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The uproar over Hawaii’s solar tax credits will fuel a good deal of the debate on energy policy this legislative session, which opens next week.

But there are other must-watch bills that could shift the direction of Hawaii’s energy policy, from increasing the powers of the state Public Utilities Commission to boosting the market for biodiesel.

Solar Tax Credits

Sen. Mike Gabbard, chair of the Senate Energy and Environment Committee, will have a tough task this session as he sorts through competing bills to amend the state’s solar tax credit law amid a debate that has grown increasingly acrimonious.

Last session, proposals that would curtail or scale back the credits never passed. The increasingly powerful solar industry lobbied aggressively against them, warning that the bills would cause major harm to Hawaii’s booming solar industry and layoffs. But the pressure is on to come to some conclusion on the fate of the credits with costs of solar panels declining and the incentive’s toll on the state’s coffers rising.

Gov. Neil Abercrombie’s administration recently cracked down on the credits amid allegations that homeowners and companies were unscrupulously claiming multiple credits. Data from the state energy office indicates that the credits will cost the state about $174 million for 2012, up from $35 million in 2010. In November, the state tax department intervened, revising its administrative rules to effectively limit the number of tax credits that can be claimed on solar arrays.

The changes have prompted biting criticism from many in the solar industry who say that the changes were too drastic. The Hawaii Sierra Club and Earthjustice last month seeking to stop the new rules from taking effect this month. But the solar industry, as well as clean energy advocates are far from united, with some calling on the credits to be scaled back or even eliminated.

Gabbard said that he is expecting several bills to be introduced that change Hawaii’s solar tax credit law.

“My main focus on that is making sure the tax credit isn’t having too big of an impact on the state’s pocketbook, and not crippling the industry or making it too expensive for residents to install solar panels,” he said.

The Hawaii Solar Energy Association, the state’s major solar lobby, is pushing a bill that will allow residential photovoltaic customers to claim a 35 percent tax credit for systems up to about 6 kilowatts in size. Leslie Cole-Brooks, executive director of the trade group, said that a 6 kilowatt system costs about $38,000 — so the maximum credit that could be claimed on residential systems would be about $12,500.

There is no sunset date for the credits, but Cole-Brooks said that the credits would be reevaluated in 2016. She said this strategy would reduce the impact on the state budget because customers wouldn’t be allowed to take more than one tax credit. About 70 percent of systems going online have been claiming more than one tax credit, she said.

The association isn’t currently proposing anything for commercial properties or large utlity solar projects.

Blue Planet Foundation, a Honolulu-based clean energy advocacy group, and Mark Duda, head of the PV Coalition, are both supporting policies that ramp down the solar tax credits.

Duda said that he is working on a bill that will reduce the tax credit for residential and commercial rooftop solar systems by 5 percent a year, stopping at 10 percent. At that time a study would be performed to assess the future of the credit.

Duda and Blue Planet Foundation also support a production tax credit for utility-scale solar, such as solar farms. Instead of providing a credit for the percentage of the system cost, the incentive pays for kilowatt hours. The subsidy would be set at about 8 cents per kilowatt hour and would be extended over a period of 10 years, said Duda.

Mikulina said that part of the rationale behind the production tax credit is that it would lessen the annual impact on the state budget, spreading the cost of the subsidy out over a period of years.

Biodiesel

Cleaner sources for ground transportation often get lost in all the talk about switching the state’s electricity generation to renewables. But two bills this session could boost biodiesel.

Hawaii law currently requires that 10 percent of gasoline contain ethanol. But a bill is expected to be introduced that expands the law beyond ethanol to include other types of locally-produced biofuels, so long as the fuel meets national standards, according to Kelly King, vice president of Pacific Biodiesel.

Another bill, brought back from last year, will amend the ethanol facilities tax credit law, which was designed to help Hawaii’s sugarcane producers. However, no ethanol plants have been built in Hawaii. King said that the bill will expand the credit to other types of biofuels that are locally produced. It would also significantly amend the terms of the credit. Currently, the law provides a 30 percent credit for a facility’s gallon capacity. The new credit would provide a credit for fuel output, not facility building costs, said King.

“I don’t think the real goal is to build the building, the real goal is to have the fuel,” she said.

Barrel Tax

Hawaii’s barrel tax will also headline the list of top energy bills this session.

Currently, about half of the $1.05 tax per barrel of oil is diverted into the general fund. Blue Planet Foundation is pushing again this year for the full amount to go to support state energy and agricultural sustainability programs.

The barrel tax could also encompass more than just oil. Blue Planet Foundation is pushing to raise the tax, as well as extend it to coal. And Gabbard said that he wants to extend it to liquefied natural gas, which the Abercrombie administration hopes to begin importing.

State Regulators

The Hawaii Public Utilities Commission is backing a bill that would allow it to obtain financial information from independent energy producers seeking to sell power to the state’s utilities, such as wind and solar companies.

The PUC only regulates the utilities, not power producers, such as wind farms.

The bill “would give us some ability to say, by state law we are able to get this information to ensure, for example, the (contract) pricing is appropriate,” said Cat Awakuni, chief counsel for the PUC.

Expanding the Solar Market

There is also a push this session to extend solar energy to residents who have been shut out of the market.

Blue Planet Foundation is backing a community solar proposal that would allow residents to take advantage of solar panels that can’t be sited on their own rooftops. Residents who live in an apartment complex or have a rooftop that is shaded by trees could benefit from panels that are sited somewhere else.

Gabbard is also working on a bill that could help extend solar to renters and tenants of commercial buildings. The bill would allow building owners to sell electricity to tenants without being considered a public utility.

He said the electricity rate schedule would be agreed on in advance.

“This prevents any unscrupulous landlords, not that there are any,” said Gabbard. “But this prevents them from gouging tenants.”