With roughly 300 megawatts of utility-scale solar energy expected to hit Hawaii’s electrical grids over the next several years, the state faces a potentially significant loss of revenue from tax credits available to the developers.

Under state law, developers of commercial photovoltaic projects are eligible to claim a credit against their Hawaii tax liability of up to $500,000 for each 1 megawatt of installed capacity. Those who owe little or no Hawaii taxes can opt for a cash payment at a 30 percent reduction, or up to $350,000 per megawatt.

The potential loss in tax revenue ranges from $105 million to $150 million if credits are claimed for the full 300 megawatts. The possibility of a reduction in tax revenue comes at a critical time in the state budget-making process with lawmakers looking at ways to scale back spending to balance the books for fiscal year 2015.

The loss of tax revenue must be balanced against the goal of adding renewable energy sources in Hawaii. When completed, the 300 megawatts of solar power would generate enough power to supply the needs of 60,000 homes.

Until now, most of the discussion among policymakers regarding the cost of the state’s Renewable Energy Technologies Income Tax Credit has focused on the rapid growth of credits claimed by individuals installing residential rooftop PV systems. The state Department of Taxation recently estimated that taxpayers claimed $164 million in renewable energy credits in tax year 2012, up from $35 million just two years earlier. Nearly 80 percent the credits for 2012 were claimed by individuals, according to the tax department.

The potential impact of tax credits claimed by developers of the pending utility-scale projects has not been factored into state revenue forecasts, although it could be sizable, said Kalbert Young, director of the Department of Budget and Finance. Young also said the forecasts don’t account for tax credits being carried forward from solar energy projects completed in previous years.

"There is a huge bubble out there in terms of potential lost revenue, or reduced revenue," Young said. "So anything that further expands the credit, or expands the use of the credit, is definitely going to have an impact and that’s not actually currently imbedded in the financial plan."

Developers are pushing to get roughly a dozen utility-scale projects up and running by the end of 2016 because that’s when a federal 30 percent renewal energy tax credit is scheduled to expire. Owners of renewable energy systems can claim both the state and federal tax credits. But unlike the state credit, the federal credit is not capped, making it more valuable to developers. Many of the developers say the federal tax credit is a key factor in making the projects economically viable.

Hawaii’s 35 percent tax credit, by contrast, is capped at $500,000 per megawatt of generating capacity for commercial projects. Choosing the refundable option reduces the cap to $350,000 per megawatt of generating capacity.

Of the roughly dozen utility-scale PV projects in the pipeline, nine are part of a Hawaiian Electric Co. initiative to accelerate its push into renewable energy in an attempt to bring down customers’ power bills.

HECO is working with third parties to develop 240 megawatts of PV generating capacity that would produce power on Oahu at an average price of roughly 16 cents a kilowatt-hour, which is about one-third the cost of generating electricity using oil. The initiative would save HECO customers an estimated $60 million a year, or $1.8 billion over the expected 30-year lifetime of the projects when compared with the projected cost of generating electricity using oil, said a developer of one of the projects, who asked not to be further identified. For each of the roughly 300,000 HECO customers on Oahu, the added PV capacity could mean a savings of about $200 per year, based on the developer’s calculation.

The state Public Utilities Commission has cleared HECO to negotiate power purchase agreements with three of the nine developers. The other six projects are still being reviewed by the PUC. HECO asked the PUC for permission to waive competitive bidding requirements for the projects to accelerate the development process so they can be operational before the federal tax credit expires at the end of 2016.

Under the specifications of the HECO "waiver program," developers who claim the state tax credit are required to adjust the energy pricing downward to reflect the benefit they receive from the incentive.

"We are negotiating with developers of the waiver projects on purchase power agreements that will pass through to customers 90 percent of the benefit of any Hawaii state tax incentive or credit applicable," said Peter Rosegg, HECO spokesman. "The final PPA language will ultimately determine how the tax-benefit is passed through," he said.

An official from SunEdison, which is pursuing a 50-megawatt PV project in Waiawa as part of the HECO initiative, said the availability of a state tax credit would have little impact on its proposed project since most of the benefit would flow to the utility’s customers.

The way the program is structured essentially takes money from the pockets of taxpayers and puts it in the pockets of electric utility ratepayers, said Nicola Doss, Sun Edison senior manager for Hawaii.