SECTION 1. Energy storage is a key component of a modern, smart electrical grid, and effective energy storage can help to maximize the use of indigenous renewable energy. Hawaii has successfully utilized a renewable energy tax credit to foster a sustainable local renewable energy industry responsible for creating jobs, catalyzing statewide energy savings, improving our environment, and reducing greenhouse gas emissions.

The purpose of this Act is to facilitate the use of renewable energy by encouraging the use of grid-connected energy storage technologies and systems through a tax credit, which is limited in scope and duration, for grid-connected energy storage properties. The tax credit may be claimed as an investment tax credit or utilization tax credit.

These two tax credit options are intended to promote the use of grid-connected energy storage that can address the varying needs of our island electric grids with technologies most applicable to those needs.

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

"§235- Energy storage; income tax credit. (a) There shall be allowed to any taxpayer subject to taxes under this chapter, an income tax credit for each grid-connected energy storage property that is installed and placed in service in the State during a taxable year beginning after December 31, 2015; provided that this tax credit shall not be available for taxable years beginning after December 31, 2026. The tax credit may be claimed in either, but not both, of the following forms:

(1) An investment credit equal to:

(A) For a grid-connected energy storage property first placed in service on or before December 31, 2021, per cent of the basis; or

(B) For a grid-connected energy storage property first placed in service after December 31, 2021, and on or before December 31, 2026, per cent of the basis; or

(2) A utilization credit equal to:

(A) For a grid-connected energy storage property first placed in service on or before December 31, 2021, cents per kilowatt-hour of energy storage capacity; or

(B) For a grid-connected energy storage property first placed in service after December 31, 2021, and on or before December 31, 2026, cents per kilowatt-hour of energy storage capacity.

The utilization credit may be claimed during each of the first ten taxable years that the grid-connected energy storage property is in service; provided that this annual utilization credit shall not exceed the product of the energy storage capacity measured in kilowatt-hours, multiplied by 365, multiplied by the applicable number of cents per kilowatt-hour.

If a deduction is taken under this chapter, no tax credit shall be allowed for that portion of the grid-connected energy storage property for which the deduction was taken.

(b) Multiple owners of a grid-connected energy storage property shall be entitled to a single tax credit, and the tax credit shall be apportioned between the owners in proportion to their contribution to the basis of the grid-connected energy storage property.

(c) In the case of a partnership, S corporation, estate, or trust, the tax credit allowable shall be for every eligible grid-connected energy storage property that is installed and placed in service in the State by the entity. The basis upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined pursuant to section 704(b) of the Internal Revenue Code.

(d) For the purposes of this section:

"Basis" means the actual cost of the grid-connected energy storage property, including accessories, installation, storage devices, power conditioning equipment, control or transfer equipment, support structures, and other equipment related to energy storage and the functioning of those items.

Basis shall not include costs for which another credit is claimed under this chapter, costs for equipment which is unrelated to the operation of the grid-connected energy storage property, the dollar value of any rebate received for the grid-connected energy storage property, or the cost of consumer incentive premiums unrelated to the operation of the grid-connected energy storage property or offered with the sale of the grid-connected energy storage property.

The basis of the grid-connected energy storage property shall not be reduced by the amount of any federal tax credit or other federally subsidized energy financing received by the taxpayer.

"Energy storage capacity" means the amount of electricity, measured in megawatt-hours or megawatts, that may be received by the grid-connected energy storage property for later retrieval. Energy storage capacity shall be determined based on the storage capability of the equipment, not its actual use when in operation.

"First placed in service" has the same meaning as in title 26 Code of Federal Regulations section 1.167(a)-11(e)(1).

"Grid-connected energy storage property" means equipment or devices that are connected to the electrical grid in either a centralized or distributed manner and do one or more of the following:

(1) Use mechanical, chemical, or thermal processes to store energy received from the electrical grid or a grid-connected renewable energy system, as that term is used in section 269-91, at one time for use at a later time by returning electricity to the grid or by avoiding the need to use electricity from the electrical grid at that later time by a facility or property that is electrical grid-connected;

(2) Use mechanical, chemical, or thermal processes to store energy received from the electrical grid or a grid-connected renewable energy system, as that term is used in section 269-91, to provide ancillary services to the electrical grid;

(3) Store thermal energy, created from electricity received from the electrical grid or from a grid-connected renewable energy system, as that term is used in section 269-91, for direct use for heating or cooling at a later time in a manner that avoids the need to use electricity from the electrical grid at that later time in a facility or property that is electrical grid-connected; or

(4) Enable an energy storage device, primarily designed for use in transportation, with or without vehicles, to store and transmit energy from and to the electrical grid in a manner consistent with paragraph (1) or (2).

(e) The director of taxation shall prepare any forms that may be necessary to claim a tax credit under this section, including forms identifying the property type for each tax credit claimed 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) If the tax credit under subsection (a)(1) or (a)(2) exceeds the taxpayer's income tax liability, the excess of the credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted, unless otherwise elected by the taxpayer pursuant to subsection (g). All claims for the tax credit under this section, including amended claims, shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(g) For any grid-connected energy storage property, a taxpayer may elect to reduce the eligible credit amount by thirty per cent and, if this reduced amount exceeds the amount of income tax payment due from the taxpayer, the excess of the credit amount over payments due shall be refunded to the taxpayer; provided that no refund on account of the tax credit allowed by this section shall be made for amounts less than $1.

The election required by this subsection shall be made in a manner prescribed by the director of taxation on the taxpayer's return for the taxable year in which the grid-connected energy storage property is installed and placed in service. A separate election may be made for each separate property that generates a credit. An election once made shall be irrevocable.

(h) An association of owners under chapter 514A or 514B, a cooperative housing corporation under chapter 421I, or a planned community association under chapter 421J may claim the credit allowed under this section in its own name for grid-connected energy storage property placed in service and located on common areas.

(i) No credit under this section shall be allowed to any federal, state, or local government or any political subdivision, agency, or instrumentality thereof.

(j) The department of taxation shall submit a report to the legislature no later than twenty days prior to the convening of each regular session on the following for the most recent taxable year for which the department has data:

(1) The number of grid-connected energy storage properties for which a tax credit has been claimed during the taxable year; and

(2) The total cost of the tax credit to the State during the taxable year by tax credit type (investment or utilization) and refundability or nonrefundability."

SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2015-2016 and the same sum or so much thereof as may be necessary for fiscal year 2016-2017 for administration of the tax credit established by section 2 of this Act.

The sums appropriated shall be expended by the department of taxation for the purposes of this Act.

SECTION 4. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 5. New statutory material is underscored.

SECTION 6. This Act shall take effect upon approval and shall apply to taxable years beginning after December 31, 2015, through taxable years ending on or before December 31, 2026; provided that section 3 of this Act shall take effect on July 1, 2015.

HOUSE OF REPRESENTATIVES	H.B. NO.	265
TWENTY-EIGHTH LEGISLATURE, 2015		H.D. 1
STATE OF HAWAII