From Fuel Shock to Financial Stability in Hawaiʻi

Iran and the Strait of Hormuz are not abstractions for Hawaiʻi. They are a reminder that the state still buys its energy from global fuel markets it does not control. The International Energy Agency described 2022 as the first truly global energy crisis, and recent reporting on the Gulf shock tied to the Iran war makes clear that oil and gas disruptions are cascading into electricity, transport, and consumer prices far from the conflict itself. For an isolated archipelago that still depends heavily on imported petroleum, that is not a geopolitical subplot. It is a standing financial risk.

Hawaiʻi’s exposure is unusually high. The Hawaiʻi State Energy Office says 90% of the state’s total energy still comes from fossil fuels, and the U.S. Energy Information Administration likewise says petroleum accounts for about 90% of Hawaiʻi’s total energy use. HSEO’s 2025 fact sheet also makes clear where that petroleum goes. Air transportation accounts for 38% of petroleum use, electric power 25%, ground transportation 24%, industrial 8%, marine 3.1%, commercial 2.4%, and residential 0.2%. That means nearly half of the state’s petroleum dependence sits in electricity and road transport alone, which are exactly the sectors where local renewables and electrification can do the most work.

The scale of the money leaving the islands is sobering. Hawaiʻi’s economic databook shows total statewide energy expenditures of $6.34B in 2021, $9.29B in 2022, and $8.58B in 2023. In 2023 alone, residential spending was about $1.20B, commercial $1.35B, industrial $1.42B, and transportation $4.61B. Put differently, the state is not choosing between spending money on energy and spending no money at all. It is already spending at a level that would finance an enormous amount of local infrastructure if those dollars were redirected from imported fuel to local assets.

The 2022 spike matters because it shows what future volatility can do to Hawaiʻi’s balance sheet. Energy spending rose by roughly $2.95B from 2021 to 2022, then remained about $2.24B above the 2021 level in 2023. That is a direct illustration of the cost of dependence. A single global fuel shock was enough to pull nearly $3B more out of households, businesses, and transport budgets in one year. A state that remains tied to imported fossil fuels should assume that this will happen again, because the last five years already delivered two major global energy crises and there is no reason to believe the next 20 years will be calmer.

The argument that fossil dependence becomes safer as the world gradually moves away from fossil fuels does not hold up well. In a declining-fossil world, prices do not need to rise in a smooth line to create damage. They just need to become more volatile. The IEA has pointed out that most upstream oil and gas investment in recent years has gone into offsetting depletion at existing fields, and that decline rates at conventional fields remain material. Reporting has also noted that large oil companies have been restraining capital spending while prioritizing shareholder payouts. That is a recipe for a more brittle supply system, one where spare capacity is thinner, investment is harder to justify, and some suppliers or refineries can disappear because their economics no longer work. Hawaiʻi, sitting at the far end of long maritime supply chains, is exactly the kind of place that pays extra when such systems become unstable.

That is why the economics of the transition should be framed as an escape from a standing liability. Hawaiʻi is not mainly trying to buy a greener version of the same fragile system. It is trying to replace a large annual fuel leak with long-lived local assets. The state’s own decarbonization report makes that point more strongly than many advocates do. Relative to its reference case, the report’s direct net present cost through 2045 ranges from savings of $3.4B in one scenario to added costs of $5.8B in the most aggressive scenario. In other words, the likely range of net direct system cost over the transition is modest compared with the scale of the state’s existing energy expenditures, and the transition is cheaper than continuing on the current path.

That does not mean the transition is free. It does mean gross capital spending and net economic burden are different things. Hawaiʻi will have to invest heavily over 20 years in utility-scale renewables, batteries, grid upgrades, charging infrastructure, building electrification, distributed solar, behind-the-meter storage, controls, and flexible demand. A reasonable planning range is tens of billions of dollars. But the state is already paying out billions every year for imported fuels. The more relevant question is not how large the capital program looks in isolation. It is whether the capital program costs less over time than remaining exposed to imported oil, fuel surcharges, shipping risk, and geopolitical volatility. Hawaiʻi’s own modeling makes it clear that it does.

