Hawai’i At The Energy Crossroads — Part 3: Choosing The Future, Now

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Originally published on ilsr.org.

Business as Usual

No matter the path chosen, Hawai’i’s electricity will become more renewable over time, but the method makes a difference. One stark difference is where and how each island sources its renewable power.

renewable energy potential by hawaiian island

This is part three of Hawai’i at the Energy Crossroads, a report released in October 2015 about the tough choices facing the islanders as they stand on the cusp of an electric grid transformation. Read part 1 and part 2, published last week.

Large-Scale Projects

A popular utility interpretation of the above chart is that the less-populated islands should export excess energy to O’ahu. With its focus on large utility-scale renewable energy, NextEra is has been investigating a high-voltage undersea transmission line to bring power from Maui to O`ahu.

The proposed transmission cable project (in a variety of permutations) has always had its champions, going back to the 1800s. NextEra is the latest player, touting the cable’s viability despite high costs and a path that cuts through or under the National Marine Humpback Whale Sanctuary. It was NextEra Energy Hawaii’s initial work on the cable – including purchasing four acres of potential project land on O`ahu – that first piqued the company’s interest in buying the HECO Companies.

hawaii electric utility service territoriesThough contradicted by HECO’s own studies, NextEra Energy Hawaii said in 2014 that the $600 to $800 million cable is economical and in the public interest. A PUC docket (2013-0169) remains open on the matter, but one University of Hawai’i publication (and ILSR’s analysis) suggests that falling prices for storage and solar could make an inter-island cable obsolete.

In addition to questionable economics, investments in an inter-island cable would divert funds from supporting the continued growth of local solar power, such as reinforcing the distribution grid and adding distributed energy storage. And there is no guarantee that power sent on the cable to O’ahu won’t be oil- or natural gas-fired.

An inter-island transmission cable would almost certainly serve HECO or NextEra’s continuing interest in large-scale renewable energy projects, projects that have often failed to be cost-effective. HECO has attributed higher costs to importing hardware and securing the rights for land, but the state’s Consumer Advocate says that its office and the Public Utilities Commission can’t get a clear picture of the actual costs and profit margins for HECO’s proposed projects. In fact, only two of HECO’s renewable energy projects have been successfully competitively bid with information open to the state – the others have secured waivers or been grandfathered into older bidding rules.

For example, the HECO Companies have paid upward of 14 cents per kilowatt-hour for wind, sometimes even more than 20 cents per kilowatt-hour, usually with an exemption from the competitive bidding process granted by the PUC. This compares to 3 cents per kilowatt-hour on the best Midwestern wind farms. Even allowing for unique land and hardware costs, it’s a 466% price premium! Prices for utility-scale solar are similarly disproportionate, but in comparison to small rooftop solar, recently bid utility-scale solar projects on O’ahu (e.g. 14.5 cents per kilowatt-hour for the Waianae solar project) are nearly the same price as unsubsidized rooftop solar (15 cents per kilowatt-hour, by ILSR’s estimate).

These utility-scale projects have other prices that need to be carefully considered. Currently, an unregulated NextEra subsidiary, NextEra Energy Hawaii, plans to build a 60 MW wind farm on Maui’s southern hillsides. But here, as with many other lands across the state, there are loud concerns from locals over environmental damages and impact on tourism. A recent study from the U.S. Department of Energy backs these voices: researchers found utility-scale energy projects, including wind and an inter-island cable, to have the most negative impacts on the environment, as compared to rooftop solar and energy efficiency.

Additionally, the wind project on Maui might not even be used for the island. It would push wind to near half of Maui’s yearly demand, with some residents saying that the project will be used with an inter-island transmission cable, despite reassurances from state government officials and NextEra to the contrary.

There is also a conflict of interest for the new Maui wind project. If the takeover is approved, the wind developers will negotiate with their parent company, NextEra. Scott Hempling, a professor and attorney testifying on behalf of Hawai`i`s State Office of Planning in the takeover proceeding, says NextEra’s subsidiaries are pursuing several other energy projects in Hawai`i.

While community ownership could help promote the acceptance and local benefits of wind projects across Hawai’i, community-scale investments in the state are limited to a now-delayed community solar program from HECO.

A Big Gas

The starkest contrast between a distributed and centralized energy future for Hawai’i is the interest of HECO Companies and KIUC in swapping oil dependency for natural gas. Many mainland utilities have transitioned their coal-burning power plants to natural gas, but Hawai`i`s utilities face a major logistical hurdle in replacing fuel oil: gas would have to be shipped to the islands in a super-cooled, liquid state and held in super-insulated containers and tankers until re-gasified at newly constructed ports.

