Hawaiian utilities ride a wave of innovation, growth and policy debates

By K Kaufmann

Hawaii utility customers should stop focusing on their electric bills and the state’s high rates that have topped 30 cents per kilowatt hour in recent years, said Alan Oshima, President and CEO of Hawaiian Electric Company.

Instead, he said, people will have to start thinking in terms of “household energy budgets” that combine their electric bills with the money they spend to fill up their gas tanks if Hawaii is going to meet its recently passed mandate to run 100 percent on renewable energy by 2045. The shift  in perspective could promote more electric vehicle (EV) sales and create new, increased demand for the electricity that the 70,000 rooftop solar arrays in Hawaiian Electric’s service territory are pumping on to the grid.

“By adopting an EV and substituting electricity for gasoline, you give up nothing in terms of lifestyle,” Oshima told a group of about 20 mainland utility and solar executives in Honolulu as part of the Solar Electric Power Association’s (SEPA’s) fact-finding mission to Hawaii, Sept. 28-Oct. 1. “You may actually enhance your lifestyle by reducing your total energy bill in dollars by 30 percent.  And as we get more sophisticated in our time-of-use pricing, it might be even better.”

Oshima was one of a cross-section of Hawaiian utility executives, regulators and solar industry stakeholders who met with the SEPA mission over the four-day trip. The daily sessions provided the mainland executives with a crash course in the market, policy and technological issues now unfolding in the state as it grapples with the highest levels of solar on the grid in the nation.

“Hawaii is looking at all the tools that you need in your tool belt for utilities if you really want to solve these high penetration problems,” said Paul Lau, Chief Grid Strategy and Operations Officer at the Sacramento Municipal Utility District, one of six utility executives from California on the trip.

“The market here is actually outpacing the standards, and so the utilities really have to think about what you have to do to solve the problems if the standards aren’t there,” he said.

Geographic isolation drives challenges — and innovation

A major challenge for Hawaii’s utilities and regulators is creating market structures and programs that simultaneously create new demand, while cutting rates, Oshima and other island officials told the SEPA mission. Customer solutions must also provide grid solutions, such as Oshima’s idea to create new demand — and cut carbon emissions — through EV programs.

Another example, the Kauai Island Utility Cooperative (KIUC), the small electric cooperative that provides power on Kauai, recently announced a pilot program that would offer solar owners time-of-use rates with a 25-percent discount for daytime energy use. The goal here is to build demand during peak times of solar production, soaking up some of the excess power on the system.

But, the SEPA mission heard from a number of officials, the key difference between Hawaiian and mainland energy systems is the islands’ geographic isolation. By necessity, each Hawaiian island must be energy self-sufficient, which in turn means being more flexible and open to risk and experimentation than mainland energy systems.

“We’re 2,400 miles to our closest neighbor, San Francisco,” Oshima said. “So when we need power we can’t ask for help, and when we produce too much we can’t export. We have to find uses for it.”

Each of the state’s six main islands also has its own grid — all running on a much smaller scale than on the mainland — said Mike Champley, a member of the state’s Public Utilities Commission (PUC) and former senior vice president at DTE Energy in Michigan.

With no interstate connections, the islands are not subject to federal or other national grid regulations, so reliability and power frequency standards are based on a wider range of what constitutes acceptable service levels, he said.

The explosion of the rooftop solar market here has resulted in penetrations of solar and other renewables that range from 47 percent on the Big Island to 13 percent on Oahu. The systemwide average — not including Kauai — is more than 21 percent, Oshima said. With rooftop panels on one in three single-family homes, he said, some distribution circuits are now carrying more than 250 percent of their daily minimum base load levels.

To stabilize their respective systems, both Hawaiian Electric and KIUC now require inverter settings on rooftop systems that allow for more variation in power frequency without tripping a system shutdown.

While admiring such innovation, Pat Dinkel, Vice President of Transmission and Distribution at Arizona Public Service, cautioned that what works in Hawaii may have limited application on the mainland.

“Hawaii is essentially a microgrid. Given our reliability requirements, we could never entertain” some of the technological fixes used here, he said. “We can’t afford damage to the system.”

Hawaii’s solar market tsunami

The speed of Hawaii’s solar market growth and its impact on policy was another focus of common interest and concern between island and mainland officials during the mission.

The islands’ historic dependence on imported fossil fuels and resulting high electric rates made rooftop solar a no-brainer here, even before the price drops in panel prices that propelled market growth on the mainland.

But, Oshima said, the real trigger for Hawaii’s solar boom was the Japanese tsunami and Fukushima nuclear disaster in 2011, which sent oil prices and island electric bills soaring to new highs. Those prices remained at record levels in Hawaii until the beginning of this year.

In 2014, Hawaiian Electric’s residential customers were paying average bills of $220 a month for 600 kilowatt hours of power, he said. Buoyed by generous state and federal tax credits and new financing schemes, solar installers found willing customers across the islands.

“It happened so quickly,” Oshima said, echoing other utility and policy officials speaking of the roots of current policy debates on the island

With ever-increasing numbers of solar installations sprouting on rooftops across the state, Hawaiian Electric was faced with a growing backlog  of interconnection applications as it worked to resolve the grid safety and reliability concerns that had emerged with rapid market expansion.

In 2014, the Hawaii PUC gave the utility four months to come up with a plan for renewable energy integration and for clearing the interconnection backlog — still a sensitive topic in the state.

The Hawaiian debate on net metering at retail rates is an equally hot topic, closely watched by solar stakeholders in other states. Hawaiian Electric’s most recent proposal for rate reform includes a fixed charge of $25 for residential solar owners, up from its current level of $17, along with a cut to a fixed net metering rate of about 18 cents a kilowatt hour.

While the Hawaii PUC has yet to rule on a number of key policy issues, state Rep. Chris Lee, a Democrat who chairs the House Committee on Energy and Environmental Protection, told the SEPA delegation that market forces are well head of policy in the state.

The almost unanimous support for Hawaii’s 100-percent renewable energy standard was market driven, propelled by the enormous popularity of rooftop solar among consumers, he said, and similar forces could continue to reshape the utility industry in the state.

The legislature would not allow the grid to fail, he said, but whether individual utilities would or should continue in their current form was open to discussion.

Such statements were a red flag for some mainland utility executives concerned about the future of the regulatory compact that, they said, has provided the foundation of their industry and the safe, reliable power supply American consumers expect.

More than one pointed to the the industry’s poor track record on telling its story to the public as at least part of the problem. Both Hawaiian and mainland utility executives said they must find new ways to raise consumer understanding of the value of the grid and the essential role it can and must play in building an increasingly clean, carbon-free energy system.

“How does the grid help you get things done?” said Steve Malnight, Senior Vice President of Regulatory Affairs for Pacific Gas & Electric, “The grid is more valuable than it was before. We as an industry must explain that value in a distributed energy world.”

K Kaufmann is SEPA’s Communications Manager. She can be reached at [email protected].