"hot topics in hawaii solar energy law," hawaii bar - schlack ito

4 May 2013 HAWAII BAR JOURNAL

108.7megawatts

(“MW”) wereinstalled in 2012 –

enough to provide electricityto approximately 37,000 homes.4

Larger, utility scale solar PV facilities inHawaii now range in size up to six MW.5

And in its 2012 annual survey, the SolarEnergy Industries Association rankedHawaii the seventh-best state in thenation for solar energy, noting thatHawaii gets a greater percentage of elec-tricity from solar than any other state.6

Under Hawaii law, “renewableenergy” is defined to include “energygenerated or produced using . . . [t]hesun[.]”7 This broad statutory definitionencompasses different types of solarenergy devices and technologies. Solarwater heating devices, for example, arecommonplace rooftop fixtures that pro-duce hot water primarily for residentialuse. Concentrated solar power, or CSP,uses a parabolic trough to concentratesunlight onto a tube filled with a workingfluid to generate electricity.8 ManyHawaii solar energy laws focus on solarPV, which uses silicon panels to convertsunlight directly to electricity. Theselaws, which have contributed to therecent growth of solar energy, range

fromsolar rightslaws and taxincentives to utility pro-curement mechanisms mandat-ed by the Public Utilities Commission,such as the Net Energy Metering andFeed-in Tariff programs. Zoning andpermitting laws governing larger utilityscale solar PV projects have also playedan important role.

The rapid growth of solar energy issupported by foundational Hawaii cli-mate and clean energy laws and policies.Following the launch of the HawaiiClean Energy Initiative (“HCEI”) inJanuary 2008, a landmark agreement(commonly referred to as the EnergyAgreement) was signed by the HawaiianElectric Company, Inc. and the State ofHawaii. As well as including measuresto advance solar energy, the EnergyAgreement established the goal of “70percent clean, renewable energy for elec-tricity and transportation by 2030.”9

Consistent with this HCEI goal, Act155, signed into law in 2009, mandatesthat by 2030 forty percent of net elec-tricity sales by electric utility companiesin Hawaii shall be from renewable elec-trical energy, and energy efficiencymeasures shall cause the equivalent of athirty percent reduction in energy use10 –

by Douglas A. Codiga

Solar energy – especially photo-voltaic, or PV – has emerged as animportant source of renewable energy inHawaii, driven by its relative cost-effec-tiveness, high levels of public accept-ance, and supportive statutory and regu-latory law and policy. Although renew-able energy production in Hawaii is pri-marily from wind, geothermal, and bio-mass, Hawaii has recently experiencedrapid and unprecedented growth in solargeneration.1 Hawaii ranks first in thenation with regard to installed solarwater heaters and third in the nation forcumulative installed solar PV capacityper capita.2 Rooftop distributed solarPV has become one of the state’s leadingindustries, accounting for almost twenty-six percent of all construction expendi-tures in 2012.3 Solar projects totaling


The legal protection afforded bysection 196-7 is available only to single-family homes and townhouses, however,and not to multi-story or high-rise con-dominiums or apartments with multipleunits. Under Hawaii law, “townhouse”means “a series of individual houseshaving architectural unity and a com-mon wall between each unit, providedthat each unit extends from the groundto the roof.”17 Condominium and apart-ment buildings may lack individual unitsthat extend from the ground to the roof.In addition, the rights afforded by thislaw are available only to owners and notrenters of homes or townhouses. Theowner seeking to install the device mustensure that it is in compliance with theassociation’s rules concerning solar ener-gy devices and register the device withthe association within thirty days ofinstallation.

Consistent with the foregoing, sec-tion 196-7 also requires associations toadopt rules by December 31, 2006 con-cerning the placement of solar energydevices. The rules are to facilitate theplacement of solar energy devices, andaccordingly must not impose conditionsor restrictions that render the solar sys-tem more than twenty-five percent lessefficient or increase the cost of installa-tion, maintenance, and removal of thesolar system by more than fifteen per-cent. Nor may the association assess orcharge any fees, or require an encum-brance on title, related to installation ofthe solar energy for the placement ofany solar energy device.18

The failure of associations to timelyadopt such rules, in compliance with thestatutory requirement of December 31,2006, has been identified as a potentialbarrier to the exercise of the solar rightsavailable under section 196-7. Duringthe 2013 session of Hawaii Legislature,for example, a bill was introduced toamend section 196-7 to require therejection of a condominium association’sbiennial registration application, andloss of its tax exempt status, upon theassociation’s failure to timely submit therequired rules.19 Reliance upon section196-7 may also be reduced to the extentassociation members are reluctant to

seek to enforce the law by litigatingagainst their associations due to time,expense, and similar considerations.