Electricity is one of the strongest parts of the case because the current price structure is still heavily fuel-driven. Hawaiian Electric says fuel makes up roughly 50% of a typical bill. Its 2025 posted average residential prices are about 40.54 cents per kWh on Oʻahu, 41.58 on Maui, 45.81 on Hawaiʻi Island, 48.48 on Molokaʻi, and 50.02 on Lānaʻi. Those are not rates from a cheap system that needs to be defended from change. They are rates from an expensive system that is still carrying a major imported-fuel burden. If the generation mix shifts toward local solar, wind, storage, and grid-managed demand, a large share of that fuel component can be displaced. Capital recovery, wildfire resilience, and grid modernization will still matter. But the long-run direction on bills will be down, not up, if the buildout is financed sensibly.

The declining cost of the core technologies strengthens that case. NREL says that from 2010 to 2024 installed system costs fell 65% for residential PV, 77% for commercial PV, and 83% for utility-scale PV. It also reports that from 2020 to 2024 PV-plus-storage system costs fell 20% for residential systems, 8% for commercial systems, and 2% for utility-scale systems. On top of that, recent projections show further cost reductions over time for utility-scale storage. That means Hawaiʻi’s replacement technologies are still moving down the learning curve while the incumbent fuel system keeps repricing the economy through shocks.

That declining-cost dynamic matters because Hawaiʻi’s transition will not be built in one year. It will be built in waves. Some of the first projects will be expensive because they include early grid upgrades, new procurement structures, and market formation costs. But later tranches of rooftop solar, batteries, smart inverters, grid-forming storage, and flexible demand systems will be cheaper than earlier ones. Delaying the transition does not preserve a cheap fossil status quo. It extends exposure to volatile fuel prices while postponing investment in technologies whose economics keep improving.

The residential sector is the most obvious place to leverage that. Hawaiʻi spent about $1.2B on residential energy in 2023, and most of that was electricity. Hawaiian Electric says rooftop solar systems across its service territory now exceed 120,000, and that 27% of residential customers and 45% of customers in single-family homes have rooftop solar. On Oʻahu, half of single-family homes served by Hawaiian Electric have rooftop solar. That means the state is not starting from a cold market. It already has a massive installed base and a population familiar with self-generation. The next phase is to turn those homes into coordinated economic assets by bundling solar, batteries, smart appliances, heat pump water heaters, load controls, and EV charging into one bill-cutting and grid-support package.

The logic for households is strong because each home that reduces imported electricity and gasoline purchases keeps more money in the local economy. A household that installs rooftop solar, a battery, and a smart charger is not just lowering its own bill. It is helping the state replace imported fuel with locally financed capital equipment and local maintenance work. If fuel is about half of a typical bill, then shrinking fuel dependence should materially lower the volatility of household electricity costs even when total bills do not collapse overnight. The household-level savings case is strongest when electricity, transport, and flexible demand are financed together rather than as disconnected purchases.

Commercial buildings are the next major lever. Hawaiʻi spent about $1.35B on commercial energy in 2023. This is where long-term structured finance matters, because hotels, retail centers, offices, schools, hospitals, and mixed-use properties can often host solar canopies, batteries, EV charging, efficient HVAC, water heating, controls, and resilience upgrades as one package. Hawaiʻi already has one of the key mechanisms in place through the Hawaiʻi Commercial Property Assessed Clean Energy and Resilience program (HI C-PACER), which uses private-sector financing for energy efficiency, renewable energy, water conservation, resilience, and other qualifying improvements. This is a strong fit for the islands because the payment structure can align long-lived savings with long-lived assets and can survive ownership changes better than conventional loans.

Industrial customers matter more than many people assume because their electricity spending is also large. The industrial sector spent about $1.4B on energy in 2023. The right industrial strategy in Hawaiʻi is not necessarily deep electrification of every process at once. It is lower and more stable electricity prices, onsite renewables and storage where they fit, resilience for critical operations, and targeted electrification where the economics work. Industrial firms are often good candidates for long-term private finance, tax-credit monetization when available, utility demand-flexibility contracts, and structured resilience investments because outages and fuel volatility are financially visible to them in ways they are not to many households.

