Friday, September 30, 2011

Hawaii's feed in tariffs won't turn islands into renewables paradise



When hurricane Iniki hit Kauai in 1992, legend has it that power was restored on the Hawaiian island only when the US military eventually hitched a socket onto the grid from a nuclear submarine docked at Lihue.
Electric power and telephone service were lost throughout the island and only 20 percent of power had been restored four weeks after the storm.
The most destructive hurricane to strike Hawaii in the 20th century, which caused six deaths, damaged or destroyed 14,350 homes on Kauai and cost $3bn, was a hard lesson in the vulnerability of small islands.
Kauai is abundant with life. Jagged fluted cliffs of the Napali coast and the jagged peaks atop the crumbling green mountains, sharpened by rapid erosion, act as rain catchers which cascade into the lush valleys where taro, breadfruit, papaya, mango, coconut, avocado grow easily in the wet and fertile soil on the volcanic island.
Most of these stable crops were imported by the Polynesians, Hawaii’s first visitors. Plants on the inventory of the canoes that voyaged east across the Pacific 2,000 years ago turned the island into a tropical paradise with abundant food.
A recent visit to the Limahuli Gardens, on the north coast of Kauai, demonstrated the sophistication of the horticultural husbandry of the Hawaiians, including agricultural terraces built out of lava rock and planted with kalo (taro).
The experts at Limahuli believe that the Hawaiians achieved this abundance through ahupua`a, a system of resource management that allowed them to live sustainably… at least until Captain Cook dropped anchor in 1778.
But in 2011, this so-called Garden Island, and the other seven islands of Hawaii cannot sustain themselves without huge imports of food and energy from the mainland – and further afield.
Despite Hawaii’s prime solar, wind, marine and geothermal capacity, these are largely untapped renewable resources. The US’s 50th state is 90% dependent on oil (largely foreign imports) to generate electricity, a dirty and economically and environmentally inefficient way to keep the lights on. Initiatives such as the Hawaii Energy Policy Forum are trying to find a route out of this oil dependency.
But for now, 92% of Kauai’s electricity comes from the burning of imported fossil fuels, according to the Kauai Island Utility Cooperative which supplies electricity to most of the island. In recognition that costs of electricity generation on the Pacific island could be shielded from oil price volatility caused by events in the Middle East thousands of miles away, KIUC has set a target to produce 50% of its electricity from renewable sources by 2023.
But even this figure seems lacking in ambition when the total generating capacity of Kauai's utility company is only 125MW. But the utility still has to find ways to make money, and is probably protecting its interests by encouraging utility-scale projects such as a 12MW solar project developed by PowerWorks.
Other schemes, such as the Kauai Economic Opportunity programme, offer installation of solar water heating system (NB, not PV!) to low income households as part of the American Recovery and Investment Act 2008. The scheme is laudable, but those on low incomes generally tend to be lower consumers of energy and programmes like this do nothing to target those in Hawaii’s grand coastal homes valued up to $18m.
 Long before the Middle East crisis in Libya, Lloyds of London and Chatham House released a report last year predicting that the price of oil might double by 2013.

Islanders have genuine concerns that if energy prices rise too high, the cost of living will skyrocket and the only full-time inhabitants on Hawaii will be the rich, the retired or those paid to service the wealthy residents or tourist industry, its main source of income.
A good comparison of Hawaii's electricity costs (high compared with other US states) can be found on this blog, but they appear to range between 20c-38c per kWh. Aloha Analytics has also posted this fascinating interview with farmer Richard Ha, who is leading a consortium called Ku’oko’a (Freedom) which hopes buy Hawaii Electric Company (HECO) and invest in geothermal energy. The consortium aims to buy HECO with $2.3bn and includes heavyhitters such as Jim Woolsey, former CIA director.
Ted Peck, US state energy adviser reportedly left his job to join Ku’oko’a. Before he left Peck, predicted a $1.2 billion in clean-energy investments in the state in 2011. This four-fold increase since 2009 was because of government policy, he claimed.
In 2008, the former Governor Linda Lingle signed and MOU with the Department of Energy for the Hawaii Clean Energy Initiative (HCEI) to decrease energy demand and accelerate use of renewables. HCEI aims to have 70% or more of Hawaii’s energy needs met by efficiency measures (30%) and locally generated renewable sources (40%), including solar, marine, geothermal and wind.
Although the MOU was not legally binding, the HCEI resulted in a state Renewable Portfolio Standard (RPS) which mandates utilities to sell 15% of electricity from renewable sources by 2015, and 20% by 2020.
Hawaii’s feed-in tariffs (FIT) will be at the core of incentives for investors. Last October, the Hawaii Public Utilities Commission approved feed-in tariffs for renewable energy generators up to 500kW in size. The predicted FIT capacity will be 60 MW on Oahu, 10MW on the Big Island and 10MW on Maui, Lanai, Molokai (combined) with rates ranging between 27.4c and 33.1c per kWh  that appear to favour smaller installations below 20kW. Customers on net metering schemes are also allowed to switch to a tariff.