Solar Devices on Project CommonElements

In addition to individual rooftops,homeowners may place solar energydevices on a common element (e.g.,building rooftop, parking structures, orgrounds) or limited common element(e.g., individual unit lanai area) of theproject upon obtaining consent of theassociation. The association must con-sent, however, if the unit owner agrees inwriting to comply with the association’sdesign specifications for the installationof the device, engages a duly licensedcontractor to install the device, and pro-vides a certificate of insurance namingthe association as an additional insuredon the homeowner’s insurance policywithin fourteen days of the association’sapproval of the solar device.20 Theowner – and each successive owner –shall be responsible for costs arising fromdamage to the device or to the commonelements, limited common elements, andadjacent units;21 shall maintain insurancecovering these obligations and name theassociation as an additional insured;22

and shall remove the solar energy deviceif necessary to allow the repair, mainte-nance, or replacement of the commonelements or limited common elements.23

If a material or labor roof warrantyexists at the time the common elementor limited common element roof area,the homeowner is required to obtainwritten confirmation that installation ofthe device will not void the roof warran-ty, and the owner must provide the asso-ciation with a copy of the confirma-tion.24

Like homeowners, the associationitself may install solar energy devices inproject common areas under Hawaiilaw. Section 514A-13.4, Hawaii RevisedStatutes, provides that, regardless of thedeclaration of the residential develop-ment project, or its bylaws, an associa-tion’s board of directors shall have theauthority to install or cause the installa-tion of solar energy and wind energydevices on common elements of the

thus requiring seventy percent cleanenergy (i.e., renewable energy and ener-gy efficiency) by 2030 as a matter of law.Accordingly, Part V of Chapter 269,Hawaii Revised Statutes, requires eachelectric utility to establish RenewablePortfolio Standards (“RPS”)11 of ten per-cent of its net electricity sales byDecember 31, 2010; fifteen percent byDecember 31, 2015; twenty-five percentby 2020; and forty percent by 2030.12

Solar energy may contribute not only toachievement of these RPS requirements,but also to compliance with Hawaii’slandmark climate change law, Act 234,which requires statewide reduction ofgreenhouse gas emissions to 1990 levelsby the year 2020.13

The purpose of this article is to pro-vide a brief overview of selected Hawaiisolar energy laws, with a focus on impor-tant recent developments and issues, or“hot topics.” A comprehensive discus-sion of the many detailed aspects of thevarious laws and policies governing solarenergy is beyond the scope of this article.Instead, selected statutes and regulatoryproceedings are surveyed in an effort toprovide an introductory overview andexamination of the current critical issueslikely to shape the growth of solar ener-gy in Hawaii in the years to come.

Right to Install Solar EnergyDevices on Homes andTownhouses

Under Hawaii law, the covenants,bylaws, and deed restrictions of an asso-ciation14 of owners of single-familyhomes or townhouses generally cannotbar the installation of solar PV systemsand solar water heaters. Section 196-7,Hawaii Revised Statutes, “Placement ofsolar energy devices” (“section 196-7”),provides that “no person shall be pre-vented by any covenant, declaration,bylaws, restriction, deed, lease, term,provision, condition, codicil, contract, orsimilar binding agreement, howeverworded, from installing a solar energydevice on any single-family residentialdwelling or townhouse that the personowns.”15 Any contrary lease or contractprovision shall be void and unenforce-able.16

May 2013 HAWAII BAR JOURNAL 7

project.25 The association may also leaseor license the common elements for theinstallation of solar energy devices andwind energy devices on the common ele-ments of the project.26 The solar orwind energy device installed on a com-mon element of the project shall not bedeemed to impair or diminish the inter-est of the owners in the common ele-ments, as long as the installation “doesnot directly affect any non-consentingunit owner.”27 The statute defines theterm “directly affect” to mean the instal-lation of the device in a manner whichwould “specially, personally, andadversely affect an individual apartmentowner in a manner not common to theapartment owners as a whole.”28

Solar Tax IncentivesState tax incentives have played a

critical role in the growth of renewableenergy in Hawaii – including solar ener-gy – since the adoption of the firstHawaii energy tax credit in 1976.29

Pursuant to section 235-12.5, HawaiiRevised Statutes, “Renewable energytechnologies; income tax credit” (“sec-tion 235-12.5”), individual and corpo-rate taxpayers may claim a tax credit foreligible renewable energy systemsinstalled and placed into service duringthe taxable year.30 The tax credit is avail-able to solar and wind energy systems.31

For solar energy systems, the tax creditmay be claimed in the amount equal tothirty-five percent of the actual cost ofthe system, or the amount of the appli-cable cap as determined under subsec-tion (b) of section 235-12.5 (“subsection(b)”), whichever is less.32 Under subsec-tion (b), the cap for residential solar PVis $5,000 per system and the cap forcommercial solar PV is $500,000 persystem.33 The cap for solar water heat-ing devices on single-family residentialproperties is $2,250 per system.34

In 2009, the Hawaii Legislatureestablished a refundable tax credit byamending section 235-12.5 to providethat, for solar energy systems, a taxpayermay elect to reduce the eligible creditamount by thirty percent and if thisreduced amount exceeds the amount ofincome tax payment due from the tax-

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payer, the excess of the credit amountover payments due shall be refunded tothe taxpayer.35 This refundable tax cred-it is widely considered to be a major fac-tor in the recent growth of the solarindustry.36

The solar tax credits have spurrednot only growth but also significant con-troversy involving the State of HawaiiDepartment of Taxation, the HawaiiLegislature, and solar energy advocates.37

For example, at the time of this writing,legislation pending before the HawaiiLegislature would substantially revampthe nature and amount of the section235-12.5 solar tax credit, based in partupon concerns expressed by legislatorswith regard to the cumulative financialimpact of the tax credit on the State’sbudget.38 Legislation adopted during thecurrent or future legislative sessions thatsubstantially amends section 235-12.5could alter the availability, effectiveness,and impact of the solar tax credit.

