According to the most recent U.S. Solar Market Insight report by GTM Research and the Solar Energy Industries Association, installedsolarphotovoltaic (PV) capacity in Hawaii grew to 7.2 megawatts in the second quarter of 2011.  Installations in both the residential and non-residential segments increased from the first quarter of the year to 3.7 megawatts and 3.0 megawatts, respectively.

It is often thought that Hawaii has the potential to emerge as one of the largest solar markets in the country. Retail electricity prices are high, with residential rates between $0.25 per kilowatt-hour and $0.35 per kilowatt-hour. Additionally, some state-level incentives are available, including a personal tax credit for PV and a feed-in tariff offered by the state’s investor owned utilities, Hawaiian Electric Company (HECO), Maui Electric Company (MECO), and Hawaiian Electric Light Company (HELCO).

Source: GTM Research - Q2 U.S. Solar Market Insight Report  

However, grid penetration has been a primary barrier to growth in the state. Due to a Federal Energy Regulatory Commission ruling, the Hawaiian Public Utilities Commission (PUC) has set a threshold of 15 percent of a utility circuit for intermittent renewables. Once this threshold is reached, the PUC requires a grid interconnection study to demonstrate that the additional installation will not negatively affect grid stability. The cost of this study in itself can be a deterrent to project development, especially for smaller installations.  Penetration levels are being approached in a number of locations, including Kauai and some parts of Oahu.

Despite the issues surrounding grid penetration, continued growth is expected in the Hawaiian market through 2011, particularly in the residential sector, as leading solar lease providers move into the state.

For another take on this topic, here's an ex-CIA director discussing oil and Hawaii.