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.

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.

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:

Source: 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.”

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.