predominantly paid for by the government, but business owners must act soon to benefit from both the state and federal ‘cash-back’ programs.
But the urgency doesn’t end there—the cash-back federal incentive requires that qualifying systems be installed and operational by December 31st, 2010. This deadline, along with the expiration of the federal cash grant, is sure to generate a drastic Q3-Q4 drawdown in manufacturer supply due to imminent nationwide demand. As such, if organizations do not commit to a photovoltaic system purchase early in the year, it is very possible that hardware will simply be unavailable as the calendar year comes to a close.
So act now, right now, to take advantage of opportunities that may never be available again. Turn to Sunetric, Hawaii’s solar authority, and gain a crystal clear view of the ideal energy investment options for you, your company and Hawaii.
1. Federal Business Solar Tax Credit
The federal government allows businesses to take a credit worth 30 percent of the installed cost of solar photovoltaic systems through December 31, 2016. The five-year accelerated depreciation allowance for solar property is permanent. This incentive is also available as a 30 percent tax grant until the end of 2010.
Key Provisions
- Covers 30 percent of system cost
- 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
More Information
- Solar Energy Industries Alliance Frequently Asked Questions on Federal Solar Credit
- Federal Database of State Incentives for Renewables and Efficiency
- IRS Form 3468 Investment Credit (includes instructions) (PDF)
2. Hawaii Renewable Energy Tax Credit
Hawaii allows businesses to take a credit worth 35 percent of the installed cost of 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. The Governor also recently signed Senate Bill 464, which makes the state renewable energy credit refundable for taxpayers who agree to accept a lower credit of 24.5%.
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
- Hawaii Department of Business, Economic Development, and Tourism Solar Page
- Database of State Incentives for Renewables and Efficiency (Hawaii Page)
Tax Forms for Systems Installed BEFORE July 1, 2009
- State of Hawaii Department of Taxation Form N-334 Renewable Energy Technologies Income Tax Credit (PDF)
- State of Hawaii Department of Taxation Form N-334A (Information Statement for Renewable Energy Technologies Income Tax Credit) (PDF)
- State of Hawaii Department of Taxation Form N-334 Ins (Instructions for Form 334) (PDF)
Tax Forms for Systems Installed AFTER July 1, 2009
- State of Hawaii Department of Taxation Form N-334 Renewable Energy Technologies Income Tax Credit (PDF)
- State of Hawaii Department of Taxation Form N-334A (Information Statement for Renewable Energy Technologies Income Tax Credit) (PDF)
- State of Hawaii Department of Taxation Form N-334 Ins (Instructions for Form 334) (PDF)
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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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
More Information
