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The Honolulu Advertiser
Posted on: Sunday, April 18, 2010

Hawaii’s green efforts not cheap, but will pay off, advocates say

BY Greg Wiles
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser
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A 10-megawatt solar power project that would have boosted the amount of renewable energy on Kaua'i isn't moving ahead at this time.

The reason? The Kaua'i Island Utility Cooperative wouldn't agree to pay what the developer wanted for the electricity.

The stalled project provides a glimpse into a not-so-often discussed portion of green energy as the state drives toward adoption of sustainable power projects: Going green could translate into higher electricity prices in the short run for Hawai'i residents.

Utilities are being offered and, in some cases, agreeing to wholesale power purchase contracts that could translate into people paying slightly more for power than they do now. Proponents say it will help stabilize energy costs and lower energy bills in the long run.

"The prices that they're agreeing to are higher than what they might pay if it were fossil fuel," said Dean Nishina, who as head of the state Division of Consumer Advocacy regularly spars with utilities on proposed rate increases.

"Initially you'll see that bumping of costs. But in the long run the hope and vision is that we will be thinking 'it's great we have these renewable energy projects.'"

That's because most people see crude oil costs continuing to escalate as the world's oil supply declines. No state is so vulnerable to oil market fluctuations as Hawai'i, which gets most of its energy from petroleum.

About 90 percent of the state's electricity comes from power plants using either fuel oil or diesel fuel. That's one reason Hawai'i's electricity prices are the highest in the nation.

The drive to add more renewable electricity generation now will more than pay off in the future as oil prices creep higher, said Carl Caliboso, chairman of the state Public Utilities Commission.

"We have to be careful that we don't unnecessarily pay more than we should pay," Caliboso said.

But "what we don't want to do is get down the road 10 or 20 years from now and have people ask why didn't you do something."


The shift toward renewable energy is one of the major policy initiatives of Gov. Linda Lingle's administration, which estimates as much as $7 billion flows out of the state annually to pay for oil and other fuel imported for Hawai'i's energy needs.

Under the Hawai'i Clean Energy Initiative, Lingle wants the state to get 40 percent of its energy needs by tapping wind, solar, ocean, biofuel and geothermal resources, while another 30 percent would come from efficiency and conservation programs.

Both Hawaiian Electric Co., which operates utilities on all islands except Kaua'i, and the Kaua'i Island Utility Cooperative, have committed to obtaining 40 percent of their energy generation from renewable sources by 2030.

As such, the two have started exploring agreements to buy energy from independent producers who propose a variety of projects, ranging from large wind farms to acres of solar devices and people seeking to turn biomass into energy.

But adding renewables is more than a policy choice — and deciding when and where to add power from sustainable sources involves a complex set of variables.

The utilities usually look to negotiate 20-year agreements to purchase power at fixed prices adjusted for inflation. The rates can be based on a variety of factors, including cost of the project plus a rate of return and how much people will have to pay.

"It's a very complex problem about how you shift to renewables and what costs you pay up front," said Henry Curtis, a longtime PUC watcher and executive director of the Life of the Land environmental group.

A partial answer can be seen in contracts that HECO signed in the past year with two O'ahu power projects, one a 30-kilowatt windfarm in Kahuku and the other a 6-megawatt operation that will turn biomass into synthetic gas to power generators.

Wholesale rates in both contracts before the PUC work out to higher rates than are being paid by HECO's customers once overhead costs — expenses for transmission lines, equipment, facilities and service costs — are added in.

For example, a 20.4 cent per kilowatt hour peak rate (between 7 a.m. and 9 a.m.) has been negotiated with the wind project, which includes costs for a battery storage system.

When the 9.88 cents per kilowatt hour overhead costs are added, the rate would be well above the 23.5 cents per kilowatt hour effective rate paid by O'ahu residential customers this month.

The above example is a gross simplification of HECO rates and doesn't take into account that the electricity generation costs for fuel and purchased energy are just that — a blend of what the utility pays for generation with fuel oil, diesel fuel and other outside sources such as garbage-to-energy.

But it does indicate that the addition of renewables may result in higher prices in the short term versus the status quo that relies heavily on oil as a fuel.

It also doesn't take into account other investments that are coming, such as an about $1 billion undersea cable that would hook up enormous windfarms being proposed on Moloka'i and Lāna'i with O'ahu, and perhaps hundreds of millions of dollars of grid upgrades that will be needed as renewable energy use increases.

But Nishina and others say the switch to renewables, even if the initial cost may be higher, is a no-brainer. Advocates say a generation from now people will praise the vision and efforts made today to get the state off oil.

"There will be a tipping point where fossil fuel will continue to increase and renewable energy will be more competitive in price," Nishina said.


HECO hopes contracts it is negotiating now prove to be more favorable over the long run, given the expected increases in crude prices as the world approaches "peak oil," or the point at which maximum oil production is reached and it begins to decline, and as China's and India's economies demand more and more petroleum.

The U.S. Energy Information Agency recently issued a short-term energy price probability report putting the chance of oil continuing to increase and ending the year at more than $90 a barrel at just under 40 percent. A number of other estimates exist, including an October report from Deutsche Bank that projected oil would peak at $175 a barrel in 2016.

The uncertainty surrounding oil pricing means that a spike could render worries about the possibility of higher short-term electricity prices moot.

"We've said costs are likely to get more attractive as the cost of oil goes up," said Peter Rosegg, HECO spokesman. He said the contracts being signed will help make rates more predictable as oil prices fluctuate.

"We think these longer-term contracts are going to pay off."

That vision calls for Hawai'i consumers to pay less when oil crosses a certain price point. No one is willing to say what that figure is, just that they are certain it will happen some day. At that point, any complaints about the costs incurred in switching to a renewable regime will disappear.

"We don't have cheap sources of new oil," said Michael Hamnett, co-chairman of the Hawai'i Energy Policy Forum.

"So that means renewables are going to look more and more attractive."

Ted Peck, who guides Hawai'i's energy policy as state Energy Administrator, said he thinks people won't see any effects of renewable project costs in their electricity bills as the sustainable sources come online. The big issue for him is freeing the state from its dependency on imported oil.

"If you do the harder path of clean energy, at the end of 20 years you own that energy free and clear. It's yours."