HB2608

SECTION 1. The legislature finds that Hawaii has long been a national leader in solar water heating adoption and clean energy policy. Since the enactment of the State's solar water heating requirements and incentives, electric heat pump water heater technology has advanced significantly. Simultaneously, the cost of this technology has dropped significantly, allowing substantial reductions in utility bills, energy use, and greenhouse gas emissions while supporting grid reliability and renewable energy integration. The legislature further finds that past implementation of the solar water heating requirement and variance processes resulted in widespread approval of fossil fuel–based water heating systems, including gas-fired demand water heaters, despite Hawaii having no indigenous or reliable in-state supply of natural gas or propane. This furthers the State's dependence on imported fossil fuels and undermines clean energy goals.

The legislature additionally finds that high-efficiency electric heat pump water heaters provide a clean energy alternative that avoids continued reliance on fossil fuel combustion for water heating and aligns with statutory commitments to decarbonization, energy security, and reduced household energy costs. Unlike rooftop solar water heating systems, high-efficiency electric heat pump water heaters can be utilized in a broader range of housing types, including rental units, townhomes, and multifamily dwellings, thereby expanding access to clean energy technologies and energy cost savings for residents who may otherwise be unable to benefit from rooftop-based systems.

The legislature also finds that federal incentives previously supported the adoption of high-efficiency electric heat pump water heaters, including a rebate of up to $2,000 authorized under the Inflation Reduction Act, which expired on December 31, 2025, resulting in the loss of a significant financial incentive for Hawaii households.

The legislature further finds that modern high-efficiency electric heat pump water heaters can provide energy savings comparable to those of solar water heating systems, while expanding access to clean water heating options for households and housing where new solar water heating systems are impractical or impossible.

Accordingly, the purpose of this Act is to:

(1) Authorize building permit variances for certain high-efficiency electric water heating systems utilizing heat pump technology, rather than solar water heater systems; and

(2) Expand the renewable energy technologies income tax credit to include high-efficiency electric water heating systems.

SECTION 2. Section 196-6.5, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) On or after January 1, 2010, no building permit shall be issued for a new single-family dwelling that does not include a solar water heater system that meets the standards established pursuant to section 269-44, unless the chief energy officer of the Hawaii state energy office approves a variance. A variance application shall only be accepted if submitted by an architect or mechanical engineer licensed under chapter 464, who attests that:

(1) Installation is impracticable due to poor solar resource;

(2) Installation is cost-prohibitive based upon a life cycle cost-benefit analysis that incorporates the average residential utility bill and the cost of the new solar water heater system with a life cycle that does not exceed fifteen years;

(3) A renewable energy technology system, as defined in section 235-12.5, is substituted for use as the primary energy source for heating water; or

[~~(4)~~ A demand water heater device approved by Underwriters Laboratories, Inc., is installed; provided that at least one other gas appliance is installed in the dwelling. For the purposes of this paragraph, "demand water heater" means a gas-tankless instantaneous water heater that provides hot water only as it is needed.]

(4) A high-efficiency electric water heating system utilizing heat pump technology, as defined in section 235-12.5, when installed in conjunction with a photovoltaic system, is substituted as the primary energy source for heating water."

SECTION 3. Section 235-12.5, Hawaii Revised Statutes, is amended as follows:

1. By amending subsections (a) to (c) to read:

"(a) Each individual or corporate taxpayer that 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 may be claimed for every eligible renewable energy technology system that is installed and placed in service in the State by a taxpayer during the taxable year. The tax credit may be claimed as follows:

(1) For each solar energy system: thirty-five per cent of the actual cost or the cap amount determined in subsection (b); provided that:

(A) For taxable years beginning after December 31, 2019, and except as provided in subparagraphs (B) and (C), no tax credit may be claimed for a solar energy system that is five megawatts in total output capacity or larger and requires a power purchase agreement approved by the public utilities commission;

(B) A solar energy system that is five megawatts in total output capacity or larger, installed and placed in service pursuant to a power purchase agreement approved or pending approval by a decision and order by the public utilities commission prior to December 31, 2019, shall continue to receive a tax credit equal to thirty-five per cent of the actual cost, or $500,000 per solar energy system that has a total output capacity of at least one thousand kilowatts per system of direct current, whichever is less; and

