Environmentally Beneficial Electrification May Save Electric Utilities From the Death Spiral

by Bob Shively, Enerdynamics President and Lead Facilitator

Some electric industry observers suggest that utilities will never again see steady electric load growth. Jim Rogers, the former CEO of Duke Energy has been quoted as saying: “I think the demand for electricity is going to be anemic, at best. Perhaps more likely than not, the demand for electricity will actually decline.”

Indeed, the latest forecast from the Energy Information Administration (EIA) forecasts a 0.8% average annual growth between now and 2050.


Source: EIA Annual Energy Outlook 2017

Declines in sales coupled with growing economic opportunities for rooftop solar and other distributed energy resources (DERs) has utilities worrying about the so-called utility death spiral. Utilities with primarily fixed costs have sales declines that result in rate increases; this encourages more load to leave the system, which results in more rate increases. It’s an ultimate deadly spiral of business decline.

Environmentally beneficial electrification

In recent years, environmentalists have encouraged the electric industry to focus on energy efficiency – attaining the same end-user benefits while consuming less energy. The concept was that less consumption meant less generation, which meant less environmental impact. This exacerbates the potential for a death spiral. But a new paradigm is now emerging. With the current priority to reduce greenhouse gas (GHG) emissions and slow global climate change, the concept of emissions efficiency rather than energy efficiency is taking shape. This concept is outlined in a recent Electricity Journal article titled “Environmentally beneficial electrification: The dawn of ’emissions efficiency.’”

Emissions efficiency means providing consumer benefits for the least amount of negative environmental outcomes, including the least amount of GHG emissions. It concludes that moving three key energy uses – vehicle transport, space heating, and water heating – from fossil fuels to electricity can provide significant environmental benefits while continuing to fulfill consumer desires.

How environmental benefits work

The authors of the above-mentioned article considered a hypothetical electric utility with 100,000 consumers and a generation mix of 50% coal-fired, 40% combined-cycle gas turbine, and 10% gas-fired combustion turbine. These customers were assumed to use a mixture of fuel oil, electric resistance heaters, electric heat pumps, propane, and natural gas to heat their homes and water. Gasoline and diesel powered their cars. Upon the upgrades shown below, GHG emissions were modelled to drop by 25%.

Two things are worth noting in the above model:

  • Penetration of electric vehicles (EVs) is small.
  • Significantly more emissions reductions could be achieved by converting the electric generation mix to utilize zero-emissions generation like wind, solar, or nuclear.

Will electrification result in significant electric load growth?

The concept of beneficial electrification creates new growth opportunities for electric utilities. Electric vehicles (EVs) utilize electricity in the range of 25 to 35 kWh per 100 miles. A homeowner driving an EV 10,000 miles in a year would add 2,500 kWh of energy consumption to his bill. With a typical U.S. residential account currently using about 10,000 kWh per year, the addition of an EV could increase that home’s electric usage by 25%. Adding heat pumps for water heating and space heating might add an additional 4,000 kWh per year. The net total increase in electric usage would be 65% — all while significantly reducing the GHG emissions from the home.

Given these numbers, it seems electric utilities have much to gain by touting the environmental benefits of electrification. And this may be the big opportunity that can save these companies from the utility death spiral.

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LNG Dawns on the High Seas

In the 1920s, cruise ships made a leap in transportation fuel from coal to heavy fuel oil. Cruise boat, entertainment ship, the Aegan sea, blue sea water, ocean, close upSince that time, the industry has vastly expanded with luxury liners sailing on nearly every ocean while pampering passengers with well-appointed rooms, fine dining, theme-park amenities, and Broadway-style stage shows.

While the cruise ship experience has evolved, the ships’ fuel remains heavy oil, but that may soon change. In Fall 2018, Carnival Corporation (Carnival) is set to take delivery of the world’s first liquefied natural gas (LNG)-powered cruise ship. With 15 additional LNG-fueled ships on order for three companies in the cruise line industry, the dawn of the LNG-fueled cruise ship era appears to be on the horizon.

