An ambitious state program to blanket roofs at airports and harbors with photovoltaic panels has gotten off to a tepid start, though a bill passed by the Legislature may help accelerate the effort.

Hawai'i's Photovoltaic Energy Systems Project promised to have as much as 34 megawatts of solar power generated on state roofs in two years when it announced the program in January 2008.

But 16 months later, there is a little less than 1 megawatt of the planned photovoltaic capacity in place.

State officials said the program has had a slow start for a variety of reasons and that the effort remains one of their top priorities. Setbacks with a large installation contract the state thought was ready to go and the way the state tax credits are structured have hindered the program.

"New RFPs (requests for proposals) for solar energy projects at DOT facilities are being developed with issuance anticipated in summer 2009," Department of Transportation spokesman Derek Inoshita said in an e-mail.

The plan was billed as being historic by Gov. Linda Lingle's administration when it was announced. Under it, the state would pursue roughly 20-year contracts known as purchase power agreements with companies that would pay for and install panels on state buildings. They would sell power to the state at reduced rates.

The plan looked good on paper.

PPA providers could benefit from the 35 percent state credit and 30 percent federal credit to cut their system expenses and offer some of the savings to the state and other customers in the form of lower electricity bills.

But the initial contract winner, SunPower Systems Corp., backed away from an agreement to install more than 12 megawatts of generating capacity last year. That occurred in part because it would have difficulty using the state's 35 percent solar tax credit.

The state tried to recover from the blow by offering the contract to another bidder, Hoku Scientific Inc., but it was for a much smaller amount — less than 1 megawatt of capacity.

Even then, Hoku said it had problems lining up financing partners because it could only use the federal credit for the projects.

"Hoku Scientific was the only contract awarded out of that," said Mark Duda, president of the Hawaii Solar Energy Association. "What you had in 2008 in Hawai'i was a non-existent PPA market."

OVERLY AMBITIOUS?

The state wasn't alone in the slow start.

Wal-Mart Stores Inc. attempted to go the purchase power agreement route in installing systems at its Hawai'i namesake and Sam's Club stores. The program was suspended after two of the four stores were completed.

Others say the state may have been overly ambitious in its schedule given all the issues that are involved. That includes whether contractors will be able to sell excess power to Hawaiian Electric Co. and if suitable infrastructure is available to send the power into HECO's grid.

Ted Peck, state Energy Administrator, acknowledged there are many issues to resolve as the state tries to meet a goal of receiving 70 percent of energy from renewable resources by 2030.

"We need to move through the transition time as quickly as possible," he said. But also, "We are in a time of tremendous and positive change."

Duda said some of the problems can be traced to the state's solar credit, which purchase power agreement contractors have difficulty using.

TAX CREDIT LIMITS

The credits also cannot be used by government, nonprofit groups and low-income homeowners who don't have large tax liabilities.

Duda said companies who owe taxes and install and operate their own systems have no problem with the tax credit.

He said many potential commercial customers would prefer to go the purchase power agreement route because they don't have to purchase and operate their own systems.

But tax credit problems exist because the PPA companies typically don't have the passive income tax bill needed to claim the credit, he said.

"The capital base which can benefit from the current state energy tax credit structure is simply not very large and the credits themselves — as presently defined — are relatively illiquid," said Dustin Shindo, Hoku president and chief executive officer.

Said Duda, a partner with Honolulu-based Distributed Energy Partners, "There is a gigantic pool of business, government and nonprofit clients with very desirable roofs and large electrical loads who can't use the (state) tax credits."

But that could change under a bill sponsored by state Sen. Mike Gabbard, D-19th (Makakilo, Kapolei, Waipahu), which passed the Legislature. The measure, SB 464, makes the credit refundable for taxpayers who agree to accept a lower credit (24.5 percent).

BENEFITS OF BILL

Gabbard sees the bill as beneficial to the economy, as well as low-income home owners and nonprofit groups who haven't been able to take advantage of the credits.

"I really think it's one of the most important bills of the recession," said Gabbard, who noted it could also be viewed as an economic stimulus measure since it will likely result in a jump in the number of purchase-power agreement projects.

"It's going to create green-collar jobs, help with the recession and reduce carbon emissions. I think it's going to save the state millions in renewable energy costs."

That includes savings achieved if such systems are expanded to state Department of Education and University of Hawai'i buildings.

The bill has been sent to Lingle for review. Meanwhile, the state DOT is readying RFPs for 3 to 10 megawatts worth of projects that will take a year or two to complete at about 20 sites.

"We're doing everything we can," said DOT spokeswoman Tammy Mori. "It's always been a top priority for our department and the administration."