With a few weeks left in the 2012 legislative session, a number of clean energy measures are advancing. Much of the legislation focuses on the scope of the Public Utilities Commission’s (PUC) responsibilities in regulating the state’s electric utilities. Other key bills seek to amend various incentives for clean energy. The remainder address sustainable transportation issues.

Public Utilities Commission

The priority clean energy policy this session is Senate Bill 2787, which establishes the Hawai‘i Electricity Reliability Administrator, or HERA. As more independent power producers and distributed energy systems plug into the grid, they face numerous technical, operational, and regulatory issues presented by Hawai‘i’s century-old electrical system. These obstacles hinder interconnection and compromise reliability, stifling the potential of renewable energy production.

The proposed HERA policy establishes formal, objective, and verifiable reliability and interconnection standards for Hawai‘i’s electricity grids. Having an independent entity—not the electric utility—set the “rules of the road” would enable more integration of renewables and improve system predictability and resiliency.


While grid modernization is essential, it is the interconnection of the island grids that will allow the state to link its supply of renewable energy with existing demand. Maui, for example, has surplus wind energy at night, while O‘ahu has an expanding fleet of electric vehicles that could put that energy to work. Interconnecting the islands will provide load stability while making statewide energy independence a true possibility.

To that end, Senate Bill 2785 establishes a regulatory structure for the installation and implementation of an interisland high-voltage electric transmission cable system, bringing it under the governance of the PUC. Having a regulatory framework for the implementation of an interisland cable system will ensure more certainty and oversight in the development process.


Senate Bill 1197 is a complex but important measure that gives the PUC direction and authority to make changes in how the electric utility functions. First, the measure enables the PUC to allow the utility to recover operational costs that are incurred through power purchase agreements (new or renegotiated) with renewable energy producers. This grid reliability management surcharge encourages the utility to purchase more renewable energy by reducing an economic disincentive for doing so.

Secondly, SB 1197 discourages excessive curtailment of renewable energy by the utility. Not only does unchecked curtailment directly limit the amount of renewable energy on the grid, it has a dangerous chilling effect on project financing. Absent reasonable certainty concerning financial risk, projects are unable to move forward.

Third, SB 1197 helps align the utility’s self-interest with Hawai‘i’s clean energy goals, creating economic incentive for the utility to prioritize clean energy investments. Today, the utility can choose to invest in upgrading their power plants or modernizing the electricity grid. They are allowed a rate of return for both types of investments. But where do want them to invest? In grid modernization, of course.

From the utility’s perspective, however, doing so might portend the retirement of older fossil units as well as attract more independent clean energy providers that would take away from the utility’s revenues. SB 1197 specifically allows the PUC to provide a greater rate of return “for capital investments for transmission, distribution, and grid reliability upgrades installed to support the connection to and integration of new renewable energy based power generation facilities.”

Effectively, SB 1197 should foster more investment in our grid and help to transition the utility to a provider of grid services instead of power plant operators.

Incentives

Two pending measures seek to modify Hawai‘i’s renewable energy tax credit. SB 2288 dangerously reduces the effectiveness of the tax credit, while HB 2417 maintains the purchase incentive and provides a reasonable reduction in the credit over time.

Hawai‘i’s solar tax credit has been extremely effective at making Hawai‘i a leader in both solar water heating and photovoltaic installations, creating local jobs and providing steady revenue from its business creation. Moreover, the installation of solar water heaters, photovoltaic systems, and wind systems helps to plug the leak of billions of dollars out of the islands’ economy. Investments in this technology—and the companies and jobs that provide it — pay dividends back to the state in the form of income tax, general excise tax, and outside investment, among other forms.


Senate Bill 2288 — in its current House Draft 1 form — strictly limits the size of the tax credit that renewable energy investors can use per property and reduces alternatives for State facilities to participate in energy cost-reducing programs. Passing this measure will significantly reduce the incentive to invest in renewable energy; this will damage the solar and wind industries, delivering a major setback to Hawai‘i’s clean energy progress.

By limiting the number of “systems” that are eligible for the tax credit, SB 2288 essentially caps the allowable credit regardless of the size of the system. A 10-kilowatt PV system, for example, would receive an identical credit as a 20-kilowatt system, so there’s no incentive for larger system investments. This measure also prohibits state and county agencies to enter into power purchase agreements with entities that earn the renewable energy income tax credit. This eliminates the opportunity for government entities to hedge against high energy prices tied to oil at a time when interest rates are low and financing is affordable. Government entities should be able to weigh all the options (bonds, direct investment, power purchase arrangements, etc.) and select the most cost-effective approach.


House Bill 2417 — in its current Senate Draft 2 form — provides an incremental decrease in the state tax credit for distributed residential and commercial solar installations, shrinking it annually from the current 35 percent to 20 percent in 2015. This is a reasoned approach that continues to spur private investment while reducing the overall impact on the state budget. For utility-scale solar installations, the credit will be based on the actual amount of renewable electricity produced. The tax credits for residential and commercial wind energy systems do not change. The measure also addresses administrative efficiency issues by removing ambiguity from solar tax credit decisions and clearly defining the Department of Taxation’s job.