Environmental regulations

Concern for the environment is driving the change in fuel as regulations from the International Maritime Organization (IMO) become more stringent to reduce exhaust gas emissions. Conventional cruise ships produce air pollution that includes sulfur dioxide, nitrous oxide, carbon dioxide, carbon monoxide, and particulate matter. LNG does not produce sulfur oxides and emits less nitrous oxide and less particulates. Traditional heavy oil has been a fuel mainstay because it is cheaper than low-sulfur fuels, but adding scrubbers to reduce pollutants is expensive and can off-set some of the initial savings. Currently, LNG is cheaper than low-sulfur fuel, but not cheaper than heavy oil. So environmental regulations, not price, may be the catalyst for the industry to switch from heavy oil to LNG.

 Carnival leads the way

Carnival, the world’s largest cruise ship company, is leading the transformation from heavy oil to LNG. The company, which owns 10 brands, has ordered seven LNG-powered ships to be used by several of its cruise lines: AIDA Cruises, Carnival Cruise Lines, Costa Cruises, and P&O Cruises. Meyer Werft laid the keel for the first ship, AIDAnova, in September at its facility in Papenburg, Germany. The ship is scheduled for completion in about a year; the remaining six ships will be delivered between 2018 and 2022 and will be built by Meyer Werft and Meyer Turku in Finland. The AIDAnova will be the first ship to burn LNG – both on land and at sea – as its primary fuel. All new ships will be dual-fuel vessels that also can burn marine gas oil.

Other cruise vacation companies also are turning to LNG. Disney Cruise Line will take delivery of three new LNG-fueled ships between 2021 and 2023 from Meyer Werft. MSC Cruises has four LNG-powered ships on order for delivery between 2022 and 2026. The ships will be built by STX France. Lastly, Meyer Terku is building two new hybrid LNG-powered ships for Royal Caribbean Cruises that will be ready in 2022 and 2024. Royal Caribbean also plans to test fuel cell technology on future ships.

Infrastructure

Infrastructure and fuel distribution are critical to the success of the cruise ship industry’s fuel transition. Said Tom Strang, Senior Vice President for Maritime Affairs for Carnival: “We have to build it…It’s not something you can just turn up and buy in the way you can with marine-gas oil or heavy fuel.” [1]

To that end, Carnival signed an agreement with Royal Dutch Shell to purchase LNG for the first of its two new LNG-fueled ships. One ship will receive gas from an LNG bunker vessel at the Gas Access to Europe (GATE) terminal in Rotterdam, the Netherlands, while the other ship will refuel at available Western Mediterranean ports. Fortunately, significant LNG infrastructure exists in Europe to accommodate the needs of the cruise ship industry. Disney is considering sites at Port Canaveral, Florida – the departure point for many of its cruises – as a fuel storage and LNG distribution point.

Shell video

The next few years will see the delivery of 16 cruise ships all powered by LNG and the development of a global fueling infrastructure to accompany it. It’s the largest fuel-related change in the cruise line industry in almost a century and largely reflects the industry’s growing commitment to a cleaner environment. Carnival, Royal Caribbean, and Disney are leading the charge for now, but the potential for ferry services and other cruise line companies to jump on board will only solidify this ever-growing market niche.


Footnotes:

[1] Stieghorst, Tom, “The Future of Cruise Propulsion:  Increasingly LNG Fuels New Builds,” Travel Weekly, September 11, 2016.

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New Condensed Courses Offer One-hour Overview of Gas or Electric Business

by John Ferrare, Enerdynamics CEO

Sometimes all an employee needs to boost their on-the-job performance is a better understanding of the industry they serve. Enerdynamics’ new Condensed Online Learning Paths gives employees a complete overview of the electric or gas industry in just one hour  — and in a fun and interactive online format.

The development of this condensed offering has been quite the journey. Our original attempts at online training online were in response to various requests for videotaped versions of our instructor-led live seminars. We tried to replicate the live seminar experience by using PowerPoint slides from the live seminars, cutting down the content in some areas, and having the instructor do a voiceover with the slides. This was recorded and made available on DVD. While this offered the convenience of training wherever and whenever, it was arguably more boring than sitting in a classroom.

