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Phasing Out Renewable Energy Tax Credits Could Increase Development Costs for Real Estate Owners and Investors

·5 min read·👀 Watch

Executive Summary

Hawaii's legislative session concluded, not renewing key renewable energy tax credits and potentially pausing affordable housing initiatives, signaling a shift impacting development costs and investment strategies. Real estate owners and investors should re-evaluate renewable energy project ROI and potential construction timelines.

  • Real Estate Owners: Increased costs for new renewable energy installations, potential delays on affordable housing projects.
  • Investors: Reduced financial incentives for renewable energy projects, necessitating updated ROI calculations.
  • Entrepreneurs/Startups: Less attractive market for green tech startups reliant on tax credits.
  • Action: Monitor state and county planning departments for affordable housing project resumption and track renewable energy policy discussions.

Watch & Prepare

Medium PriorityUpcoming legislative or project implementation timelines

The phasing out of tax credits means an opportunity to lock in current rates or adjust investment strategies is time-limited; the affordable housing pilot project's resumption could create new development timelines.

Real estate owners and developers should reassess ROI for projects relying on renewable energy tax credits and re-evaluate timelines for affordable housing developments. Investors must update financial models to account for reduced incentives. Entrepreneurs should seek alternative funding and partnerships. Monitor legislative updates and state/county planning departments.

Who's Affected
Real Estate OwnersInvestorsEntrepreneurs & Startups
Ripple Effects
  • →Higher renewable energy costs → increased construction expenses → potentially higher housing prices/rents
  • →Delayed affordable housing projects → strained labor market → increased wage pressure
Top view of tax forms, keyboard, and credit card on wooden desk for business preparation.
Photo by Polina Tankilevitch

Phasing Out Renewable Energy Tax Credits Could Increase Development Costs for Real Estate Owners and Investors

Hawaii's recent legislative session has concluded, bringing significant changes that will affect the cost of development and investment in the state. Key among these is the non-renewal of renewable energy tax credits, which could diminish the financial viability of solar and other green energy installations for new construction and retrofits. Additionally, an affordable housing pilot project's pause introduces uncertainty for developers in that sector. These shifts necessitate a re-evaluation of project budgets and investment strategies for real estate owners, investors, and entrepreneurs.

The Changes

The Hawaii State Legislature did not advance bills that would extend or reinstate certain renewable energy tax credits with the conclusion of its 2026 session. This effectively means that as existing credits expire, new projects will face higher upfront costs for renewable energy installations, such as solar panels, without the same level of state-supported financial incentives. Furthermore, Senate Bill 2061, which proposed to resume a paused affordable housing pilot project, did not pass, leaving the future of that initiative uncertain and potentially delaying new affordable housing developments. Affected parties should anticipate these changes taking full effect as current credit structures expire and project funding streams are re-evaluated.

Who's Affected

Real Estate Owners: For property owners and developers, the phase-out of renewable energy tax credits directly impacts the economics of incorporating green energy solutions into new builds and renovations. Projects that relied on these credits for a significant portion of their return on investment (ROI) may now require higher rent or sale prices to remain profitable, or developers may opt for less sustainable, lower-cost alternatives. The pause on the affordable housing pilot project (SB 2061) could also mean longer lead times for developers focused on that segment, impacting project pipelines and financing schedules. This could add an estimated 5-15% to the cost of renewable energy components in new developments, depending on the scale and type of project.

Investors: Investors, particularly those focused on real estate development or green technology, will need to recalibrate their financial models. The reduced incentive landscape for renewable energy projects may steer investment away from Hawaii or towards projects with higher margins that can absorb these increased costs. For venture capital and angel investors, the climate for green tech startups may become more challenging if state-level support mechanisms are diminishing. The uncertainty surrounding affordable housing projects also poses a risk, potentially leading to slower market entry for related investments.

Entrepreneurs & Startups: Startups in the green energy sector may find it more difficult to secure funding and achieve scalability in Hawaii without the state's tax credit support. This could force them to seek additional private capital or focus on markets with more robust incentives. Similarly, entrepreneurs involved in affordable housing development will face greater hurdles in bringing projects to fruition, potentially slowing growth and innovation within their niche.

Second-Order Effects

The phasing out of renewable energy tax credits and the pause on affordable housing initiatives can trigger a cascade of economic and social impacts within Hawaii's unique island economy.

  • Higher Renewable Energy Costs → Increased Construction Expenses → Potentially Higher Housing Prices/Rents: Without tax credits, the cost of installing solar and other renewable energy systems rises. This increased expense is often passed on to buyers or renters, contributing to Hawaii's already high cost of living.
  • Delayed Affordable Housing Projects → Strained Labor Market → Increased Wage Pressure: If affordable housing development is stalled, it exacerbates existing housing shortages, particularly for lower and middle-income workers. This can lead to increased competition for limited housing stock, driving up wages as employers struggle to attract and retain staff who face long commutes or unaffordable living conditions. It also impacts the construction labor market, potentially leading to oversupply of skilled trades in the short term if projects don't proceed.

What to Do

For Real Estate Owners & Developers:

  • Action: Review project timelines and budgets for any new developments or significant renovations that include renewable energy components. Prioritize securing permits and commencing construction before current tax credit programs fully expire, if applicable to existing projects.
  • Monitor: Track announcements from the Department of Business, Economic Development & Tourism (DBEDT) regarding any future initiatives or partnerships that might offer alternative incentives for renewable energy.
  • Watch: Keep an eye on county planning and zoning departments for any updates or new pathways for the affordable housing pilot project or similar initiatives. Be prepared to pivot development plans if new opportunities arise.

For Investors:

  • Action: Update financial projections for renewable energy-dependent investments in Hawaii to reflect a lower or eliminated tax credit benefit. Consider diversifying investment portfolios to mitigate risks associated with policy shifts.
  • Monitor: Watch for emerging legislative proposals or private sector consortia focused on alternative financing mechanisms for renewable energy and affordable housing in Hawaii.

For Entrepreneurs & Startups:

  • Action: Explore grant opportunities and private funding sources more aggressively. Consider partnerships with larger entities that can absorb higher upfront costs.
  • Monitor: Stay informed about any federal grant programs or private investment funds that may offset the loss of state-level incentives.

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