SECTION 1. The legislature finds that for economic and energy security reasons, state law and policy direct an increase in the use of renewable energy resources. The majority of renewable energy resources will be interconnected to the Hawaii electric system, however, the quantity and rate of interconnection may be reduced or slowed based on limitations of the electric system's ability to accept variable generation.

The legislature further finds that the limitations of the electric system can be alleviated through an increase in the use of energy storage and the integration of energy storage with the electric system. Small-scale energy storage systems can supply utility customers with electricity to timely serve site-specific needs, and utility scale systems can serve the entire electric system. Small- and large-scale energy storage systems are advanced and grid-interactive, thus improving the electric system's ability to use renewable energy resources.

The purpose of this Act is to facilitate the greater use of renewable energy by establishing a tax credit for energy storage properties that primarily supply utility customers with electricity for site-specific needs or serve the entire electric system; provided that the energy storage properties are advanced, grid-interactive systems capable of and actively participating in utility demand response programs, providing ancillary services, and serving as a resource to the electric system.

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 tax credit; certification. (a) There shall be allowed to each taxpayer subject to the tax imposed by this chapter, an energy storage tax credit for each energy storage property:

(1) That is used primarily to store electricity to supply utility customers with electricity for site-specific needs or to serve the entire electric system; provided that all energy storage properties are advanced, grid-interactive systems capable of participating in utility demand response programs, providing ancillary services, and serving as a resource to the electric system;

(2) For which the taxpayer enters into an agreement with an electric utility after June 30, 2015, and on or before December 31, 2021; and

(3) That is installed and first placed in service by a taxpayer in 2015, and on or before December 31, 2025.

(b) The tax credit shall be claimed as follows:

(1) Thirty per cent of the basis for energy storage property first placed in service in 2015, and before January 1, 2018;

(2) Twenty-five per cent of the basis for energy storage property first placed in service after December 31, 2017, and before January 1, 2021;

(3) Twenty per cent of the basis for energy storage property first placed in service after December 31, 2020, and before January 1, 2024; and

(4) Fifteen per cent of the basis for energy storage property first placed in service after December 31, 2023.

(c) To qualify for the tax credit, a taxpayer shall first obtain certification from the department. When applying for certification, a taxpayer shall provide the department with evidence that:

(1) The taxpayer has control of the site for the proposed project, including but not limited to a copy of a deed, lease, or option to lease; or

(2) The entity having site control has entered into an agreement for the installation of an energy storage property at the site.

(d) Within twelve months of receiving certification, a taxpayer shall provide the department with evidence that the taxpayer has invested at least five per cent of the amount of the taxpayer's projected cumulative tax credits into the project. The department shall rescind the certification of a taxpayer who fails to comply with this subsection and consider the next taxpayer awaiting certification.

(e) When the aggregate tax credit certifications for the year reaches $20,000,000, the department shall cease certification of tax credits for the year; provided that remaining projects awaiting certification shall carry over to the next year.

(f) The department shall notify the department of taxation of all certifications of tax credits and rescissions of certifications.

(g) The public utilities commission shall direct the electric utilities, through appropriate tariffs, programs, and other means, to use all energy storage properties benefiting from the tax credit for demand response, ancillary services, and other similar advanced energy storage and grid supportive functions; provided that the electric utilities shall have flexibility pertaining to the timing and amount of stored energy that is used in order to maintain grid reliability.

(h) For energy storage projects with a capacity of at least five kilowatts of power and five kilowatt-hours of energy storage and a maximum capacity of one megawatt of power and one megawatt-hour of energy storage, the tax credit shall be available in the following amounts:

(1) Fifty per cent of the applicable tax credit for energy storage projects with the capacity of one megawatt of power and one megawatt-hour of energy storage and a maximum of two megawatts of power and two megawatt-hours of energy storage; and

(2) Twenty-five per cent of the applicable tax credit for energy storage projects with the capacity of two megawatts of power and two megawatt-hours of energy storage and a maximum of three megawatts of power and three megawatt-hours of energy storage.

(i) An equipment manufacturer of energy storage properties shall be limited to forty per cent of the annual aggregate tax credit certification amounts. The department shall not issue tax certifications to a project that uses a technology produced by a manufacturer that has already received forty per cent of the annual aggregate tax credit certification amounts. This limit shall be posted by the department at the beginning of each calendar year and shall remain the same throughout the year.