This format was followed by a true online platform (rather than DVD) that included more animation and often professional narration. Fast forward to Enerdynamics’ online training in 2017 and the sky’s the limit: Amazing technological advances and an internal team dedicated exclusively to building online content has drastically elevated our customers’ online training experience. Today’s online courses allow for participant interaction, brilliant graphics, video, and much more.

As the quality of our online products has improved dramatically in 10 years, one common request from our online clients has always been to offer shorter courses. Employees simply have too many daily demands to spend hours on a single course. In answer to these cries, Enerdynamics recently rolled out condensed versions of some of its most popular learning paths starting with Electric Industry Overview and Gas Industry Overview. The traditional version of each of these learning paths takes about 4.5 hours to complete. Using Rise, Articulate’s new authoring tool, we’ve created interactive lessons that condense a single module down to 10 minutes and an entire learning path down to an hour or so. The result is visually pleasing, easy to follow, and it maintains interactivity and engagement throughout. Each module ends with a short assessment.

 

screenshot condensed GIO

 

Feedback so far has been great. It appears the market for these high-level industry intros may even exceed the market for their full-length cousins. In time we plan to offer condensed versions of all of our courses and learning paths. Learn more about each condensed learning path by clicking on a title below:

And for those who think even 10 minutes is too long, check back for news on our Energy KnowledgeBase online encyclopedia. Details are coming in our next Energy Insider issue!

Questions about Enerdynamics’ condensed learning paths or any other online training we offer? Contact John Ferrare by email or at 866-765-5432 ext. 700.

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The EPA Has Withdrawn the Clean Power Plan – So What’s Next?

by Bob Shively, Enerdynamics President and Lead Facilitator

Discussions in Washington on how to address greenhouse gas (GHG) emissions and climate change seem endless. In 2015, following failure of Congress to develop a legislative solution, the Environmental Protection Agency (EPA) released the Clean Power Plan (CPP) under President Obama. The plan proposed to regulate power sector GHG emissions by creating state-by-state emission limits and requiring a state to define the pathway to achieve its goals. The plan allowed each state to develop its pathway individually or through regional multi-state efforts.

Many believed that multi-state plans would evolve into a national carbon cap-and-trade mechanism. But before implementation got beyond the initial discussion phase, the U.S. Supreme Court put the plan on hold until court challenges could be addressed. During the 2016 presidential election, Donald Trump consistently opposed the plan. In October 2017, his new EPA administrator announced the plan would be repealed and the EPA would begin developing a new rule. Although this too will result in new waves of legal action, it appears the Clean Power Plan is now dead.

Despite the demise of the plan, many states, cities, and corporations moved forward with their own clean energy actions. And market conditions have helped cleaner energy sources including energy efficiency, wind and solar, and natural gas. While various factions argued about federal regulation, yearly GHG emissions from the U.S. energy sector declined by 14% in the decade between 2005 and 2015. Last year, the U.S. Energy Information Administration released an analysis suggesting power sector GHG emissions would remain steady without the CPP but would continue to fall if the CPP were implemented.

 
power sector CO2 emissions

Source: EIA Today in Energy, June 21, 2016

 

Interestingly, many energy experts now disagree with the concept that GHG emission declines will end without the regulatory force of the Clean Power Plan. Some believe the federal government is becoming increasingly less relevant in the future of energy sector developments. Utility-scale wind and solar power are now the two lowest-cost resources for new electric supply, and numerous utilities, even in states with no clean power requirements, are replacing older coal units with wind and solar. Many others are shuttering coal units and replacing them with natural gas. It appears we may lose at least half of our country’s coal power plant fleet in the next decade.

 

levelized costs 2020Source: Lazard Levelized Cost of Energy Analysis – Version 10.0

 
Meanwhile, corporate buyers are steadily signing purchase power agreements to directly buy renewable power and, as of 2016, corporate buyers were the largest purchasers of renewable energy in the U.S. While the EIA analysis estimates a 32% reduction in yearly GHG emissions from 2005 levels by 2030, a recent analysis by the energy consulting firm Rhodium Group estimates a 27-35% reduction by 2020 based on current trends.

