A policy analysis of Hawaii's solar tax credit

The study assesses the impact of Hawaii's solar PV tax credit policy in terms of the investment benefits accruing to households, the income distribution of these benefits, and the cost to taxpayers. Hawaii is an interesting case because of its generous tax credits and fast growing PV installations. We find that rising electricity rates and declining PV installation costs have driven PV deployment through an increasing internal rate of return on PV investment since 2009. The state tax credit favors high-income households who have higher tax liabilities and are more likely to break the largest barrier to market entry, home ownership. The internal rate of return for the typical Hawaii household is 25% and 16% with and without the state tax credit. We estimate that single-family homeowners in Hawaii may ultimately demand as much as 1100 MW of PV, which would play an important role in meeting Hawaii's clean energy goal of achieving 100% renewable sources for electricity by the year 2045. It would also cost the taxpayer $1.4 billion. Moreover, PV tax credits serve to redistribute wealth from taxpayers to upper income groups, many of whom already have ample incentive to install PV.