Transportation is both the biggest opportunity and the hardest warning sign. It accounted for $4.6B of Hawaiʻi’s energy spending in 2023, which is more than the residential, commercial, and industrial sectors individually. Ground transportation is the easier part of the solution. As electricity becomes cheaper and more stable, and EV charging remains much less expensive per mile than gasoline, then Hawaiʻi will make a significant dent in that annual fuel drain. But aviation and ocean freight are a different matter. Air transportation alone accounts for 38% of petroleum use. That means Hawaiʻi can and should aggressively reduce electricity and road-transport fuel exposure, but it will still live with expensive decarbonized fuels for planes and ships for a long time.

That is why the local savings are so important. Sustainable aviation fuel will remain expensive relative to conventional jet fuel, and low-carbon marine fuels will remain expensive relative to conventional bunker fuels. Hawaiʻi’s decarbonization report identifies low-carbon fuels as one of the largest cost additions across pathways. So the islands need cheap local electrons not only because they are good on their own merits, but because they create room in the economy for the parts of decarbonization that will remain costly. If Hawaiʻi can drive down electricity and ground transport costs and reduce exposure to oil shocks in those sectors, it is in a far better position to absorb the unavoidable premium of decarbonized fuels for crossing oceans and long-distance flight.

The financing architecture for that transition does not need to start from scratch. Hawaiʻi already has some of the key pieces. Hawaiʻi Green Infrastructure Authority’s (HGIA) loan fund was capitalized with the net proceeds of a $150M Green Energy Market Securitization (GEMS) bond. GEMS and related programs provide on-bill and structured financing intended to deliver electricity bill savings. That matters because it proves Hawaiʻi can already securitize clean-energy finance and support distributed investment at scale. This should be expanded into a broader financing machine.

A serious Hawaiian financing strategy should be built on several layers. Utility-scale assets and major grid upgrades can be financed through the rate base, green bonds, and project finance. Distributed household assets should rely on on-bill repayment, tariffed repayment, leasing, and aggregation into securitized portfolios. Commercial properties should rely heavily on C-PACER, conventional debt, and structured tax-credit financing where available. Public sector and community assets can combine municipal borrowing, resilience bonds, and performance-based contracts. The point is to create a system that works without relying on any single funding source.

Private capital should be easier to attract than many people think because the underlying economics are strong and the cash flows are visible. Hawaiʻi has high electricity prices, high fuel dependence, strong solar economics, and a culture of rooftop adoption. The missing ingredient is structure. Households and firms should be offered standardized packages rather than being asked to navigate multiple financing channels. Investors should be offered portfolios rather than individual installations. And credit enhancement should be used where needed so capital flows into the system instead of waiting for public funding.

Affluent Hawaiians and local capital pools should be part of the solution, but through conditional incentives. Better tax treatment and financing should be tied to batteries, smart inverters, demand-response participation, resilience support, and community investment. The goal is to turn private wealth into grid assets, not just subsidized consumption.

Federal funding should be treated as opportunistic rather than foundational. The 2025 tax changes shortened or eliminated several key consumer incentives, including the Residential Clean Energy Credit after December 31, 2025 and EV credits after September 30, 2025. At the same time, project-scale incentives such as the Clean Electricity Investment Credit remain available in certain forms. Hawaiʻi should build a transition that works without federal support, while keeping projects ready to capture federal funds when policy conditions are favorable.

Spain provides a useful external reference point. Its rapid buildout of wind and solar has reduced the influence of fossil generators on electricity prices by about 75% since 2019 and pushed wholesale electricity prices below the European average. During recent global energy disruptions, Spain has been less exposed than more fossil-dependent systems. Hawaiʻi is not Spain, but the mechanism is the same. More local renewables reduce the role of imported fuels in setting prices.

The conclusion is straightforward. Hawaiʻi’s clean energy transition is not mainly about paying more to decarbonize. It is about paying less to stay exposed. The state already spends billions each year on imported fuel, and recent crises show how quickly that cost can spike. A renewables and electrification transition requires capital and discipline, but it replaces a volatile, externally controlled cost stream with local assets, lower long-run costs, and a more resilient economy.