As a legal matter, controversy hasfocused on the interpretation of “sys-tem” as that term is used in section 235-

12.5, with allegations that some solarenergy companies have promotedimproper multiple claims for solar arraysusing multiple inverters.39 Partly inresponse to these allegations, in 2010and 2011 the Department of Taxationissued Tax Information Releases(“TIRs”) seeking to clarify the meaningof the term “system” in section 235-12.5and the nature and amount of tax cred-its that may properly be claimed.40 InNovember 2012, following issuance ofthe TIRs, the Department of Taxationissued Temporary Administrative Rulesestablishing new guidelines for calculat-ing the tax credit under section 235-12.5. Under these rules, which becameeffective on January 1, 2013, a taxpayermay claim a credit based upon a systemthat has a capacity of at least five kilo-watts (“kW”) for residential systems, andat least 1,000 kW for commercial sys-tems. Multiple, full credits are availablefor multiple systems, provided that anyadditional system for which the claimmust have the required minimum outputcapacity. The full credit is also available

for one additional system that does nothave the required minimum outputcapacity.41 Governor Neil Abercrombiehas publicly expressed his support for therules.42 The Sierra Club subsequentlyfiled a lawsuit against the Department ofTaxation in the Circuit Court of theFirst Circuit, State of Hawaii, seekingdeclaratory judgment on the validity ofthe rules and injunctive relief preventingimplementation or enforcement of therules, based in part on the argument thatthe rules are contrary to section 235-12.5 and Hawaii law and policy promot-ing increased use of solar and otherforms of renewable energy.43 The law-suit remains pending at the time of thiswriting.Solar Power Purchase Agreements

Hawaii’s solar energy tax incentives,combined with historically low costs forsolar PV panels, high electricity prices,and other favorable conditions, havespurred increased use of a variety of pri-vate contractual arrangements common-ly referred to as solar leases or powerpurchase agreements (“PPA”). As a pre-


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liminary matter, these types of PPAs forrelatively small rooftop solar PV systemsmay be distinguished from negotiatedbilateral power purchase agreements(also referred to as PPAs) between largeindependent power producers and thelocal electric utility, which requireapproval by the Public UtilitiesCommission.

Broadly speaking, the purpose of aPPA is to establish and allocate legalrights and obligations concerning theinstallation and operation of a solar PVsystem that generates electricity for con-sumption at the premises. The solar PVsystem is installed, operated, and main-tained by the seller of electricity onpremises owned or leased by the hostentity, typically an owners association,commercial facility, or landowner. Thehost agrees to purchase electricity fromthe seller at a rate that is usually belowthe rate offered by the local electric util-ity. Often a PPA is accompanied by aseparate license or lease governing theseller’s access to the premises to installand operate the solar PV system.

Because the seller is not a regulated elec-tric utility, regulatory approval by thePublic Utilities Commission is notrequired.44

Solar PPAs and site control agree-ments require careful consideration of ahost of potential legal issues. The termof a PPA, often tied to the anticipatedlife of the solar PV system, is typicallytwenty years. Renewal options are com-mon. The parties must negotiate keyterms and conditions concerning the sizeof the system, the energy payment rate,the commercial operation date, meteringand payment arrangements, the poten-tial sale of the system to the host prior tothe end of the term, operation andmaintenance provisions, terminationand default provisions, and the disposi-tion of the solar PV system and restora-tion of the rooftop and premises at theend of the term. The accompanying sitelease or license must be reviewed notonly on its general terms but also forconsistency with the PPA. The executedPPA may play a central role in definingthe revenue and credit quality of the

project and therefore often serves as akey instrument of project finance.

In addition, knowledge of regulato-ry law governing the interconnection ofPPA solar PV systems to electric grid,and the procurement by the utility ofrenewable energy, is helpful in evaluat-ing solar PPA legal issues. Although thePPA seller’s electricity is delivered to thehost, the solar PV system will likely beinterconnected to the electric utility’ssystem. As discussed below, tariff rulesadopted by order of the Public UtilitiesCommission likely govern the intercon-nection requirements and procedures.The contractual arrangement betweenthe solar PPA project and the electricutility may be through a standard inter-connection agreement or through a util-ity procurement mechanism for solar PV,such as the Net Energy Metering andFeed-in Tariff programs.

Net Energy Metering and Feed-inTariff Programs

Part VI of Chapter 269, HawaiiRevised Statutes, “Net Energy



Metering” (“NEM law”),became effective June 25,2001. Under the NEM law,an “[e]ligible customer-generator” is a residentialor commercial utility cus-tomer that owns and oper-ates a solar, wind, biomass,or hydroelectric facilityintended to offset all or apart of the customer’s ownelectrical requirements.45

Net energy metering(“NEM”) is defined as“measuring the differencebetween the electricity sup-plied through the electricgrid and the electricity gen-erated by an eligible cus-tomer-generator and fedback into the electric gridover a monthly billing peri-od.” Essentially, customer-generators are billed onlyon the net kilowatt-hours ofelectricity they use (henceuse of the term “net meter-ing”). Net energy meteringshall be accomplished using“a single meter capable ofregistering the flow of elec-trons in two directions” (areason the NEM program is oftenreferred to as involving the electric meter“running backwards”).46 Under theNEM law, the eligible customer-genera-tor shall have a capacity of not morethan fifty kW, although the PublicUtilities Commission may increase thatamount.47

The Hawaii Feed-in Tariff (“FIT”)program, which is among the first in theUnited States, is open to wind andhydropower but is almost exclusively uti-lized by solar PV projects. On October24, 2008, four days after the EnergyAgreement was signed, the PublicUtilities Commission issued its orderopening the FIT docket.48 After a publichearing in April 2009 that drew nationalmedia attention,49 the Commissionissued its Decision and Order onSeptember 25, 2009 establishing theHawaii FIT program.50 The program

features a set of standardized, publishedpurchased power rates, including termsand conditions, which the utility isrequired to pay to renewable energyproviders for electricity provided to thegrid.51 The program authorizes smallerTier 1 and Tier 2 projects and largerTier 3 projects of up to five MW onOahu. Essentially a type of standardoffer contract, feed-in tariffs provide cer-tainty to renewable energy developersand investors, thereby stimulating devel-opment and utility acquisition of solar,wind, and other types of renewableenergy.52 It is widely acknowledged thatFIT programs have “stimulated morerenewable technology than any otherpolicy mechanism”53 and a January 2012status report indicates the Hawaii FITprogram has thus far resulted in theinstallation of solar PV projects totalingapproximately 8 MW of capacity.54 OnDecember 21, 2012, the Commission

filed an order initiating aformal reexamination ofTier 1 and Tier 2 of theFIT program (“FIT reex-amination”).55

Although the NEMand FIT programs havebeen successfully imple-mented thus far, importantissues of law and policyremain. A critical issue forboth is program capacity,which may be determinedby the Public UtilitiesCommission by reference toelectric system reliabilityissues, as previously dis-cussed. Increased participa-tion in the NEM programmay be constrained by pro-gram capacity limits estab-lished by the NEM law andCommission orders. Thepending FIT reexaminationmay also result in con-straints on increased partici-pation based upon the pro-gram capacity. There arealso energy payment ratesissues. For the FIT pro-gram, whether the energypayment rate is sufficient to

“move the market,” i.e., stimulate invest-ment and development activity, remainsa paramount issue in the success of theprogram. Under the NEM law, cus-tomer-generators receive credit forexcess generation at the electric utility’sretail rate, which has prompted somescrutiny and concern. In the FIT pro-gram, a dispute over the application ofrules governing program access and pri-ority, or “queuing,” has resulted in a for-mal legal appeal by a FIT project devel-oper to the Hawaii Intermediate Courtof Appeals.56 And solar projects seekingto proceed under both of these utilityrenewable energy procurement pro-grams must contend with technicallycomplex issues concerning grid reliabili-ty, curtailment, and the interconnectionof variable renewable generation to theexisting electric systems operated by theelectric utilities.


Tariff Rule 14H and ElectricSystem Reliability

Although Hawaii climate and cleanenergy law and policy calls for Hawaii totransition from imported fossil fuels torenewables, the pace of this transitionmay be affected by the ability of existingelectric systems to integrate variable gen-eration from solar, wind, and otherrenewable resources. Electric systemreliability has been defined as the “elec-tricity service level or the degree of per-formance of the [utility] system definedby accepted standards and other publiccriteria.”57 Electric power supplied bysolar and wind resources may be rela-tively variable and unpredictable (due tochanging natural conditions, such ascloud cover or wind speeds) compared toelectric power supplied by fossil fuelpower plants. Electric system operatorsmay generally view non-variable fossilfuel power plants as better able to facili-tate electric system reliability relative tovariable resources such as solar energy.

The basic issue of electric systemreliability and the integration of variablesolar energy generation is partlyaddressed through highly technical tariffrules governing the interconnection ofsolar facilities to the utility electric sys-tems. For example, the interconnectionof relatively small solar PV systems tothe distribution level circuits of theHawaiian Electric Companies58 is gov-erned by the Tariff Rule No. 14H foreach utility (“Rule 14H”). Rule 14Hestablishes the detailed technicalrequirements and procedures for inter-connecting solar PV and other renew-able energy facilities to the utilities’ elec-tric systems. Depending on the size ofthe solar PV system and the capacity ofthe particular distribution level circuit toaccept additional variable generationwhile maintaining electric system relia-bility, a costly and time-consuming inter-connection requirements study (“IRS”)may be required. In many instances, therequirement to conduct an IRS may ren-der the project infeasible.

