The solar era has begun: the industry is booming, prices are dropping, and solar energy at last seems poised to help topple the climate-altering dominance of fossil fuels. But bringing it to the masses won’t be as simple as just soaking up the sun.

To gain a better picture of the challenges to come—and of some possible solutions—electric companies and solar developers throughout the nation are watching Hawaii, which derives a larger fraction of its electricity from the sun than any other state. Homeowners and businesses have led the charge here, something that distinguishes Hawaii from other states at the forefront of solar, like Nevada and Arizona, which depend more heavily on large-scale installations.

The reasons for Hawaii’s solar boom are many. The Polynesians who inhabited the Hawaiian islands before the arrival of Europeans were entirely self-sufficient. But in 2010 it was a different picture: the state generated 86.1 percent of its electricity from imported petroleum. The high price tag on that energy, along with a heightened awareness of the islands’ isolation, has led the state to set an ambitious goal: to derive 40 percent of its power from renewable sources by 2030. It reached 13 percent in 2012.

Hawaii has roughly doubled its solar power capacity every year since 2007, and in 2012 installed more solar than in the last six years combined. It’s not hard to see what’s behind the solar frenzy: With the average electric bill stacking up to roughly $230 per month, Hawaii has the highest electricity rates in the nation by far—nearly twice as high as the second-most expensive state.

Solar has the potential to decrease a homeowner’s electric bill to zero, except for a monthly $18 service charge. Those kinds of savings, combined with federal and local tax credits, mean a Hawaiian homeowner can recoup the cost of a solar investment in just 3.1 years. Even if all the tax credits were removed, it would still take only 8.9 years for a Hawaii solar installation to pay for itself.

But so much solar has also created problems. Each island’s electric grid is isolated from the others, and therefore less stable than a typical mainland grid, particularly when unpredictable solar energy enters the picture. But solutions are beginning to emerge. Better energy storage systems and weather-prediction technology are being developed to stabilize those grids. Meanwhile, the Hawaii legislature is poised to reduce solar tax credits, which some say are too expensive. In short, Hawaii is solving problems today that other states may encounter tomorrow.

Hawaii’s high rate of solar adoption makes it a likely picture of California’s future, according to Elaine Sison-Lebrilla, renewable energy program manager at the Sacramento Municipal Utility District. The district is collaborating with the Hawaiian Electric Company to develop solutions to many of the obstacles it’s encountered.

“They’ll see these problems much sooner than us,” Sison-Lebrilla said, “and the hope is that there will be lessons learned from them and we’ll be prepared.”

Obstacle 1: More power than the grid can handle

“What about cloudy days?” That’s the perennial question for an industry striving to improve the efficiency of solar technology. But it’s too much power, not too little, that’s the problem in Hawaii.

“The system was not designed originally to have energy flowing two ways,” explained Peter Rosegg, spokesman for the Hawaiian Electric Company, or HECO, which provides electricity to 95 percent of the Hawaiian population. “Now all of a sudden you have rooftop solar and most of them are sending power back over these [lines] during much of the day because they’re producing more than they can use.”

Traditionally, a human operator at a centralized system operations center tracks power generation to ensure that it stays exactly equal to demand. But solar power generated by individual homes or businesses is invisible to these operators. This increases the risk of a sudden spike or drop-off in power, which can damage generation or transmission equipment—even home appliances—and cause outages and instability across the grid.

Solution: Grid upgrades, meters, and batteries

Ultimately, infrastructure upgrades—probably massive ones—will be essential. HECO and several solar industry and advocacy groups have developed a plan for rolling out these upgrades, which they presented to the Hawaii Public Utilities Commission for review in January. They recommend what they call a “proactive approach,” and advise utilities to prioritize grid upgrades in areas where they anticipate seeing the most demand for solar.

The technologies that will be used to redefine the grid are under development. Among these are “smart meters” that would make solar power generation visible to system operators. The Maui Smart Grid Projectwill be collecting data from smart meters it’s testing throughout 2013.

Short-term battery storage systems are further along, with experiments using 1-megawatt batteries now underway on three islands. Such batteries could store excess power to smooth out power spikes and lulls.

These batteries are expensive, but if they’re proven to work, Rosegg says it’s reasonable to expect demand to go up and prices to go down. And lower prices for a proven technology could pave the way for other grids around the country.

Hawaii is an ideal place to test these technologies: Unlike on the mainland, where power companies can draw electricity from surrounding areas if they run into problems, each island has its own grid that is unconnected to the others. That’s why Hawaii is in such a precarious situation in the first place, but it also makes the success or failure of any technology that’s being tested immediately visible.

Obstacle 2: The unpredictable politics of solar tax credits

Hawaii is doling out more solar tax credit dollars than ever, and now state legislators are seeking to reduce that spending. But some argue that the expenses have been overestimated, while the benefits have been overlooked.

In September 2012, the state’s Department of Business, Economic Development and Tourism projected that Hawaii would spend more than $173 million on tax credits for solar by year’s end—five times as much as in 2010.

But one solar industry leader, Mark Duda, contends that those projections were overestimated by more than $56 million, according to actual year-end figures. Duda is principal and founder of Oahu’s top solar company, RevoluSun, and president of the Hawaii PV Coalition.

It’s a staggering difference, and an important one, considering how closely the state legislature is watching these numbers. In the next month, the legislature is expected to vote on a measure that could gradually decrease the state’s 35 percent capped tax credit—which solar adopters receive in addition to a 30 percent federal tax credit.

How the tax credit should be handled is just one piece in a puzzle of controversies. Also on the table is a Department of Taxation administrative rule, effective January 1, which aimed to cut down on the widespread practice of claiming multiple tax credits for a single project.