(j) The tax credit shall be deductible from the taxpayer's net income tax liability imposed by this chapter for the taxable year in which the credit is properly claimed. If the tax credits under subsection (b) exceed 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 (l).

(k) For any 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, however, 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 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 is irrevocable.

(l) The dollar amount of any utility rebate shall be deducted from the basis of the qualifying energy storage property and its installation before applying the state tax credit.

(m) Multiple owners of a single 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 energy storage property.

(n) In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for every eligible 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.

(o) 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 of 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.

(p) 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 this subsection shall constitute a waiver of the right to claim the credit.

(q) The tax credit provided for in this section shall be construed in accordance with the United States Treasury Regulations and judicial interpretations of similar provisions in sections 25D, 45, and 48 of the Internal Revenue Code.

(r) No credit under this section shall be allowed to any federal, state, or local government or a public sector agency; provided that any such entity that enters into a contractual agreement for the purchase of electric power or energy storage capacity from a third-party provider shall be eligible for the credit.

(s) No later than July 1, 2017, the department shall commence a study on the costs incurred and benefits generated by this section, as well as the extent to which the tax credit under this section has helped the State to achieve its energy goals. In conducting this study, the department shall consult with the department of taxation and industry trade groups and may consult with other stakeholders. The department, in collaboration with the department of taxation, shall submit a joint report to the legislature no later than twenty days prior to the convening of the regular session of 2019. This report to the legislature shall include, at a minimum, the following:

(1) The number of energy storage properties that have qualified for a tax credit during the calendar year, organized by property type and taxpayer type (corporate and individual);

(2) The total cost of the tax credit to the State during the taxable year by property type, taxpayer type, and refundability type;

(3) The estimated economic benefit that may be attributable to the tax credit, including the estimated impact on the economy, net flow of money into or out of the State, general excise and income tax revenue generated, and number of jobs maintained and created and average pay;

(4) The results of the study; and

(5) Recommendations on whether the tax credit under this section should be wholly or partially continued, eliminated, or revised.

(t) For purposes of this section:

"Basis" means costs related to the energy storage property, including storage devices, power conditioning equipment, transfer equipment, support structures, and parts related to the functioning of those items, including installation and development costs. "Basis" shall not include:

(1) Costs for which another credit is claimed under this chapter; and

(2) Costs for equipment that is unrelated to the functioning of the energy storage property.

The meaning of "basis" shall be consistent with section 25D or section 48 of the Internal Revenue Code; provided that, for the purposes of calculating the credit allowed under this section, the basis of the 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.

"Certification" means a declaration from the department that the taxpayer has met the minimum criteria to qualify for the tax credit for an energy storage property.

"Department" means the department of business, economic development, and tourism.

"Energy storage capacity" means the amount of electricity measured in kilowatts or kilowatt-hours that may be injected into storage for later retrieval. Energy storage capacity shall be determined based on the storage capability of the equipment, not its actual use when in operation.

"Energy storage property" means a property that is permanently affixed to a site and electrically connected to a site distribution panel by means of an installed conduit, not an electric plug, that supports, improves, and enhances the ability of the electric system to accept and use renewable energy by providing electricity, demand response, ancillary services, or other similar functions through the use of equipment that receives electricity generated from various sources, stores the electricity, and delivers the electricity to an electric utility or to a user of the electric system. Furthermore, energy storage property shall have an energy storage capacity of at least five kilowatts of power and five kilowatt-hours of energy storage and a maximum of three megawatts of power and three megawatt-hours of energy storage. The construction, reconstruction, or erection of the energy storage property shall be completed by the taxpayer or shall be acquired by the taxpayer if the original use of the property commences with the taxpayer.

"First placed in service" has the same meaning as in United States Treasury Regulation section 1.167(a)-11(e)(1).

"Public sector agency" means any political subdivision, agency, or instrumentality of the State or of the federal government."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2050, and apply to taxable years beginning after December 31, 2050.

THE SENATE	S.B. NO.	1172
TWENTY-EIGHTH LEGISLATURE, 2015		S.D. 1
STATE OF HAWAII