Below is a somewhat provocative review of the recently announced “energy agreement” between the State of Hawaii and HECO from Erik Kvam of Zero Emissions. While many (including myself) have hailed this agreement as “transformational”, Erik’s take on the “agreement” is more skeptical, raises important questions and well worth the read to those who are seriously engaged in the issue.
The below email came in response to my request to Erik for feedback on the agreement in the form of a “brief overview”.
The "brief overview" is somewhat long...but well worth the read if you are serious about future energy policy in the state of Hawaii. gh
From: Erik Kvam [ekvam@zeroemissions.us]
Sent: Friday, October 31, 2008 4:35 PM
To: Sen. Gary Hooser
Subject: RE: Hawaii Renewable Electricity Legislative Proposals
Hi Gary
I would enjoy very much the opportunity to talk over with you the recent HECO/State agreement, after your return
I have studied the agreement in detail. Here’s my “brief” overview:
First, the “agreement” is not a binding legal contract. It is in essence a political accord outlining a large number of policy proposals that the parties to the accord will jointly place before the Public Utilities Commission for approval. With the exception of the proposal for a publicly-funded and publicly-owned high-voltage undersea electric transmission cable connecting Molokai and/or Lanai with Oahu, the accord makes almost no mention of policy proposals requiring legislative action. It appears that the parties went through the entire list of electricity-related policy proposals contained in the Hawaii Clean Energy Initiative, and selected and came to agreement on most of the proposals that could be implemented by regulatory action via the PUC. Given the PUC’s record of consistently approving agreements between the utilities and the Consumer Advocate, it may be predicted that most or all of the policy proposals in the accord will be approved by the PUC in the form submitted by the parties to the accord. Significantly, KIUC is not a party to the accord.
Second, on the generation/supply side of electricity, the accord would perpetuate the utilities’ present control over the size, speed and cost-to-the-public of renewable electricity development in Hawaii. The accord is not “transformative” in this regard.
With respect to large-scale utility-distributed renewable electricity (RE) generation (wind farms, utility-scale PV, concentrating solar power, biomass, i.e, the big kinds of RE generation needed to achieve ambitious renewable energy targets of 40% or 70%), the accord makes no changes at all to the current “competitive bidding” regime that allows the utilities to select (1) small-scale RE that utilities control over large-scale RE that independent competitors control, (2) slow RE development that the utilities control over fast RE development that independents control, and (3) high cost-to-the-public RE that the utilities control over low cost-to-the-public RE that independents control. Under the accord, the utilities promise to “accelerate” contracting for power purchases from many proposed independent RE projects, but the utilities’ promise in the accord is purely political and not legally binding on the utilities. The utilities’ promise does not give independent RE project developers any greater bargaining power vis-à-vis the utilities, and does not oblige the utilities to purchase electricity from independent RE producers as the utilities would be obliged to do under a feed-in tariff. The proposal for a feed-in tariff contained in the accord appears to be limited to RE producers 100 kW or less in size. There is nothing in the accord showing the parties’ intent to implement a German-style feed-in-tariff for large-scale utility-distributed generation.
The proposal to build a high-voltage undersea electric transmission cable connecting Molokai and/or Lanai with Oahu will require special attention by the legislature. Under the accord, the high costs (as much as $1 billion or more) and high-risks (earthquake, engineering failure, environmental) of such a cable would be borne entirely by the public. In deciding whether such a cable makes economic sense, the costs and risks of such a cable should be factored into the delivered cost per kilowatt-hour of electricity generated from wind farms on Molokai or Lanai and delivered to Oahu by the cable, and that delivered cost should be compared to the delivered cost per kilowatt-hour of electricity from wind farms located on Oahu. It does not appear that the parties to the accord have made any such comparison.