 

CO2 projections and CPP target

 

 

 

 

 

 

 

 

 

Source: What the CPP Would Have Done, John Larsen and Whitney Herndon,
Rhodium Group

 

So while it appears we may well hit EPA’s targets without regulation, all is not rosy for those concerned with GHG emission levels. What has been lost is a government-sponsored mechanism for states to cooperatively reduce GHG. This may ultimately prove a big setback in attempts to go beyond a 30% reduction. Or, it may spawn private or multi-state programs that supersede what the federal government appears incapable of implementing.

 

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Three Western Governors Talk Energy

by Bob Shively, Enerdynamics President and Lead Facilitator

In some ways Colorado, Montana, and Wyoming look a lot alike. Parts of each state are sparsely populated prairie, and each state has beautiful mountains and wonderful skiing. Each state is an important fossil fuel producer, has strong winds, and depends on tourists visiting its national parks. Dramatic Grand Teton Sunrise

But in other ways these states are very different: Colorado has many more residents and an urban corridor centered around Denver while the largest cities in Montana and Wyoming have only 115,000 and 62,000 residents, respectively. With their assumed more progressive views on environmental issues, Coloradoans who drive to the other two states are often called greenies, and it’s not because of the green color of their license plates.

The governors from the three states are a diverse group:

  • Steve Bullock of Montana is an attorney who is a Democratic governor with a 60% approval rating in a highly Republican state.
  • Matt Mead, also an attorney, is a Republican governor in a heavily Republican state who has had to fend off primary challenges from even more conservative challengers.
  • John Hickenlooper is a popular Democratic governor in a split Democratic/Republican state. He previously was a petroleum geologist and cofounder of the Wynkoop Brewing Company.

governors

Governors Bullock, Hickenlooper, and Mead
Source:  Energy Transitions Symposium Website

The three governors convened on Oct. 31 as the keynote lunch panel of the Energy Transition Symposium at Colorado State University. In today’s world of combative politics, it was noteworthy how much agreement existed among the three. All spoke toward needing to look to science and technology to deliver solutions, the need for clean energy solutions, the importance of reasonable rules and regulations, and strong dedication to western states working together to drive a positive future. Here are some key thoughts paraphrased from each speaker:

Matt Mead, Wyoming

  • Exporting energy is a key industry to Wyoming. It needs to give consumers in other states what they want, whether it be fossil fuels or renewables.
  • Wyoming also relies on tourism, and tourists won’t come if Wyoming doesn’t protect the environment.
  • The need to choose between cheap energy and clean energy is a false choice. Both can be achieved.
  • There is no future for energy if we don’t take care of the environment.
  • We can’t be afraid of where science takes us; it will deliver innovation and new technological solutions, whether those be for clean coal or for renewable energy.
  • We need reasonable rules and regulations. The states should address these rules proactively and positively by taking the lead. Our rules and regulations should not depend on whoever is in power in Washington since it is the people of each state who are affected. It makes sense to streamline processes to expedite projects. For instance, a big wind project in Wyoming took 10 years to get permitted.

Steve Bullock, Montana

  • Coal units are shutting down. This is a big challenge for a state like Montana that has $100 million payroll in coal jobs and gets about $100 million in revenue from coal companies.
  • States must look forward, not backward.
  • It’s a false choice to decide between addressing climate change and having energy. Technology and innovation can deliver both.
  • The iPhone has had more technological change in five years that the energy industry. We need to apply this thinking to energy solutions.
  • States must lead – we’ll either be driving the bus or under the bus.

John Hickenlooper, Colorado

  • Western governors are partners as regional solutions work better than state-by-state solutions.
  • We can achieve systems that are as reliable as current systems, the same cost or cheaper, and as clean as possible.
  • Low gas prices help provide cycling necessary to integrate renewables.
  • There is no alternative to conflicts except to find solutions by talking through issues with all involved. For instance, Colorado is one of the first states to require producers to capture fugitive methane emissions, and it was achieved through a collaborative process between producers and environmentalists.
  • Electric vehicles are coming; we need to be ahead of that change.

