HSEA Executive Director Responds to UHERO "Study"

Posted on Friday, February 15, 2013

By: Leslie Cole-Brooks

UHERO does a great disservice to the current discussion on the solar tax credits by pushing a
study based upon an impossible scenario.

Thesis Unsound

UHERO bases its magical world upon a thesis where most of Hawaii’s households install solar to
zero out their bills using 2012 tax credit rules. First, the 2012 tax credit rules with a 35% credit
and a cap of $5,000/system ended in November of 2012 when the Abercrombie administration
issued new administrative rules that defines a system based upon size and cuts the tax credit
for the average sized solar system by about half.

Next, it would be physically impossible for every single family home to install PV and zero out
their bill unless the utility performed profound upgrades on the existing grid, which now limits
the introduction of intermittent sources such as solar to 15% of each circuit’s load. That means,
for instance, that in a fictitious residential neighborhood of 100 homes on the same circuit, only
about 15 of those homes could send their solar electrons onto the grid, which would place a
significant wedge into UHERO’s every home idea.

Finally, even if 100% saturation were possible, it is highly unlikely that “all owner-occupied
single family residences” would opt for solar, as human behavior shows that we never all do the
exact same thing anywhere.

Heroic scenario fails to understand money basics

UHERO states that is “difficult to understand” why all households haven’t already invested in
solar when buying solar is, according to them, a “rational economic decision” even without
the tax credits. The answer to this question is simple: money, or lack of it. Even with the
credits both from the state and federal government, it still takes cash to invest in a system. For
instance, for a $40,000 system (about 30 panels), the homeowner still needs to invest $14,000
from his or her coffers at the get-go. This is in addition to the money that must be invested
before the tax credit kicks in, and this is based upon last year’s tax framework. This scenario
also assumes that prices for modules, inverters, raw materials, labor, and the like do not go up
in price.

Maybe the people at UHERO all have money buried in the back yard like any good economist,
but most people have other financial commitments and concerns, and once the price tag starts
hovering around a few years of college tuition, many families must reconsider. In addition,
the actual math is suspect as UHERO states, for instance, that the payback period would only
be increased by 2 years (from 6 to 8 years) without last year’s state tax credit. This would only
make sense if the average electric bill was around $600/month, but the Oahu average is around
$200/month. If UHERO’s numbers are off by a factor of three, what else is wrong?

So even if it is such a good return on investment, you still need to have the money to invest
upfront in the first place. Wondering why Hawaii homeowners haven’t already invested in solar
is like wondering why everyone hasn’t already invested in the global bond market—after all, it
has such a great return.

Missed the other half of the equation

Even if every single family home in Hawaii found a way to purchase a photovoltaic system and
the grid could handle it, UHERO fails to even wonder what might be the economic benefits
of this impossible scenario. Blue Planet’s recent study conducted by economist Dr. Thomas
Loudat finds that every $1 residential tax credit dollar yields $1.97 in additional tax revenues,
and $34.69 additional sales that wouldn’t have happened but for the initial tax credit dollar.
Those tax revenues include GET from sales of materials and services, income tax paid by
solar business and their employees, and monies paid into unemployment and worker’s
compensation funds. Really, UHERO’s title should have read, “Tax incentive will yield $2.79
BILLION in tax revenues once everyone goes solar.”

On-bill financing meant to serve disadvantaged market

UHERO then suggests that rather than providing incentives, our needed investments into our
energy security should instead be fueled by the private sector as through the “pay as you save”
On-bill financing proposal currently before the Public Utilities Commission. The on-bill idea is
an excellent one, but UHERO fails to understand the fundamentals here. The original purpose
of On-bill was to make renewables and efficiency available to a greatly underserved market:
renters. Although proposals have suggested that the On-bill program be expanded to provide
funding to home owners as well—after all, not all have the funds or qualify for a lease—
the program has a fundamental limitation: money. One possible approach currently under
investigation is to use some part of the public benefit fund (a charge you can find on your utility
bill) to act as “seed” money to attract capital. But this fund has its limits, and since renewables
on rental units are a relatively new form of collateral, the investors who supply the cash for this
worthy program will probably be limited.

We need to base our energy security on real facts

Based on permit data from 2004 to now, a period of 9 years, the residential market contributes
only 140MW of installations. At that rate, it is assumed then that in order to hit the 1,100MW target
we would need up to an additional 50 years of construction. The State spent over $1.4 billion on 
many other projects in a shorter timeline that did not provide the revenue source solar construction
has.

At least we all seem to agree that investing in a green energy infrastructure is key to the
economic and environmental well-being of Hawaii, but you have to wonder as to the true
purpose of UHERO’s factually challenged article. Two key tax credit bills which seek to update
the current tax credit framework literally passed out of the environmental committees as
UHEROs article showed up in my email. The bills now head to Finance and Ways and Means,
and what an awkward time for UHERO’s piece to appear in over 10 newspapers and viral online.

Please—let’s have an honest discussion grounded in reality—Hawaii deserves at least that.
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