The following charts illustrate the HECO utilities’ proposal for using LNG to replace fuel oil. Over the next two decades, millions of cubic feet of natural gas will be imported to retire use of fuel oil. While building billions of dollars of new infrastructure, commissioning new natural gas-fired plants, and converting and retiring old fuel oil plants, the HECO Companies will simultaneously begin swapping out natural gas for renewable energy on each island due to the pending switch to 100% renewable energy.

Proposed Energy Mix for 2015–2030 

Proposed Energy Mix.001

The proposed conversion to LNG has major drawbacks. Firstly, it’s unlikely to result in any significant reduction in greenhouse gas emissions. While cleaner at the smokestack, natural gas is a far more potent greenhouse gas than carbon dioxide. A 2014 Cornell University analysis found that unless expensive infrastructure upgrades are made and upstream emissions are well-regulated and enforced, natural gas-fired electricity generation produces more lifecycle greenhouse gas emissions than coal. At best for LNG in O’Hawai’i, according to the University of Hawai’i, there may be modest greenhouse gas reductions.

Additionally, the purported cost savings of LNG – 6 to 25 percent according to the University of Hawaii study cited previously – rely heavily on the cost of oil and a faulty presumption that renewable energy (including energy storage) will continue to cost more. If oil prices remain low, electricity from LNG will actually cost more than fuel oil.

The following chart shows projected costs for power from natural gas supplied power plants, as estimated by ILSR. At roughly 20 cents per kilowatt-hour, electricity from these power plants will cost 18 to 50 percent more than electricity from a clean air regulation-compliant 50/50 mix of low-sulfur fuel oil and diesel at current prices. 

cost of LNG v fuel oil v biodiesel

These LNG estimates do not include the potential for infrastructure cost overruns, future transport cost increases, or the likely smaller-than-proposed shipments given the state’s mandate for a 100% shift to renewable energy (even though that same mandate has a loophole that could guarantee fossil fuel production past 2045). The price also excludes the cost of environmental damage near gas pipelines and wells sited in mainland communities that bear the extraction costs.

LNG has a number of prominent opponents. Both the Governor and Maui County’s Mayor are concerned that conversion to LNG simply swaps one fossil fuel dependency for another without substantial economic or environmental benefit. Even KIUC, while studying the issue, is aware of substantial disagreement on the issue on Kauai.

State legislators also clearly feel swapping one fossil fuel for another is bad policy. They passed a law to minimize the use of LNG for anything other than a “cost-effective transitional, limited-term replacement of petroleum for electricity generation” that would not “impede the development and use of other cost-effective renewable energy sources.” An enormous investment in LNG, no matter how it’s done, would likely do just that.

Large-scale development without competitive bids, an expensive inter-island undersea transmission cable proposal, and massive investment in continued dependency on imported fossil fuels for at least the next two decades: this is the proposed path from the HECO Companies and NextEra, in stark contrast to the localized alternatives.

Choosing the Future Now

Thirty years may seem like a long time, but the decisions made in Hawai`i in 2015 and 2016 will determine if the utilities can meet the 100% by 2045 renewable energy standard, and whether it will be done using a 20th century paradigm of centralization or seize the 21st century’s opportunity to decentralize.

Both centralized and decentralized paths require new, potentially expensive investments, especially as they modernize a complex electric grid. But poor choices now can make the ultimate end significantly more expensive.

The most immediate choice is whether to allow the NextEra takeover. Many have pointed out NextEra’s questionable pedigree. Its Florida subsidiary has little renewable energy capacity and a strong record of using its economic monopoly to control the state’s political discussion to deny competition and customer choices for cleaner energy. NextEra’s plans for Hawai`i – at least those that they’ve released publicly – include a worrying interest in large transmission and LNG infrastructure, along with thousands of dollars donated to top state officials in Hawai`i. Allowing the takeover of the HECO Companies could delay or derail progress toward 100% renewable energy and reducing dependency on imported fossil fuel.

State and local governments in Hawai`i are wary of NextEra’s effect on the islands’ communities and local economies. None of the intervenors in the takeover docket support the deal as it currently exists. Hawai`i’s Governor Ige has indicated his opposition to the takeover and plans to import natural gas. Maui County is considering condemnation of MECO’s assets to create its own municipal utility. Community and business leaders on Hawai’i formed the Hawaii Island Utility Cooperative, with support from the national electric cooperative association, to buy HELCO if the opportunity presents itself. Honolulu’s city council, representing the entire island of O’ahu, will soon vote on whether to authorize a study on its own electrical cooperative. Most recently, 40 Hawaiian lawmakers called for a study of public utilities as an alternative to the NextEra takeover.