Beyond tax credits, Hawai‘i’s net metering program has helped drive the exponential growth of solar on rooftops statewide. The Senate Draft of House Bill 2121 increases the allowable system size for net-metered systems to two megawatts for State facilities and one megawatt for other systems. The PUC docket establishing Hawai‘i’s feed-in program examined many of the barriers to adoption of larger renewable systems, and those barriers are being addressed through the reliability standards docket and other approaches. HB 2121 will increase renewable power grid penetration and enable residents and businesses to turn their rooftops into power plants. The benefit of this measure to potential PV investors is significant. Customers will no longer be left with the choice of investing in only a portion of their roof for a 100 kW PV system and offsetting a small portion of their bill. Instead they can help Hawai‘i achieve its clean energy future by investing in a system that is sized to their power consumption and provides additional power to the grid.


While the “fuel” is free for most renewable energy projects, they do require substantial upfront capital investment. The legislature explored a few novel concepts this session to make financing more accessible, including a “clean economy bank.” A related measure that appears to be moving, House Bill 1033, would establish the clean energy special account within the state energy security special fund (which now receives a portion of the barrel tax funds). The funding would be used to finance qualified clean economy projects, including “renewable energy, renewable energy transmission, energy efficiency, distributed generation, and oil-saving projects and technologies, zero- or low-carbon transportation, clean energy manufacturing, municipal water efficiency, municipal waste efficiency, job training for energy efficiency projects” and other projects.

Transportation

While much of our clean energy focus is on the greening our electricity supply and use, the majority of Hawai‘i’s oil imports fuel our transportation, with cars, trucks, and ships consuming over one-third of the petroleum imports. In 2011, Hawai‘i cars burned more than 470 million gallons of gasoline. For a typical car, that’s enough gasoline to cover the distance equivalent to 21,000 round trips to the moon. Two measures take small, but meaningful, steps to reduce our dependence on automobiles and promote alternative mobility options.


House Bill 2626 establishes the Safe Routes to School (SRTS) program within the Department of Transportation (DOT) funded through a surcharge for certain traffic violations. This measure seeks to make the routes to schools safer so more students are able to choose walking and biking as a means of commuting. The Federal Highway Administration administers the hundreds of millions in SRTS program funds and provides guidance and regulations about SRTS programs. Federal SRTS funds are distributed to states based on student enrollment. Safe Routes to Schools funds can be used for both infrastructure projects and non-infrastructure activities. The Federal program also requires each state to have a Safe Routes to School Coordinator, which HB 2626 provides within the DOT, to serve as a central point of contact for the state. Hawai‘i stands to gain its fair share of SRTS funding through passage of this measure. By developing more safe routes to schools, walking and biking can be safer and more enjoyable—hopefully establishing healthy habits for life.


House Bill 2760 strengthens Hawai‘i’s “complete streets” policy, prohibiting the use of mopeds on bicycle lanes and bicycle paths, among other changes. The complete streets policy, adopted a couple of years ago, encourages the state and counties to design and operate the entire roadway with all users in mind—including bicyclists, public transportation vehicles and riders, and pedestrians of all ages and abilities. This measure provides additional language to support that policy, although it does not require that complete streets be part of all budget requests or highway developments. (Changing “may” to “shall” in HB 2760 would strengthen it significantly.)


In other transportation policy, Senate Bill 2746 provides direction to the DOT to codify some of the existing policies for electric vehicles (EVs), including registration and license plates. The measure also clarifies that EVs are allowed to use the high-occupancy vehicle (HOV) lanes. But this measure also decreases the allowance for free EV parking to two and one-half hours of metered parking, or the maximum amount of time the meter allows. Senate Bill 2747 imprudently reduces the number of mandatory designated EV parking spaces in public parking facilities to a single charge spot per parking lot.


Biofuel-powered vehicles will also likely play a major role in Hawai‘i’s clean transportation future. House Bill 2262 expands the existing ethanol facility income tax credit to apply to various types of renewable transportation fuel, including biodiesel. The measure also increases the maximum available amount of tax credit available to an individual facility to $3 million, as well as other improvements to this biofuel infrastructure incentive.


Left on the cutting room floor of the capitol, unfortunately, are a number of progressive measures that would have greatly facilitated the transition to clean energy. Prohibitions on excessive curtailment of renewable energy and building new coal-fired power plants never made it out of committee. Changes to Hawai‘i’s carbon tax (barrel tax) that would have reallocated the majority of the funds toward clean energy also failed to advance.

If the bills to establish the Hawai‘i Electricity Reliability Administrator, strengthen the PUC, and maintain incentives for clean energy investment pass, lawmakers will have made positive, incremental progress this year. The transformative policy will have to wait until 2013.

About the author: Jeff Mikulina is executive director of the Blue Planet Foundation.

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