The governors discussed areas in which the varied states in the West have worked together to find solutions. Examples included:

  • an agreement to build out an electric vehicle charging station network across seven states
  • the sage grouse management plan to protect populations while avoiding an endangered species listing
  • collaboratively working to find an acceptable route for a transmission line being built to move Wyoming wind power to California

Listening to these three leaders gave hope that we can indeed work toward cooperative energy solutions rather than succumb to divisive politics.

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Con Edison New York – Transitioning to a Distributed Services Platform Provider

by Bob Shively, Enerdynamics President and Lead Facilitator

As low load growth, increasing renewable generation, closing of traditional baseload fossil fuel plants, growth of distributed resources, and decreasing cost of storage have all become a reality, energy utilities are forced to rethink business models that have worked well for many years. In Energy Currents, we are exploring various utilities’ responses to the changing energy business. In today’s blog, we explore the New York utility Con Edison.

Case study 2 graphic 1aSource: Con Edison Annual Report 2016

 

These include Consolidated Edison Company of NY (CECONY), which delivers electricity, natural gas, and steam to more than 3 million customers in New York City and Westchester County; Orange and Rockland Utilities (O&R), which together with its subsidiary, Rockland Electric Company, delivers electricity and natural gas to more than 300,000 customers primarily located in southeastern New York State and northern New Jersey; Con Edison Clean Energy Businesses, which develops, owns, and operates renewable and energy infrastructure projects and provides energy-related products and services to wholesale and retail customers in 13 states; and Con Edison Transmission, which through its subsidiaries invests in electric and gas transmission projects.

 

Case study 2 graphic 1
Source: Con Edison

The majority of Con Ed’s earnings come from its utilities, and this is expected to continue:

 
Case study 2 graphic 3

Source: Con Edison presentation of Wolfe Utilities and Power Conference, September 27, 2017

The utilities primarily own electric transmission and distribution facilities, gas distribution facilities, and a district steam system. The only electric generation owned by the utilities is a 726 MW electric-steam facility in New York City. All consumers have the option of buying electric and gas supply from their utility under regulated rates or buying from retail marketers under competitive pricing. In 2016, CECONY was the supplier for 35% of the electricity and 71% percent of the gas delivered to its customers; O&R was the supplier for 41% of the electricity and 48% of the gas delivered to its customers. The remainder was purchased by customers from retail marketers rather than the utility (the utility still receives distribution revenues from these customers). To service customers who take supply from the utilities, gas and electricity is purchased in the wholesale market through long-term and spot transactions. The electric transmission grid, although owned by the utilities, is operated by the New York ISO, which also runs capacity, day-ahead ancillary services, day-ahead energy, and real-time energy markets.

The utilities are primarily regulated using the cost-of-service model. Distribution facilities are regulated by the New York State Public Services Commission (NYSPSC), and electric transmission facilities are regulated by the Federal Energy Regulatory Commission (FERC). The cost of supply provided by the utilities is passed through to customers. Revenue decoupling applies so that actual revenues are adjusted to match approved revenues, and the utilities are not at risk for revenue fluctuations associated with how many kWh are sold. The utilities can receive a negative revenue adjustment for failure to meet certain service standards (penalties can be as high as $400 million on the electric side, but in 2016 the utilities did not incur any penalties). There is an incentive-based earning adjustment mechanism for energy efficiency over the period 2017–2019 that potentially can range from $28 to $64 million for CECONY. If overall earnings exceed a threshold amount (typically about 0.5% above the authorized rate of return) then excess earnings are used for customer benefit rather than for profits.

New York has implemented rules that require load serving entities (LSEs) such as the utilities to achieve a Renewable Portfolio Standard (RPS) of 50% by 2030, to reduce greenhouse gas emissions by 40% by 2030, and to purchase Zero Emissions Credits to support the continued operation of nuclear power plants in upstate New York.

The business model and services for all New York utilities are being reformed through the NYSPSC proceeding called Reforming the Energy Vision. As stated in the Con Edison Annual Report 2016:

“In April 2014, the NYSPSC instituted its REV proceeding, the goals of which are to improve electric system efficiency and reliability, encourage renewable energy resources, support distributed energy resources (DER) and empower customer choice. In this proceeding, the NYSPSC is examining the establishment of a distributed system platform to manage and coordinate DER, and provide customers with market data and tools to manage their energy use. The NYSPSC also is examining how its regulatory practices should be modified to incent utility practices to promote REV objectives.”