(C) For each solar energy system integrated with a pumped hydroelectric energy storage system, the tax credit may be claimed for thirty-five per cent of the actual cost or the cap amount determined in subsection (b), whichever is less; provided that applicable project approval filings have been made to the public utilities commission by December 31, 2021; [or]

(2) For each wind-powered energy system: twenty per cent of the actual cost or the cap amount determined in subsection (b), whichever is less; or

(3) For each high-efficiency electric water heating system utilizing heat pump technology installed concurrently with, or in a dwelling already served by, a photovoltaic system of one kilowatt or greater size: per cent of the actual cost or the cap amount determined in subsection (b), whichever is less;

provided further that multiple owners of a single system shall be entitled to a single tax credit; and provided further that the tax credit shall be apportioned between the owners in proportion to their contribution to the cost of the system.

In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for every eligible renewable energy technology system that is installed and placed in service in the State by the entity. The cost upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined pursuant to administrative rule.

(b) The amount of credit allowed for each eligible renewable energy technology system shall not exceed the applicable cap amount, which is determined as follows:

(1) If the primary purpose of the solar energy system is to use energy from the sun to heat water for household use, then the cap amounts shall be:

(A) $2,250 per system for single-family residential property;

(B) $350 per unit per system for multi-family residential property; and

(2) For all other solar energy systems, the cap amounts shall be:

(A) $5,000 per system for single-family residential property; provided that if all or a portion of the system is used to fulfill the substitute renewable energy technology requirement pursuant to section 196-6.5(a)(3), the credit shall be reduced by thirty-five per cent of the actual system cost or $2,250, whichever is less;

(B) $350 per unit per system for multi-family residential property; and

(3) For all wind-powered energy systems, the cap amounts shall be:

(A) $1,500 per system for single-family residential property; provided that if all or a portion of the system is used to fulfill the substitute renewable energy technology requirement pursuant to section 196-6.5(a)(3), the credit shall be reduced by twenty per cent of the actual system cost or $1,500, whichever is less;

(B) $200 per unit per system for multi-family residential property; and

(4) For all high-efficiency electric water heating systems utilizing heat pump technology installed concurrently with, or in a dwelling already served by, a photovoltaic system of one kilowatt or greater size, the cap amounts shall be:

(A) $ per system for single-family residential property; provided that if all or a portion of the system is used to fulfill the substitute renewable energy technology requirement pursuant to section 196-6.5(a)(4), the credit shall be reduced by per cent of the actual system cost or $ , whichever is less; and

(B) $ per unit per system for multi-family residential property.

"Actual cost" means costs related to the renewable energy technology systems under subsection (a), including accessories and installation, but not including the cost of consumer incentive premiums unrelated to the operation of the system or offered with the sale of the system and costs for which another credit is claimed under this chapter.

"High-efficiency electric water heating system utilizing heat pump technology" means an electric water heating system that:

(1) Uses vapor-compression heat pump technology as the primary means of heating water;

(2) Meets or exceeds minimum efficiency standards, including uniform energy factor requirements, as established or recognized by the department of taxation in consultation with the Hawaii state energy office;

(3) Is ENERGY STAR certified or certified by a successor recognized by the department of taxation;

(4) Is installed in a residential dwelling located in the State; and

(5) Is installed by a contractor licensed pursuant to chapter 444.

"Household use" means any use to which heated water is commonly put in a residential setting, including commercial application of those uses.

"Renewable energy technology system" means a new system that captures and converts a renewable source of energy, such as solar or wind energy, into:

(1) A usable source of thermal or mechanical energy;

(2) Electricity; or

(3) Fuel.

"Renewable energy technology system" includes high-efficiency electric water heating systems utilizing heat pump technology.

"Solar or wind energy system" means any identifiable facility, equipment, apparatus, or the like that converts solar or wind energy to useful thermal or electrical energy for heating, cooling, or reducing the use of other types of energy that are dependent upon fossil fuel for their generation."

2. By amending subsection (e) to read:

"(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 technology type of each tax credit claimed under this section, whether for solar [or], wind[.], or high-efficiency electric water heating systems utilizing heat pump technology. 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."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2608
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII