Report Title:

Hydroelectric Tax Credit


Provides for a tax credit of 20 percent of the total cost of a hydroelectric system erected and placed in service after December 31, 2002 and before December 31, 2010.


H.B. NO.









relating to a hydroelectric tax credit.



SECTION 1. The legislature finds that hydroelectric power is the oldest and most mature of all the renewable energy technologies. About three thousand hydroelectric power plants provide roughly seven per cent of the electricity generated in the United States. In Hawaii, about twenty hydroelectric power plants provide roughly one-half of one per cent of the electrical energy generated in the State. The majority of these Hawaii power plants were constructed in the early 1900s as part of the sugarcane industry infrastructure.

A department of business, economic development, and tourism report substantiates the potential for hydroelectric power in the State. The use of running water in our rivers and streams to generate electricity can be achieved in an environmentally sound manner which would reduce our use of imported fossil fuels.

Geothermal, wind, and hydroelectric energy development have increased in recent years in the State. However, further development of geothermal, wind, and hydroelectric resources may be limited by:

(1) The low electrical demand during the late evening and early morning hours, which could lead to curtailment of the output of geothermal, wind, and hydroelectric systems; and

(2) In the case of wind energy, having too many wind turbines on the electrical grid which can lead to power quality degradation.

Pumped-storage hydroelectric systems could increase the amount of geothermal, wind, and hydroelectric power generation by using electricity from these renewable energy sources to pump water to a higher elevation reservoir during periods of low electrical demand such as the late evening and early morning. During periods of peak electrical demand, the stored water would be used to generate electricity to help meet the peak demand. Pumped-storage hydroelectric systems could be directly coupled with intermittent renewable energy sources such as wind turbines to mitigate potential power quality and reliability impacts on electrical grid systems.

The legislature believes that the State should support efforts to increase renewable energy development in Hawaii. Accordingly, the purpose of this Act is to establish a hydroelectric tax credit.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"235-     Hydroelectric tax credit. (a) Each individual or corporate resident taxpayer who files an individual or corporate net income tax return for a taxable year may claim a tax credit under this section against the Hawaii state individual or corporate net income tax. The tax credit is equal to twenty per cent of the total cost of the hydroelectric system. The tax credit shall apply only to the actual cost of the hydroelectric system, its accessories, appurtenant structures, and installation.

(b) The tax credit shall be applicable only with respect to hydroelectric systems that are erected and placed in service after December 31, 2002, but before December 31, 2010.

(c) The tax credit shall be claimed against net income tax liability for the year in which the hydroelectric device was purchased and placed in use in Hawaii.

(d) Tax credits that exceed the taxpayer's income tax liability may be used as a credit against the taxpayer's income tax liability in subsequent years without restriction until exhausted.

(e) The director of taxation shall prepare such forms as may be necessary to claim a credit under this section. The director may also require the taxpayer to furnish reasonable information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

(f) As used in this section, "hydroelectric system" means any new identifiable facility, equipment, apparatus, or the like which makes use of running water to produce electricity. This includes run-of-the-river and dam hydroelectric facilities, equipment, or apparatus. This also includes any new pumped-storage hydroelectric facilities, equipment, or apparatus integrated with other renewable energy systems such as geothermal, wind, or solar."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval and shall apply to taxable years beginning after December 31, 2002.