There are small solar projects slated in Kauai, such as a 6MW solar PV facility next to KIUC's Port Allen Station power plant. 

Clean energy is no newcomer to Kauai. Small hydroelectric plants, commissioned by sugar plantation owners have been operating for 100 years or more, this this curious Heath Robinson-style hydroelectric plant (see below) we discovered a few doors up from our holiday rental which still powers the Kauai Coffee Company 33 miles away.

It was a jaw-dropping technical feat of its time, installing the transmission lines across the wet, crumbling mountain was a triumph of engineering way before the tyres of any motor car hit the dirt on the island.

Looking around Kauai, it would seem that distributed solar generation would be a perfect fit. As far as I can tell, FITs don’t even figure on Kauai – but I would be happy to be shown otherwise. Decentralised power sources could also potentially get the lights back on quickly - especially useful on an island prone to tsunamis as well as hurricanes.

Distributed generation is a tough sell to utilities and investors – and therefore lacks the political support it enjoys on the mainland in states such as California.  
Utilities in Hawaii have more reason to continue to monopolise energy generation to protect their revenues because their market is so small. Even Ku’oko’a would most likely limit a change to its business model by just switching to a different source of energy, rather than push distributed power, therefore keeping the power generation revenue for itself.
Dave Waller, VP of customer services at HECO, told Hawaiibusiness.com that he was confident that FITs would take off in Hawaii.
So now the incentives are in place, is it enough to tempt investors into putting their dollars into project finance? And are FITs the right policy tool to create a market in solar, wind, marine or geothermal energy on the islands?
Matt Cheney, chief executive officer of CleanPath Ventures, offered some insight into the particular nuances of Hawaii’s FIT this week at the REFF West conference.
“We’ve worked in every state – Hawaii for a while required that the state investment tax credit could be monetized by an entity other than the entity that was monetizing the federal investment tax credit and that kills it. For the most part the national banks don’t necessarily do work in Hawaii  - it’s valueless to them.”
In later comments after the panel discussion, he explained that although high energy costs make renewables attractive, loads are small because “Hawaii is dinky” in population size by comparison to states like California and “distribution lines are dead ends” unlike say the inter-connected grids on the west and east coasts of the US.
“They have chosen to build their energy infrastructure around oil. How awkward for a state that has an enormous amount of geothermal, wind, solar and small hydro. They never hoped to optimize around indigenous energy resources at the point of investment or inception of how it is that they’re going to develop their energy infrastructure and subsequently you have a state that has all of this legacy power plant infrastructure that is dependent on fossil imports that alone tells you why the Democratic senators of Hawaii voted in favour of developing the north coast of Alaska for oil.
“Every time they entertain the idea of investing in renewables they in turn have to choose to create this reserve capacity of stranded infrastructure. So every dollar they allow to be spent on renewable energy and every contract they write to accept that renewable energy, they’re choosing to idle part of something they have already invested in that they have to pay for. All of this amounts to having some of the most expensive electricity rates in the whole world. Certainly at a level that encourages renewable energy. If they had to do it all over again they probably would have done it differently."
Cheney hinted that utilities would be forced into radical restructuring before renewables could really take hold.
“My idea of smart policy an unlimited ability of people to decide for themselves where they want that generation to come from. Distribution and transmission, that’s a job for the utilities, to coordinate the grid and smart grid. When it comes to you deciding how you want to live your life and you’re paying a generation rate as part of your bill you should have a say in that. That’s where the change is coming.”

But even if that transition to cleaner energy comes soon enough to protect Hawaii from the next shock of volatile oil prices, howling hurricanes and Alaskan earthquakes, that change might not be the right one to ensure  power is restored as quickly after a natural disaster unless more distributed generation is encouraged.

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