Others worry about history repeating itself. In testifying to the PUC on the proposed takeover, Leo Asuncion, Director of the State Office of Planning, spoke of the dangers of another out-of-state company coming into the islands:

“Hawai’i is isolated from the rest of the United States, so job loss in Hawai’i is a major issue. Unlike states on the U.S. mainland, those employed here in Hawai’i, and specifically those who have worked for a company in Hawai’i for a long period of time and have established roots in our local communities, cannot simply pack-up and head with their family to the next state to find job opportunities or to start a new job. Job loss in Hawai’i reverberates for many years, in terms of impacts not only to the local workforce, but also to areas of State concern such as income tax revenues and unemployment levels.”

Others worry that this is part of a disturbing national trend.

Scott Hempling, in his testimony to the Public Utilities Commission in the NextEra merger docket, says electric utilities used to be guided by the Public Utility Holding Company Act of 1935. This law required that electric and gas utilities “stick to their knitting”; to devote their management attention and financial resources to providing essential utility service, locally. This law prevented acquisitions for the sake of acquisitions (i.e. for profit’s sake).

Then in 1980, mergers started to occur between electric utilities. These were mostly bound to utilities in the same geography, but the Energy Policy Act of 1992 mostly gutted that requirement. Then the Energy Policy Act of 2005 repealed the Public Utility Holding Company Act altogether.

Now, “there is no federal limit on holding company arrangements involving geographically dispersed utilities, mixtures of utility and non-utility businesses, debt leveraging or complex corporate family structures,” says Hempling. This NextEra takeover attempt – and the current rash of other takeover attempts in states from Maryland to Wisconsin – would not be possible but for that repeal.

HECO and NextEra are following a familiar game plan of electric utilities. The only way they see to avoid flat earnings with stagnant power sales is to build and own assets. It doesn’t matter what they are: a huge wind farm, an inter-island transmission cable, a liquefied natural gas import terminal. Under current rules in Hawaii and most states, the utility will earn a nearly guaranteed 10 percent return on investment based on those assets. If NextEra didn’t expect this return, then why offer a 26 percent ($568 million) premium over HECO’s worth.

Even HECO knows there’s another path. According to its own data, the cost of continuing business-as-usual for electricity ranges from $212 to 227 per megawatt-hour for the year 2030. Its 100% renewable energy scenario in 2030 is well within reach (see chart below).

Utility Cost of Energy Forecast

And yet, ILSR’s analysis using HECO’s numbers suggests that renewable energy may be the cheapest course, cheaper even than HECO’s business as usual projection. Using the utility’s cost estimates for LNG, and locally relevant renewable energy prices, the following chart shows that nearly every Hawaiian renewable energy resource costs less than its fossil fuel competitors, and that even massively distributed (unsubsidized) solar and storage is competitive with imported fossil fuel.

cost of hawaiian energy sources ILSR

There are several conclusions from these numbers:

Energy efficiency is the cheapest of all supply options.

Renewable resources such as onshore wind and geothermal are by far the cheapest new electricity supply options. Even rooftop solar is competitive with existing fossil fuel generators.

Based on current prices, the proposed substitution of liquefied natural gas for fuel oil will mean higher electricity prices. Both cost more than renewable alternatives, even with today’s storage costs.

It’s worth nothing that decentralized power generation like rooftop solar has a unique value not captured in the above chart: local economic benefits. A locally owned one-megawatt solar array can return over $5 million in local benefits compared to a comparable utility-owned solar array.


There are two paths for Hawai’i: a legacy of large centralized power plants or a network of distributed energy generators; a system that rewards that largest companies or a system that benefits the community and environment; a struggle with the utility to 100% renewable energy or island-by-island energy systems that widely disperse the economic rewards of generating energy.

Even if they must be addressed here first, the tensions felt in Hawai’i are not unique. Across the country, people are battling electric utilities that are trying to reduce compensation for solar ownership and fight renewable energy. In every state in the next decade, falling costs of distributed renewable energy and energy storage will threaten the incumbent utility’s business model.

Hawai’i’s choices now have enormous implications for the states that follow. Some have called its crossroads a “postcard from the future.” We hope the message of distributed power is delivered.

For timely updates, follow John Farrell on Twitter or get the Energy Democracy weekly update.

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John Farrell

John directs the Democratic Energy program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His seminal paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development.   Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (energyselfreliantstates.org), and articles are regularly syndicated on Grist and Renewable Energy World.   John Farrell can also be found on Twitter @johnffarrell, or at jfarrell@ilsr.org.

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