Rule 14H has been the focus ofextensive regulatory proceedings since2010.59 Most recently, potential modifi-cations to Rule 14H, and similar efforts

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to streamline the interconnection ofsolar and other renewable generation todistribution circuits, were a major focusof a Reliability Standards WorkingGroup (“RSWG”) convened by thePublic Utilities Commission in 2011.60

The recently-concluded RSWG processinvolved over two dozen stakeholder par-ticipants and generated a 747-page finalreport, which includes specific recom-mendations on a utility interconnectionand other related topics. These recom-mendations, which are based in part onexperience with the successful integra-tion of increasing amounts of solar PV,are expected to be the subject of furtherregulatory proceedings focused on mod-ifying and improving Rule 14H to allowincreased interconnection of distributedsolar generation without affecting elec-tric system reliability.61

Utility Scale Solar Energy ProjectsLarger, utility scale solar energy

projects – mounted not on rooftops buton the ground in large, open areas andinterconnected to the utility’s electricsystem at the sub-transmission or trans-mission level, rather than at the distribu-tion level – confront the same electricsystem reliability challenges and con-cerns. Utility scale solar PV projects sellelectricity to the utility pursuant to abilateral power purchase agreementapproved by the Public UtilitiesCommission in a regulatory proceeding(“PPA”). The PPA may contain provi-sions allowing the utility to “curtail,” ornot accept, electricity generated by theutility scale project that the utility isunable to utilize based upon technicalreasons related to maintaining electricsystem reliability. If the PPA’s curtail-ment provisions do not establish a limitor maximum amount of unpaid curtail-ment, developers of utility scale projectsmay experience difficulty in obtainingfinancing due to this uncertainty. Inaddition to IRS process concerns, tech-nical and policy solutions to addressingthe curtailment issue were a major focusof the RSWG process and are expectedto be the subject of further regulatoryproceedings and action by the PublicUtilities Commission.62

Although the curtailment issue maypresent challenges, Hawaii zoning lawhas been amended to facilitate the devel-opment of utility scale solar PV projectson certain agricultural lands. Section205-2, Hawaii Revised Statutes, estab-lishes four major land use districts inwhich all lands in the State shall beplaced: urban, rural, agricultural, andconservation.63 Agricultural districtsshall include “solar energy facilities,”provided that such facilities shall beallowed only on land with soil classifiedby the Land Study Bureau’s detailedland classification as overall (master) pro-ductivity rating class B, C, D, or E, andsolar facilities placed within land withsoil classified as overall productivity rat-ing class B or C shall not occupy morethan ten percent of the acreage of theparcel, or twenty acres of land, whichev-er is lesser.64 Similarly, section 205-4.5identifies as a permissible use within theagricultural district solar energy facilitiesthat do not occupy “more than ten per-cent of the acreage of the parcel, ortwenty acres of land, whichever is lesser;provided that this use shall not be per-mitted on [Class A lands].”65 Althoughstatutory authority to install utility scalesolar PV projects on agricultural landshas facilitated development efforts,potential future access to Class A landsfor these types of projects (and to Class Band C lands in excess of the ten percentor twenty acres limitation) remains acritical issue, especially to the extent rel-atively large amounts of land arerequired for solar PV systems capable ofmeaningfully contributing toward theachievement of future RPS require-ments in conformance with Hawaii cli-mate and clean energy objectives.

Similar to zoning matters, permit-ting and environmental review for largersolar PV projects may be aided byHawaii renewable energy laws. Forexample, in 2008 the Hawaii Legislatureadopted Chapter 201N, Hawaii RevisedStatutes, “Renewable Energy FacilitySiting Process” (“Chapter 201N”). TheLegislature found that “coordinating theprocess for required permits” is in theState’s interest in order to reduceHawaii’s over-dependence on imported

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fossil fuels and meet Hawaii’s energyself-sufficiency goals.66 Under Chapter201N, the Energy ResourcesCoordinator (“coordinator”)67 shalldevelop a permit plan application for-mat and procedure, receive the permitplan application from an applicant, andidentify all state and county permits nec-essary for approval of the renewableenergy facility.68 The coordinator shallfurther assist the permit plan applicationprocess by “coordinating the permittingprocess,” giving technical assistance,overseeing the creation of the permitplan, and facilitating “timely review andpermitting” of the facility.69 The coordi-nator shall also coordinate public meet-ings and work with federal, state, andcounty agencies and the applicant todetermine the terms and conditions ofthe permit plan and permits.70 The per-mit plan is to be designed to ensure thatall permits identified in the plan areprocessed and either denied or approvedno later than twelve months after thedate the project permit plan is accept-ed.71

Chapter 201N also addresses thepotentially contentious issue of environ-mental review of large solar PV andother renewable energy projects underChapter 343, Hawaii Revised Statutes(“Chapter 343”). The coordinator mayhold a pre-application conference with aprospective applicant “without regard tofinal acceptance of the final environ-mental impact statement,”72 and the per-mit plan shall include an agreementregarding the timeline and coordinationfor potential environmental impact state-ments (“EIS”) and permit concurrence,review, and issuance.73 Chapter 343 shallapply to any permit plan application fora renewable energy facility, however, andthe coordinator shall not accept a permitplan application prior to acceptance ofan EIS for the facility.74 An agency mayreview and commence processing appli-cations for permits prior to acceptanceof a permit plan by the coordinator, pro-vided that action to grant or deny a per-mit shall not be taken until after finalacceptance of an EIS.75 Chapter 201Nalso provides that leases and easementsfor renewable energy projects in agricul-


12 Haw. Rev. Stat. § 269-92(a).13 2007 Haw. Sess. Laws, Act 234 §1(a); H.B.226, 24th Leg. (Haw. 2007); Haw. Rev. Stat. §342B-72(a). 14 Under Haw. Rev. Stat. §196-7, “Private enti-ty” means “any association of homeowners,community association, condominium associa-tion, cooperative, or any other non-governmen-tal entity with covenants, bylaws, and adminis-trative provisions with which the homeowner’scompliance is required.”15 Haw. Rev. Stat. § 196-7(a). Similarly, it isworth noting that bylaws, covenants, deedrestrictions and similar legal agreements shallnot, under Hawaii law, prevent the installationof a clothesline on any single-family residentialdwelling or townhouse that a person owns, andany contrary lease or other contract provisionshall be void and unenforceable. Haw. Rev.Stat. § 196-8.5. The term “clothesline” isdefined as “a rope, cord, wire, or similar deviceon which laundry is hung to dry.” An associa-tion may, however, adopt rules that reasonablyrestrict the placement and use of clotheslinesprovided that the restrictions do not prohibit theuse of clotheslines altogether. In addition, theassociation may not assess any fees or chargesconcerning placement of the clothesline. Id.16 Haw. Rev. Stat. § 196-7(a). 17 Haw. Rev. Stat. §§ 514A-89 (emphasisadded); 514B-140; see also Haw. Rev. Stat. §502C-1 (Family Child Care Homes law defining“Townhouse” to not include any apartments orunits located in a building of more than threestories). 18 Haw. Rev. Stat. § 196-7(b).19 See H.B. 1406, 27th Leg. (Haw. 2013); see alsoStatement of Richard C. Lim, Director, State ofHawaii Department of Business, EconomicDevelopment, and Tourism before the HouseCommittee on Energy & EnvironmentalProtection (Feb. 12, 2013) (noting in support ofH.B. 1406 that “[b]ased on the number ofphone calls to our office, and our conversationswith frustrated and even exasperated home ortownhouse owners who wish to install solardevices, it appears that private entities have notadopted rules[.]”).20 Haw. Rev. Stat. § 196-7(c)(3). 21 Haw. Rev. Stat. § 196-7(d)(1). 22 Id. 23 Haw. Rev. Stat. § 196-7(d)(2). 24 Haw. Rev. Stat. § 196-7(e). 25 Haw. Rev. Stat. § 514A-13.4(c)(1). 26 Id.27 Haw. Rev. Stat. § 514A-13.4(c)(2). 28 Id.; see also Haw. Rev. Stat. § 514B-140(c)(same language).29 1976 Haw. Sess. Laws, Act 189 (Haw. 1976)(establishing state income tax credit for individ-ual and corporate taxpayers who install devicesthat “make[] use of solar energy for heating,cooling, or reducing the use of other types ofenergy dependent on fossil fuel for its genera-tion.”).

tural or conservation state land use dis-tricts are permitted even if the leasedland or easement area has not been sub-divided.76

Solar Water Heating MandateFinally, although solar water heating

has been an established and reliablesource of solar energy in Hawaii fordecades – well before the current boomin solar PV – a recent hot topic involvesthe variance provision under a Hawaiistatute requiring new single familyhomes to be constructed with a solarwater heating device. Under section196-6.5, Hawaii Revised Statutes (“sec-tion 196-6.5”), “Solar water heating sys-tem required for new single-family resi-dential construction,” after January 1,2010, no building permit shall be issuedfor a new single-family dwelling thatdoes not include a solar water heater sys-tem, unless the coordinator approves avariance.77 Under the statute, a varianceapplication shall only be accepted if sub-mitted by an architect or mechanicalengineer who attests that installation isimpracticable due to poor solar resource,cost-prohibitive based upon a life cyclecost-benefit, unnecessary because a solarPV or wind energy system is used forheating water, or a natural gas-poweredinstantaneous water heater (that pro-vides hot water on demand, only asneeded) is installed.78

In adopting this solar water heatingmandate, the Hawaii Legislature foundthat a conventional electric water tankaccounts for thirty to forty-five percentof a home’s electric bill and that savingsfrom the installation of a solar waterheating device could result in the systembeing paid off in eight to ten years with-out a state tax incentive.79 Despite this,during the period of January 2010 whenthe law took effect through February2013 a total of 1,420 variances havebeen sought, virtually all of which havebeen for the installation of gas-poweredinstantaneous water heaters.80 Priorand potentially ongoing issues surround-ing the section 196-6.5 variance proce-dures, and enforcement of the solarwater heating mandate in general, illus-trate the types of challenges confronting

development and implementation of keyHawaii laws governing both solar waterheating and solar PV.

Current and future legal challengesin solar energy law may be anticipatedinsofar as the shift to non-fossil fuel ener-gy entails far-reaching changes in theproduction and use of new forms ofenergy. Such challenges, however, mustbe continually assessed in light of thepotential economic and environmentalopportunities associated with clean ener-gy. The recent rapid increase in solarenergy illustrates the potential of solarenergy law and policy, properly under-stood and applied, to continue to play animportant role in shaping Hawaii’s tran-sition to a clean energy economy._________________

