It warned the change could significantly disrupt a "reliable growth sector" for Hawaii.
Hawaii aims to get 40 percent of its energy from renewable sources by 2030.
Rep. Danny Coffman, chairman of the state House's energy and environmental protection committee, said he thinks the department came up with a fair and balanced solution.
"The way things are set up now, it's kind of a runaway tax credit. It is impacting the state's physically planning and budgetary process. We have no choice but to restore our fiscal management practices," he said. "The industry is going to be upset but can't let this continue and impact our budget. "
In Honolulu alone, credit claims jumped from $35 million in 2010 to $173 million this year, according to the state's business and economic development department.
State Sen. Mike Gabbard, who chairs the energy and environment committee in the state Senate, said he understands the department's motivation for the change but he's also concerned it might impede the industry's growth and interfere with the state's efforts to boost renewable energy.
The department will deliver a presentation on Tuesday to a working group he's organized to come up with solutions for the tax credit problem.
"It will add impetus to our discussions, and I'm looking forward to continuing the conversation with all of our stakeholders at the working group," he said.
Gabbard says he wants to introduce legislation on the matter as soon as the new legislative session begins in January.