Nov 16 — Honolulu City Council is evaluating a bill that would provide renewable energy projects with substantial relief from an unexpected and steep increase in property taxes.

As currently drafted, Bill 39 would exempt projects from 80% of the property taxes imposed. The proposed rebate follows Honolulu Hale this year by moving projects from the farm tax category to the industrial tax rate.

The result for Clearway Energy Group’s Waipio and Lanikuhana solar projects was a combined annual property tax bill that rose from $ 30,000 to over $ 800,000 last year.

Supporters of the bill, which is due to be submitted to the Council’s budget committee on Wednesday, say that in the absence of significant tax relief, placing renewable energy projects in the highest tax category could hamper Oahu’s progress toward state law enforcement. , enacted in 2015, requiring all electricity in Hawaii to come from renewable resources by 2045.

At the end of 2020, Hawaii’s largest electricity company, Hawaiian Electric, said about 35% of its electricity came from renewable sources.

Clearway’s tax rate change came after a team of appraisers from the Real Property Valuation Division of the city’s Office of Budget and Tax Services spotted solar panels on land during an inspection of the site, and then considered that solar power generation at the sites was an industrial use.

The team determined that due to “increased land use,” with electricity sold to Hawaiian Electric, the city’s ordinance requires consolidation with industrial properties, said Andrew Kawano, budget manager. and city tax services.

If the tax classification is retained, the State Energy Office estimates that the industrial rate would be imposed on a total of 12 existing projects and nine under development, all with solar panels on farmland.

For ongoing projects, passing the tax burden on to customers through higher electricity bills is not an option at hand.

These projects have secured long-term contractual agreements (up to about 25 years) with Hawaiian Electric that set firm rates for utilities, which have been approved by the state’s Utilities Commission. They must therefore either find a way to absorb the additional tax cost, try to renegotiate their respective contracts or, at worst, terminate the projects.

Kirsten Baumgart Turner, deputy head of energy at the National Energy Board, pointed out that if the switch to the industrial rate raises bankruptcy concerns, demand for renewables will increase here when the shutdown l next year from the AES coal-fired power plant, which now supplies 16% of Oahu’s peak energy needs.

“Those projects that are on-line to provide us with the renewable energy capacity we need to replace the coal-fired power plant, and to move us forward towards our goal of 100% renewable energy mandatory” could “be derailed. “Baumgart Turner said.

The difference between being valued at the city agricultural rate and the industrial rate is vast. The industrial rate is $ 12.40 per $ 1,000 of net taxable amount, more than double the general rate of $ 5.70.

By further reducing the agricultural tax bill, if there is a 10-year commitment to do agricultural work in the field, the dedicated portion is assessed at 1% of its value. A five-year commitment is valued at 3%.

For example, if a farm agrees to work land for 10 years and the appraisal of its property is $ 1,000, at 1% of its value, the appraisal would be $ 10 and the amount of the property tax owed would be 5.7 cents. If the industrial property valuation was $ 1,000, the property tax owed would be $ 12.40.

Wren Wescoatt, director of development at Longroad Energy, said he was concerned that, given the industrial rate, his company might not be able to afford its agriculture-solar power combination project, Mahi Solar, which is expected to be fully built in 2023.

“It would have a huge economic impact on the project as we really try to keep the land for agricultural use as well,” Wescoatt said.

Further, he said: “The use of solar is really temporary. The equipment that is going to be removed at the end of the project. It’s not like a building or a factory. It’s not like we were installing something that’s going to be there for 100 years. It’s just temporary equipment that will eventually be taken out. “

In a recent speech to Mayor Rick Blangiardi’s administration, City Council Chairman Tommy Waters and Vice President Esther Kiaaina called for the temporary return of renewable projects to the agricultural tariff group.

The letter called for an interim administrative measure of “immediate restoration of the classification to avoid potential serious disruption to the renewable energy progress made to date on our island”. He also called for a “working group of stakeholders and Council staff to work out an appropriate long-term solution.”

But Kawano retorted that such administrative action is blocked by city law.

“We are following the current ordinance in terms of valuing all properties, and it is based on the highest and best utilization,” he said. Kawano argues that the fastest way to resolve the dilemma, “specific to those renewable energy projects that sell electricity to the utility”, is to pass a new ordinance.

In its current version, Bill 39 is seen as a short-term solution by most stakeholders. Among the potential long-term solutions, Kawano said, is one whereby the city would charge renewable energy companies a fee in lieu of taxes.

The state charges fees for most non-renewable energy projects, and these projects are exempt from municipal property taxes.

The state’s energy office has identified finding a viable solution to the renewable energy tax dilemma as a top priority. “Our biggest concern is that we have fairness and consistency with existing projects and projects under development,” said Baumgart Turner.

The rate of the tourist tax “will have an impact on everything. It will have a domino effect, and we need these projects to keep moving forward. … We can work together to find a long-term solution, ”she said, but noted that in the short-term, the Energy Board is in favor of resetting valuations so that they correspond to agricultural rates.

Nicola Park, head of origin at Clearway Energy Group, told the Honolulu Star-Advertiser in an emailed statement: “Our goal has always been to provide reliable, clean renewable energy to Hawaii at a price below. fossil fuel costs ”, and to the“ previous ”city. tax policy has allowed us to do that.

Park added that any significant change “must ensure that electricity customers continue to benefit from the low tariffs they have been promised, as the state shifts from fossil fuels to 100% clean energy. … Electricity customers Oahu need clarity and a fair deal. “

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