1 State of Hawaii Department of EconomicDevelopment and Tourism, “Hawaii EnergyFacts and Figures, January 2013” (“DBEDTFacts and Figures”) at 2, 9, available ath t t p : / / e n e r g y. h a w a i i . g o v / w p - c o n -tent/uploads/2011/10/EnergyFactsFigures_Jan2013.pdf.2 Id.3 Id. at 9. 4 Solar Energy Industries Association, “SolarMarket Insight Report 2012 Year in Review”(2012) (“SEIA Report”), available athttp://www.seia.org/research-resources/us-solar-market-insight-2012-year-review. 5 DBEDT Facts and Figures at 9. 6 See SEIA Report, “State by State,” availableat http://www.seia.org/news/multimedia/shareable-graphics.7 Haw. Rev. Stat. § 269-91.8 Sopogy, Inc. (“Sopogy”), a Hawaii CSP com-pany, explains that CSP technology uses a para-bolic trough to concentrate solar heat into ther-mal energy at an efficiency of approximatelyfifty percent and allows for storing, shifting, andfirming the energy generated. Sopogy offersCSP technology only for commercial and non-residential applications. See Sopogy, “FAQ,”available at http://sopogy.com/company/index.php?id=16#10.9 Id. at 18, available at http://hawaii.gov/dbedt/info/energy/agreement/signed2008oct20.pdf.10 2009 Haw. Sess. Laws, Act 155 §§ 3, 11; seealso Hawaii Powered: Hawaii Clean EnergyInitiative (Energy efficiency measures imple-mented over the next two decades can save4,300 gigawatt hours of electricity, equivalent toapproximately thirty percent of the demandforecasted for 2030), available at http://w w w . h a w a i i c l e a n e n e r g y i n i t i ative.org/wg_efficiency.html.11 See Haw. Rev. Stat. ch. 269, Part V, et seq.


30 Haw. Rev. Stat. § 235-12.5(a).31 Haw. Rev. Stat. § 235-12.5(a)(1), (2); see alsoHaw. Rev. Stat. § 235-12.5(c) (definition of“Solar or wind energy system”).32 Haw. Rev. Stat. § 235-12.5(a)(1).33 Haw. Rev. Stat. § 235-12.5(b)(2)(A), (C). 34 Haw. Rev. Stat. § 235-12.5(b)(1)(A).35 Haw. Rev. Stat. § 235-12.5(g); see also 2009Haw. Sess. Laws, Act 154 § 1, S.B. 464, 25th

Leg. (Haw. 2009).36 See, e.g., S. Cocke, “Report Says Solar TaxCredits Have Been Good For the State,” CivilBeat (Apr. 20, 2012) (citing report commissionedby Blue Planet Foundation indicating net fiscalbenefit to state from solar tax credits) available athttp://www.civilbeat.com/articles/2012/04/20/15612-report-says-solar-tax-credits-have-been-good-for-the-state/.37 See, e.g., S. Cocke, “Solar Tax ControversyExpected To Heat Up 2013 LegislativeSession,” Civil Beat (Jan. 11, 2013) (citing reportcommissioned by Blue Planet Foundation indi-cating net fiscal benefit to state from solar taxcredits), available at http://www.civilbeat.com/articles/2013/01/11/18069-solar-tax-controversy-expected-to-heat-up-2013-legisla-tive-session/. 38 See, e.g., H.B. 623, 27th Leg. (Haw. 2013).39 See, e.g., S. Cocke, “Hawaii Tax DepartmentPoised to Crack Down on Solar Tax Credits,”Civil Beat (Nov. 8, 2012) (New guidance to limitsolar companies claiming multiple credits onsolar arrays utilizing multiple inverters), availableat http://www.civilbeat.com/articles/2012/11/08/17597-hawaii-tax-department-poised-to-crack-down-on-solar-tax-credits/. 40 See State of Hawaii Department ofTaxation, “Tax Information Release No. 2010-02” (May 3, 2010), “Tax Information ReleaseNo. 2010-03” (May 21, 2010); “TaxInformation Release No. 2010-10” (Oct. 13,2010), available at http://www6.hawaii.gov/tax/a3_1tir.htm. 41 See State of Hawaii Department ofTaxation, “Adoption of Temporary Rules of theDepartment of Taxation Relating to theRenewable Energy Technologies” (Nov. 5,2012), available at http://www6.hawaii.gov/tax/har_temp/STANDARD_version_RETITC.pdf.42 See, e.g., Star Advertiser, “Citing spiralingcosts Abercrombie slashes PV credits” (Nov. 9,2012), available at http://www.kitv.com/news/hawaii/Citing-spiraling-costs-Abercrombie-slashes-PV-credits/-/8905354/17353952/-/tjcj5pz/-/index.html.43 See Sierra Club v. State of Hawai’iDepartment of Taxation, Civ. No. 12-1-3119(Plaintiff ’s Complaint filed Dec. 11, 2012) at 10(the Temporary Administrative Rules contra-vene the Legislature’s purpose in enacting sec-tion 235-12.5 to “increase investment in andinstallation of residential and commercialrenewable energy projects, including photo-voltaic projects.”).

