Hawaii's solar industry is in a precarious situation.

As regulators and the state's utility company prepare to negotiate a sweeping reform plan to support more distributed energy, solar installers are finding it harder than ever to get permits for residential solar projects from the utility -- causing thousands of people to lose their jobs or move their companies out of the industry.

According to the Hawaii Solar Energy Industries Association, around 3,000 people have moved out of the sector in the last year alone. That corresponds with a 50 percent drop in permits issued after Hawaiian Electric Company (HECO) initiated a strict approval process last September for solar systems connected to the grid.

The process has kept thousands of customers on a waiting list for a year or more, drying up the pipeline for solar installers and frustrating homeowners who see HECO as trying to thwart competition.

HECO says it is not deliberately trying to hurt the solar industry. Rather, the utility is seeing a growing number of circuits exceeding 100 percent of minimum daytime load during the daytime in residential areas. On the Big Island, HECO says that 10 percent of circuits had reached unstable levels as of February of this year. 

"This is a difficult technical issue, and we’re not aware of another utility in the world that has addressed it. There’s no model for us to follow, no resource for us to tap into. We’re really creating new frontiers on this," said Jay Ignacio, president of the HECO subsidiary HELCO, earlier this year.

As the queue of approvals stacks up, installations have slowed. According to projections from GTM Research, Hawaii will see a 22 percent year-over-year drop in installations this year, from 83 megawatts in 2013 to 65 megawatts in 2014. Next year, the market will likely fall to under 50 megawatts.

That reverses a trend from 2008 to 2012, when the rooftop solar industry doubled installations every year.

"Many installers are rolling back their sales capacity by 50 percent," said Cory Honeyman, a solar analyst with GTM Research.

With very high concentrations of solar PV compared to other states, HECO is at the forefront of understanding how much the grid can really handle. And although regulators recognize the unique challenges the utility is facing on some islands, HECO has not found many public allies in its efforts to temper solar growth.

At a hearing last week, legislators lashed out at the utility for not preparing the grid for a surge in solar systems. 

"You should have known two years ago that it was going to go beyond what you can take," said one state senator at a briefing with HECO, as reported by the Star Advertiser.

Regulators sympathetic to the technical and cost-shifting concerns of HECO have also rebuked the utility for its long-term plan to handle solar and other distributed resources. In May, HECO submitted an integrated resource plan that regulators deemed "fundamentally flawed” in its modeling of solar,storageand demand response. They gave the utility four months to come up with a "utility of the future" blueprint to phase out older, expensive power plants and prepare the grid for a steady increase in customer-side distributed generation.

HECO finally released its new plan in late August, which, if approved, would speed up short-term approval of residential solar systems while reforming net metering and creating integration standards over the coming years. 

Under HECO's vision, solar installations would triple by 2030. Between now and 2016, customers would be offered full net metering rates. The utility would also increase the threshold for PV on many circuits from 120 percent to 150 percent -- potentially eliminating much of the backlog of installations waiting for approval. And a new technical standard for advanced inverters would be created in order to provide reactive power, two-way communications and help integrate on-site storage.

Beyond that, the proposed reforms get more controversial, at least for solar installers. In 2017, HECO would start charging all customers a monthly fee of $50 to $61 for grid costs, while also adding an additional $12 to $16 fee for customers selling solar electricity back into the grid through net metering. Solar customers would also be eligible for a feed-in tariff based on wholesale rates, which would range from $0.16 to $0.20.

HECO argues the rate changes are necessary to prevent solar customers from shifting fixed operational costs onto those who rely fully on the grid. According to the utility's filing, the current annual cost shift is $38.5 million. The solar industry worries that additional fees could cut savings for customers by 50 percent.

"The plan leans net positive for grid management changes, but net negative for Hawaiian installers looking for the status quo on how solar is valued," said GTM's Honeyman.

With solar installations in continued decline and regulators putting pressure on HECO, it's becoming clear that the status quo is not working for either Hawaiian utilities or the state's solar industry. 

The plan now goes through an official regulatory approval process, which will likely result in a compromise between the competing stakeholders. Even if it doesn't appease installers worried about change, the final plan will unquestionably be better than the current stalemate. But it's still unclear how many of the 3,000 jobs shed in Hawaii's solar industry it will be able to bring back.