A constituency of dependency

I have been working in the renewable energy field for 34 years and am president of ProVision Solar Inc., a Hilo-based solar electric integrator that’s been designing and installing PV projects across the islands since 2000. I have also taught energy politics at UH Hilo.

One of government’s reasons for being is to create an administrative bureaucracy that will direct and control various aspects of the public domain.

Whether it’s protecting the people’s health and well-being, collecting taxes, maintaining infrastructure or protecting the environment, departments and agencies are established and funded to accomplish those tasks.

Once such a department or agency is created, a budget is decided, people are hired and those who work there along with those who come to depend on the benefits and services provided become tangibly invested in the continuation, if not expansion, of that budget an those benefits and services.

Threaten to reduce or eliminate some of the funding or support and that particular bureaucracy and those dependent upon it will marshal their forces and gird their loins for battle to fight any such threat. Such is the basic nature of bureaucratic politics, according to the noted German sociologist Max Weber.

We are witnessing such a drama playing out right now as Hawaii is coming to grips with thorny issues regarding the tax credit for solar power systems.

With hundreds of millions of dollars at stake, an invested constituency of dependency has been established between that sizable government subsidy for the solar industry, its clients and many of those in the industry who have seen their businesses grow exponentially and are now vigorously opposing reductions of that subsidy.

According to published reports, the hit from this tax credit on the state’s general fund was close to $35 million in 2010, about $70 million in 2011 and is projected to be over $170 million this year. And due to the 24.5 percent refund option in lieu of the 35 percent credit, about a third of that $70 million from 2011 filings was refunded to photovoltaic system purchasers with a substantial portion of those refunded dollars having left Hawaii and gone to mainland banks and investors.

These growing sums and the belief that there has been a lack of adequate clarity in the letter and application of the rules by the Department of Taxation led Department of Taxation to issue new rules on Nov. 9 to govern how homeowners and businesses can take this tax credit starting in January 2013.

This action has led to some of the most hysterical and over-heated rhetoric that I have heard in my 34 years in the renewable energy business, with some in the industry and their supporters warning of an impending apocalyptic collapse of the industry if the tax credits are reduced, not eliminated, but simply reduced.

Beyond this dependency that has been created and the predictable reaction to a threat to the subsidy amounts, what’s been lost in this discussion is the intent and purpose of such a tax credit in the first place.

One school of thought is that the solar tax credit, which currently has no sunset date, was designed to be a temporary subsidy and support in order to promote an economy of scale and lower prices leading to the mass adoption of photovolatic systems across the state. Reducing barriers to mass adoption is seen as a principal goal of the tax credit and as this is achieved, so this line of thinking goes, the subsidies decrease over time to zero allowing the industry to survive on its own in the marketplace. Such an approach has worked very well in California, the largest market by far for solar applications in the nation, as state dollars supporting photovolatic have dropped to practically zero.

Another approach is that the long-term, overall public good of weaning our vulnerable state from fossil fuels as rapidly as possible argues for the continued and substantial monetary support for solar energy and that each dollar not going into the general fund due to the credit is made up for and then some in other tangible, beneficial ways to the state.

Yes, tweak the rules and regulations. Pass a new law next legislative session to clean up the inadequacies of the existing statute. But don’t gut the current law nor sunset it until sometime many years into the future so as to make any end date relatively meaningless.

Why substantively mess with the tax credit now just as so many more consumers are able to go solar and so many jobs have been created to sell, design and install all those systems? Or so this line goes.

By its very nature, a targeted tax credit such as this one more directly and disproportionally benefits some more so than others. In the case of state tax credits for renewable energy, everyone can agree this government incentive is supposed to promote the public good of reducing Hawaii’s dependency on imported fossil fuels, promoting greater energy independence and reducing pollution that’s generated from combustion power plants. All good things for the people and the aina, to be sure. The benefits and costs of this tax credit, however, are not and cannot be evenly distributed across society. In effect, those not able to take advantage of the tax credit are paying for those who are able to do so for the perceived benefit that Hawaii nei will be better off on the whole.

Determining the best balance among competing priorities and between supporting specific segments of the state’s economy with taxpayer dollars through incentives, subsidies and credits is a critical part of what the political process is all about. We have elections regularly to put people in charge of making those decisions. And there is little doubt that the topic of what to do about these tax credits for solar energy systems will be a high priority one to be taken up in January when the legislature open its session.

By the end of 2012 it’s likely that there will have been about as many photovolatic systems installed across the state in the past year as there were over the previous 10 plus years combined. And the installation of those approximately 10,000 systems in 2012 was in large part made possible by one of the more generous state subsidies in the nation along with the 30 percent federal tax credit which is scheduled to last through 2016. An economy of scale has been reached here. The cost to go solar electric has never been cheaper with no sign of prices going up in this hypercompetitive market. It is the time to have a serious discussion on whether the rationale still exists to have a state taxpayer-funded subsidy for photovolatic system purchasers and if so at a level that reflects a very different playing field compared to when the existing tax credit law was enacted years ago.

Marco Mangelsdorf is president of ProVision Solar Inc. in Hilo.