44 See Haw. Rev. Stat. § 269-1 (“Public utility”shall not include any person who “(i) Owns,controls, operates, or manages a renewableenergy system that is located on a customer’sproperty; and (ii) Provides, sells, or transmits thepower generated from that renewable energysystem to an electric utility or to the customeron whose property the renewable energy systemis located[.]”).45 Haw. Rev. Stat. § 269-101. 46 Id.47 Haw. Rev. Stat. § 269-101.5. In 2008, theCommission increased the maximum capacitylimit on Oahu, Maui, and Hawaii to 100 kW.See State of Hawaii Public UtilitiesCommission, Decision and Order No. 24089filed Mar. 13, 2008 (Docket No. 2006-0084) at16-17, available at http://dms.puc.hawaii.gov/dms/. Similarly, there is a statutory cap onthe total power producing capacity of eligiblecustomer-generators of 0.5 percent of the sys-tem peak demand, although the Commissionmay increase this amount. Haw. Rev. Stat. §269-104. In 2008, the Commission increasedthis amount to one percent on Oahu and threepercent on Maui and Hawaii. See Hawaii PublicUtilities Commission, Order Approving, inPart, and Denying, in Part, Stipulations Filed onDecember 3, 2008, filed Dec. 26, 2008 (DocketNo. 2006-0084) at 9, 13, available athttp://dms.puc.hawaii.gov/dms/.48 See Order Initiating Investigation (DocketNo. 2008-0273) filed Oct. 24, 2008, available athttp://dms.puc.hawaii.gov/dms/. 49 See, e.g., Mark Niesse, Hawaii gets to work onenergy independence, Associated Press, Apr. 18,2009, available at http://www.kpua.net/news.php?id=17699. 50 Decision & Order filed Sept. 25, 2009(Docket No. 2008-0273), available athttp://dms.puc.hawaii.gov/dms/.51 Energy Agreement Summary of KeyAgreements at 3, available at http://heco.com/vcmcontent/StaticFiles/pdf/HCEI_Summary-Final.pdf. 52 Energy Agreement at 16. 53 P. Gipe, Renewable Energy Policy Mechanisms(Feb. 17, 2006), available at http://www.wind-works.org/FeedLaws/RenewableEnergyPolicyMechanismsbyPaulGipe.pdf/. 54 Hawaiian Electric Company, Inc., “FIT2012 Annual Status Report” filed Jan. 31, 2013(Docket No. 2008-0273), available athttp://dms.puc.hawaii.gov/dms/.55 Order No. 30919 (Docket No. 2008-0273)filed Dec. 21, 2012.56 In the Matter of Public Utilities Comm’n., DocketNo. 2008-0273, No. CAAP-12-0000853.57 See Reliability Standards Working GroupIndependent Facilitator’s Submittal, FinalReport filed Mar. 25, 2013 (“RSWG FinalReport”), Appendix 1, Item No. 1-7,“Reliability Standards Working Group Glossaryof Terms” at 14.58 Hawaiian Electric Company, Inc., Hawaii

Electric Light Company, Inc., and MauiElectric Company, Ltd. (collectively, “HawaiianElectric Companies”) 59 See Docket No. 2010-0015. 60 See Docket No. 2001-0206. 61 See RSWG Final Report at Appendix 1,Item No. 4b.62 See id. at Appendix 1, Item Nos. 3a, b. 63 Haw. Rev. Stat. § 205-2(a).64 Haw. Rev. Stat. § 205-2(d)(6). 65 Haw. Rev. Stat. § 205-4.5. 66 2008 Haw. Sess. Laws, Act 207 § 1.67 Haw. Rev. Stat. § 196-3. The Director ofthe Department of Business, EconomicDevelopment and Tourism serves as the EnergyResources Coordinator.68 Haw. Rev. Stat. § 201N-3(1)-(3). Renewableenergy facility means a new facility with acapacity to produce at least 200 MW of renew-able energy, provided that facilities with acapacity of 5-199 MW may apply to the coor-dinator for designation as a renewable energyfacility. Haw. Rev. Stat. § 201N-1; 2009 Haw.Sess. Laws, Act 155 § 7 (Haw. 2009).69 Haw. Rev. Stat. § 201N-3(4).70 Haw. Rev. Stat. § 201N-3(6)-(7).71 Haw. Rev. Stat. § 201N-4(f).72 Haw. Rev. Stat. § 201N-4(b).73 Haw. Rev. Stat. § 201N-4(d)(5).74 Haw. Rev. Stat. § 201N-8(a), (b).75 H.R.S. § 201N-8(b).76 2009 Haw. Sess. Laws, Act 173 § 2, H.B.589, 25th Leg. (Haw. 2009).77 Haw. Rev. Stat. § 196-6.5(a). 78 Haw. Rev. Stat. § 196-6.5(a)(1)-(4). 79 2008 Haw. Sess. Laws, Act 204 § 1. 80 See S.B. 16, S.D. 2, 27th Leg. (Haw. 2013),Testimony of Blue Planet Foundation datedMar. 19, 2013 at 1; see also M. Levine,“Mandatory Solar Hot Water for New Homes:Don’t Believe It,” Civil Beat (Nov. 11, 2010),available athttp://www.civilbeat.com/articles/2010/11/11/6370-mandatory-solar-hot-water-for-new-homes-dont-believe-it/; M. Levine, “StateAllows Developers to Flout Solar Mandate,”Civil Beat (Nov. 12, 2010), available athttp://www.civilbeat.com/articles/2010/11/12/6389-dbedt-developers-burn-gas-flout-solar-mandate/; and M. Levine, “Is HawaiiExpanding Solar Water Loophole?” Civil Beat(Feb. 10, 2011), available athttp://www.civilbeat.com/articles/2011/02/10/8851-is-hawaii-expanding-solar-water-heater-loophole/.

Douglas A. Codiga practices energy andenvironmental law with the law firm of SchlackIto LLLC and is a member of the firm’sClimate and Sustainability Practice Group.

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