With respect to small-scale RE self-generation, the accord has some positive features, but leaves intact the utilities’ control over the size, speed and cost-to-the-public of small-scale RE development in Hawaii. With respect to net metering, the accord proposes reduction of some disincentives such as the aggregate island-wide capacity limit for net metered generation, but leaves intact the limit that allows net metering only for RE systems less than 100 kW in size. The accord goes on to propose elimination of net metering once “advanced meters” are in place so that electricity fed back to the grid by a customer-generator can be valued at a combined feed-in-tariff/time-of-use rate. I would have thought that legislative action would be needed for elimination of net metering, but the parties to the accord may believe that the existing net metering statute gives the PUC authority to “modify” net metering out of existence.
The accord proposes “feed-in tariffs” under which the utility would purchase renewably-generated electricity at rates set by the PUC that would be fixed over a period of years. It appears that these feed-in tariffs would apply only to RE producers that are 100 kW or less in size, and would not apply to large-scale utility-distributed RE generation from wind farms or large-scale solar power systems. For RE producers less than 100 kW that are not eligible for net metering, it appears that the feed-in tariff rate would replace the Schedule Q rate “de-linked” from the price of fossil fuel (but capped by the avoided cost rate) that a producer is currently obliged to negotiate with the utility. For RE producers less than 100 kW that are eligible for net metering, the accord proposes replacing the net metered “retail” rate with a combined feed-in tariff/time-of-use rate when advanced meters are installed.
The accord also proposes a utility-run “PV Host Program” under which the utility would lease rooftops, finance the construction of PV systems on the leased rooftops, and either take delivery of the solar electricity (compensating the rooftop owner with cash) or sell the solar electricity to the rooftop owner at some discounted rate. While such a program might create economic opportunities for PV system contractors, it could also be used by the utility to block independent solar power development and suppress competition. Similar programs by Southern California Edison and Duke Energy in North Carolina have been criticized by independent solar power producers for these reasons. In Hawaii’s recent past, the utilities attempted to suppress competition in the market for combined heat and power (CHP) co-generation by entering into an agreement giving exclusive rights to a single CHP systems integrator. Something similar could easily occur with a HECO-run PV Host Program. I am investigating whether there exist any models for utility-run photovoltaic power programs that offer independent developers fair and equal opportunities to compete, and hope to draft a bill for such a program.
Third, on the demand/energy efficiency side of electricity, my impression is that the accord’s proposals – especially those for “decoupling” utility profits from sales, and for energy efficiency, demand response, smart grid and time-of-use advanced metering – are salutary. These demand-side proposals might be fairly characterized as “transformative” of the demand-side of the utilities’ business model. I think that the “Greening Transportation” portion of the accord also contains some sensible proposals.
Fourth, the accord contains a few proposals that are just plain bad ideas. The worst is the proposal under Energy Cost Adjustment Clause giving the utilities the authority to enter into hedges and futures contracts, subject to PUC supervision. I personally have zero confidence in the utilities’ or the PUC’s ability to accurately assess the risks and costs and avoid getting fleeced on these kinds of transactions. Another bad idea is replacing the complex utility-determined Integrated Resource Planning (IRP) process with an even more complex, even more utility-determined process called Clean Energy Scenario Planning (CESP). Some of the ideas included in the CESP proposal may be worthwhile, but I don’t see any reason why they could not be incorporated within the existing IRP process. Under “Federal Law and Rules,” the parties suggest lobbying the Congress for exemption of Hawaii from PURPA. The reason they want to do that is because there is a good chance that the Competitive Bidding framework (used by the utilities to control the speed, size and cost-to-the-public of large-scale utility-distributed RE generation) would be found illegal under PURPA if subjected to a court challenge.
Aloha,
Erik Kvam
Zero Emissions
Note: I asked Erik for permission to post the above email on this blog and below is his response: gh
Yes, you may forward the review and post it on your blog, identifying me as the author. I would appreciate some kind of disclaimer stating that the opinions expressed are solely my own, and requesting that any fact errors be pointed out to me at ekvam@zeroemissions.us.
Things are happening quickly. The PUC already has opened dockets to investigate feed-in tariffs and decoupling of utility profits from sales…
Look forward to talking with you on your return
Best regards,
Erik Kvam
Zero Emissions
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