The proceeding has passed through initial phases but reform is expected to be implemented over many years. One of the concepts is that earnings will evolve from cost-of-service to performance incentives, shared saving mechanisms, and market-based earnings as shown on the graphic below. It is expected that, over time, more and more utility earnings will come from less traditional methods.

Case study 2 graphic 3b

A recent decision in the REV proceeding required the utilities to file demonstration projects for approval by NYSPSC staff. Costs for these projects are recovered through a surcharge. Projects include an O&R online engagement platform that leverages residential customer data and analytics to help customers find energy products and services that meet their needs, and three CECONY projects. CECONY projects include a clean energy project origination, bidding and technical support platform for small commercial customers; a clean virtual power plant offering that bundles solar with storage that can be aggregated and also can test the demand for premium reliability services; and a marketing platform for distributed energy providers to target residential customers with relevant messaging.

Also in recent years, CECONY has utilized payments to customers providing distributed energy resources (DERs) to defer upgrades to the transmission and distribution systems serving growing areas. It also is currently watching (but not participating in except in the role of the distribution provider) the Brooklyn Microgrid Transactive Grid project, which is designed to ultimately allow customers with DERs to trade power directly between themselves using blockchain technology.

Volumes of distributed energy on the utility systems have been relatively limited to date but are growing. Distributed generation comprised approximately 3% of peak demand in 2016:

Case study 2 graphic 4

Source: Con Edison 2016 10Q

Due to policy decisions made by the State of New York and the NYSPC, Con Ed must transform its utility business model over the next few years. The transition is critical for the company since close to 90% of Con Ed’s earnings come from its two utilities. Con Ed and other New York utilities will be on the leading edge of changing the utility role from an energy-delivery utility to a distribution services platform provider. Over time, the NYSPSC expects that utilities in New York will transform their earnings model with less and less of earnings based on traditional cost-of-service. How Con Ed manages this transition will be critical to its future and will provide a case study for utilities across the world as they plan their own transitions.

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Hawaii Electric – Leading the Way to 100% Renewables

by Bob Shively, Enerdynamics President and Lead Facilitator

As low load growth, increasing renewable generation, closing of traditional baseload fossil fuel plants, growth of distributed resources, and decreasing cost of storage have all become a reality, energy utilities are forced to rethink business models that have worked well for many years. In our Energy Currents blog, we are exploring various utilities’ responses to the changing energy business.  This week, let’s look at Hawaiian Electric Company.

Spectacular view of Honolulu city, Oahu

Hawaiian Electric Company (HECO) and its subsidiaries, Maui Electric Company and Hawaii Electric Light Company, serve 95% of the state’s 1.4 million residents on the islands of Oahu, Maui, Hawaii, Lanai, and Molokai. Each grid is run separately as there is no electric connection between the islands. HECO is a vertically integrated investor-owned utility (IOU). Historically, Hawaii was powered mostly by petroleum-fueled power plants using imported fuel resulting in rates that fluctuated with world oil prices. Hawaii traditionally has some of the highest electric rates in the U.S. Due to the high cost of power coupled with plentiful sunshine, HECO has one of the highest penetrations of rooftop solar in the U.S. with 16% of customers having a system as of 2017. Here are some key recent events:

  • In 2014, HECO filed its integrated resource planning document — the Power Supply Improvement Plan (PSIP) — with the Hawaii Public Utilities Commission (HPUC). This plan was rejected by HPUC in 2015 stating it seemed to be a series of unrelated capital projects without focus on moving toward a sustainable business model. In rejecting the plan, HPUC released a 30-page exhibit titled “Commission’s Inclinations on the Future of Hawaii’s Electric Utilities: Aligning the Utility Business Model with Customer Interests and Public Policy Goals.” In the exhibit, HPUC expressed a desire for HECO to file a plan that would prepare the utility for a new paradigm of stable rates, clean energy, customer options, and increased reliability. A follow-up PSIP filing was rejected in 2016.
  • A 2014 proposal by Florida-based NextEra Energy to acquire HECO was rejected by the HPUC in July 2016 citing concerns over possible negative impacts on support for Hawaii’s clean energy goals, local governance, and levels of competition among entities wanting to provide energy services to Hawaii.
  • Finally in July 2017, HPUC approved HECO’s third PSIP filing. This filing laid out a path for achieving 48% renewables by 2020 (as compared to the state RPS of 30%) and 100% renewables by 2040 (five years ahead of the state goal of 100% by 2045). The plan includes a mix of technologies as described in the executive summary:

“…our action plans estimate achieving a 52 percent RPS by 2021 by adding 326 megawatts (MW) of rooftop solar, 31 MW of Feed-In Tariff (FIT) solar generation, 115 MW of demand response (DR), 360 MW of grid-scale solar, and 157 MW of grid-scale wind resources across all five islands.”

Under the plan, utility-scale resources will be acquired through an RFP process meaning that much of the capacity will be built and owned by third parties that will sell the power to HECO under power purchase agreements.

Case study 1 graphic 1

Source: HECO 2016 PSIP Executive Summary

  • HECO has decoupled rates, meaning revenues are adjusted to account for fluctuations in kWh sales and HECO does not have earnings risk based on shrinking sales. HECO passes through fuel and power purchase cost fluctuations to customers and has mechanisms to recover costs of approved renewable energy infrastructure projects through a rate surcharge.
  • HECO ended net metering in late 2015, resulting in a slower pace of new rooftop installations. Under the new plan approved in 2015, solar customers were required to choose between a “grid supply” option where customers get paid about 60% of the retail rate for any excess solar power they put onto the grid and a “self supply” option where solar power is all consumed within the facility. Grid supply customers pay a monthly minimum bill of $25 to help cover fixed grid costs. Both options are designed to encourage customers to use as much solar power internally as possible (or to store it in a behind-the-meter battery) as shown in the diagram below:

Case study 1 graphic 2Source: Rocky Mountain Institute, Hawaii just ended net metering for solar. Now what?,
October 16, 2015

  • As of mid-2017, the caps for the grid supply option had been met on all the islands and the program ended. This resulted in a large drop in the number of rooftop solar installations. But it also led to an increase in PV-battery installations where consumers no longer stayed connected to HECO. Two new options for selling solar output to the grid were approved by HPUC in late October 2017:
    • The Smart Export program is for customers with PV and a battery.  These customers are paid a fixed export rate during the periods midnight to 9 a.m. and 4 p.m. to midnight, but are paid nothing for any power put onto the grid between 9 a.m. and 4 p.m.
    • As an alternative, PV customers without a battery are offered the Customer Grid Supply Plus option. Under this option customers are paid an export rate during all time periods, but they must install a communication and control system that allows HECO to shut off export whenever needed to ensure reliable operation of the grid.  Both options require a smart inverter. 

  • HECO expects rate base growth of more than 4% a year over the next few years. HECO filed a draft Grid Modernization Strategy with HPUC in July 2017 that proposes $205 million in upgrades over the next six years. The original grid modernization plan that was rejected by HPUC proposed $376 million in mostly “wires” based grid upgrades. The new plan focuses more on “advanced technology solutions” as indicated in the blue arrows on the graphic below. As stated in the proposal, the goal is turning the HECO system into a “platform that enables the integration of customer DER and the utilization of DER as a system resource.”

 

Case study 1 graphic 3

Source: HECO, Modernizing Hawaii’s Grid for Our Customers, June 2017 Draft Report

In the last few years, HECO has faced unprecedented pressures to adapt its utility system. An initial effort to address the issues by merging with a larger energy company was rejected by the state regulators. HECO is now seen as a “test bed” for how to rapidly integrate renewables into a utility system without the flexibility of sharing power with neighboring regions. Through the transition, HECO intends to maintain its position as an integrated utility performing system planning and new resource integration. There is much to be learned by watching how Hawaii’s energy transition plays out.

 

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