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As Hawaii’s main solar lobby fights off attempts to scale back the state’s energy tax credits, a national expert and advocate of solar energy says that Hawaii should get rid of the incentives altogether.

Jigar Shah, president of the and founder of SunEdison, says that Hawaii’s solar electric tax credits, which are costing the state tens of millions annually, are no longer needed.

“The challenge in Hawaii right now is that it is so much more cost effective to go solar than to stay on the grid. So everyone is rushing to (switch to solar),” Shah told Civil Beat. “It’s hitting the tax department pretty hard. So it’s time for the state tax credit to be eliminated so that it doesn’t affect them. The federal tax credits are more than enough to make solar pencil.”

Debate over Hawaii’s tax credits erupted last week after the state tax department issued new rules clarifying the tax credit law. The rules effectively limit the number of tax credits that homeowners and solar companies can claim on solar arrays. The fight is expected to continue into the upcoming legislative session as the works to fend off attempts to further scale back the credits.

The incentives are projected to cost Hawaii $174 million in 2012, according to state permitting data, up from $35 million in 2010. The estimate recently prompted the Council on Revenues to downgrade the state’s revenue forecast from 5.3 percent to 4.9 percent.

Shah said that Hawaii was over-subsidizing solar.

The cost of solar in Hawaii right now is about 16 cents per kilowatt hour for an average commercial system, and if the state tax credits are eliminated it would be about 21 cents per kilowatt hour, according to Shah.

That’s well below Hawaii’s current electricity rates, he notes. Residents pay more than three times the national average, with recent rates ranging from 33 cents to 48 cents per kilowatt hour throughout the islands.

“People putting in solar systems are getting too good of a deal, so the government should end the state tax credit,” he said.

Some Hawaii solar executives have also raised concerns that some companies are charging customers too much given the current price of solar.

The state allows residential customers to take a 35 percent tax credit on the cost of a photovoltaic system, or $5,000 refund, whichever is less. The tax refund for commercial systems is $500,000. And there’s also a 30 percent federal tax credit that expires at the end of 2016.

The Hawaii Solar Energy Association, which says it represents about 85 percent of the industry, has sharply criticized the new rules, which were issued earlier this month. And the trade group said last week that it wants the Legislature to more than double the refund for residential systems, to $12,500.

But it could be a tough sell. The average cost of solar panels has dropped by 50 percent since the beginning of 2010 and the total cost of systems has dropped by 30 percent, according to statistics compiled by the Solar Energy Industries Association. And a recent report issued by the national trade group projects that prices will continue to drop significantly in the future.

“As the U.S. solar industry progresses toward 2016, it is becoming increasingly clear that system prices will fall significantly,” according to the report. “This will enable a substantial volume of installations in some states to be built using only federal incentives.”

Solar Manufacturers Warn Of Higher Prices

There have been long-standing concerns within the solar industry that prices will go back up. The U.S. has been imposing stiff tariffs on Chinese solar panels following allegations of illegal dumping. Domestic manufacturers say the Chinese have harmed their companies by keeping panel prices artificially low, and earlier this month . The commission is expected to impose tariffs between 24 percent and 36 percent on Chinese imports.

But both Shah and John Smirnow, vice president of trade and competitiveness for the Solar Energy Industries Association, said they don’t think the tariffs will have an impact on the price of solar panels. The trade commission imposed temporary tariffs on Chinese imports for months prior to its final ruling, without a noticeable effect on prices.

“We haven’t seen any increase in pricing or any connection between price increases and the trade cases,” said Smirnow. “And the reason for that is that the scope of the order only covers Chinese-origin cells, or any module with Chinese-origin cells.”

China can import cells from countries such as Taiwan, Malaysia and the Phillipines, then manufacture the panels at home and export them to the U.S., avoiding the tariffs.

U.S. installers seeking the lowest solar prices also have an increasingly broad choice of countries to buy from.

“This really is a global industry,” said Smirnow.

While there have been numerous reports of solar manufacturers struggling to compete with downward pressure on prices, Shah said that the price increases these companies are seeking is relatively modest — 1 percent to 2 percent of costs.

“This is not going to make or break anyone economically in Hawaii,” he said.

The cost of solar panels make up about one-sixth of the installation cost of a system in the U.S, according to industry data. The soft costs of installations, such as permitting and overhead expenditures, are declining as well, said Smirnow.

In Germany, the cost of solar installations are half that in the U.S. because of the lack of paperwork and bureaucracy, a study by the found. Smirnow said that U.S. costs were now moving to be more in line with those in Germany as installers become more efficient and experienced.

Hawaii Trade Group Not Budging

Still, Andrew Yani, vice president of the Hawaii Solar Energy Association, says that it would be bad policy to start scaling back state tax credits now because prices could go up.

“It’s very dangerous to say that we are going to use this year as the status quo,” he said. “They are looking at a year where there was a perfect storm with a radically competitive market in Honolulu and extremely low prices. You are talking an outlier year in terms of low prices.”

He said that solar prices were trickling upward and the cost of solar was higher in Hawaii than elsewhere, although he didn’t have statistics to demonstrate that.

“National averages don’t mean anything to Hawaii,” said Yani. “We are so unique in this industry that it is very difficult to use international figures. I guess that’s the price of living in paradise, if you will.”

But while the trade group is taking a hard line on any reduction in the credits, some local solar executives concur with the national experts that it is time to reduce or get rid of the tax credits.

Joseph Saturnia, president of Honolulu-based Island Pacific Energy, told Civil Beat earlier this month that the state tax credits were no longer needed.

So did Marco Mangelsdorf, president of ProVision Solar on the Big Island, who has the local solar industry for refusing to compromise.

Mark Duda, the former head of the HSEA and an executive at Honolulu-based RevoluSun, said he plans to propose legislation this session that gradually reduces the credit to zero by 2020. Duda told Civil Beat in February that he was voted out by the board of HSEA because of his position that the group should compromise on the credits in light of falling prices and increasing political pressure to rein them in.

“In terms of the point of where I’m differing with these other guys, they are saying don’t give up anything, and I’m saying we ought to give up something,” Duda said at the time.

A draft copy of his bill says that due to the impact of the credits on the state’s general fund, the falling costs of renewable energy systems and advances in efficiencies and financing mechanisms, “lower incentive levels from the State are necessary to continue to stimulate adoption of renewable energy technologies in Hawaii.”