Nonprofit law organization Earthjustice is now representing the Sierra Club in a lawsuit over the rule, pointing to past releases from the department that defend the practice it’s now trying to eradicate.

Such policy changes create uncertainty that hits the solar industry hard, said Isaac Moriwake, an Earthjustice attorney. “That’s the exact wrong message you want to send the market: ‘We support renewable energy. No, just kidding.’”

Solution: A more stable tax policy

Cutting back on the tax credit may look like a sure way to save money in tough economic times, but Moriwake and others in the industry say uncertainty is the problem, not the tax credit.

Hawaii Solar Energy Association’s Executive Director Leslie Cole-Brooks says that when legislators worry about high tax credits, they’re overlooking a wealth of benefits and revenues.

Aside from the environmental benefits of clean energy, increased economic independence means that Hawaii’s energy prices won’t spike when oil prices do—which is what happened after the Japanese tsunami in 2011. Cole-Brooks also points to the increased income and sales tax revenues from local and mainland companies riding the solar wave. After all, the solar industry now lays claim to 26 percent of the state’s construction-related spending.

The economic benefits Hawaii is experiencing are promising for any state, at least according to a January 2013 report from the Blue Planet Foundation, a Hawaii nonprofit.

The report estimates that for every dollar spent in solar tax credits for residential installations, the state receives $1.97 in additional tax revenues. That number bumps to $2.67 for commercial installations. And the benefits don’t end there: over its lifetime, a 5.27-kilowatt residential system creates more than three jobs—and a remarkable 81 jobs are created over the lifetime of a 118-kW commercial system.

Despite these benefits, the Hawaii Solar Energy Association and Duda now support a gradual ramp-down of the tax credit. The association views this support as a compromise, but Duda says that in the context of Hawaii’s high energy prices, the credit is “unnecessarily generous.” His main goal is eliminating uncertainty in the solar industry, and for that Hawaii needs a stable tax policy.

Obstacle 3: “The 15 Percent Rule”

Power companies have long been concerned about too much solar energy overloading the grid. Too much can pose a danger by suddenly powering lines which, during a power outage, utility employees don’t expect to be electrified. So for several years, Hawaii adhered to “The 15 Percent Rule,” which prohibits the owners of solar installations from producing more than 15 percent of the maximum energy demand in a given day.

Because of the 15 percent rule, some homeowners who wanted to install solar were required to undergo “interconnection studies” to test whether their installation would overload their part of the grid.

Rosegg says that 29 commercial and residential studies were required in 2012. It doesn’t sound like much, but the studies have raised a lot of controversy about whether the 15 percent rule is too strict—and with the help of that popular pressure, the rules are changing.

Solution: Lift excessively cautious limits

As Moriwake sees it, electric companies arrived at the 15 percent rule somewhat arbitrarily. He believes that percentage can be increased safely, while stimulating the industry along the way.

That’s just what happened last year: Hawaii raised solar’s maximum allowable contribution to 75 percent of minimum daytime demand, or about 23 percent of maximum daily demand. Actual minimum demand generally occurs in the middle of the night when most people are sleeping, but there’s no risk of too much solar power at night, so minimum “daytime” demand is looked upon as a fairer approach.

The Hawaiian Energy Company also refunded the cost of any studies conducted on systems 10 kW or smaller.

The “proactive approach” proposal recommends increasing the allowance all the way to 100 percent of minimum demand. The Public Utilities Commission will need to review the report’s recommendations, but Moriwake hopes for a decision in the next several months.

California raised its limit to 100 percent of minimum last year without major problems, and if Hawaii, too, can handle that amount, it may encourage other states to skip overly cautious maximums that limit solar potential.

Obstacle 4: The unpredictability of the sun’s power

Hawaii’s weather is a lot more complex than the cloudless skies and unblinking sun most of us imagine. And with complex weather comes unpredictable solar power generation. That’s one reason many utilities hesitate to adopt solar.

“If you’ve ever been to Hawaii, their cloud cover comes in much more quickly and goes out and is a lot less predictable,” Sison-Lebrilla said. And it’s not all sunny: parts of Hawaii log some of the highest rainfall averages on Earth.

So to stabilize its grids in the face of unpredictable weather, Hawaii needs better weather prediction technologies—if utilities know when the sun will be shining and when it won’t, they can plan ahead and adjust for spikes or dips in solar power generation.

Solution: Better solar prediction

Solar forecasting aims to predict levels of sunlight and the level of solar power generation that will result. This requires predicting the cloud cover in specific areas, which the University Corporation for Atmospheric Research calls “one of the greatest challenges in meteorology.”

Developing solar forecasting tools is one of the primary goals of the collaboration between the Sacramento Municipal Utility District and the Hawaiian Electric Company, and they’ve already begun testing such technologies.

“We’ve put up a network of sensors in [the District’s] territory, and Hawaii has done that also,” Sison-Lebrilla said.

The Sacramento and Hawaii utilities aren’t the only organizations working on such a project, but Hawaii’s variety of microclimates could make data there more broadly applicable than if the test were conducted in a lower-penetration and more interconnected grid such as Sacramento’s.

Their research is already paying off on a national scale: The two utilities are now partners in a three-year effort, announced in February, to develop 36-hour forecasting for solar energy. The project is headed by the National Center for Atmospheric Research.

Hawaii’s high demand for new solar installations is expected to slow down in 2013, but one thing is certain: solar is here to stay. All eyes are on the Aloha State as it overcomes these obstacles, one by one, to pave the way for solar nationwide.