Hawaiian Electric Co. wants to own and operate its own solar farm, a first for the electric utility that has historically relied on independent developers for renewable energy.

The utility’s entry into the solar market could help lower energy costs for consumers by reducing costs associated with buying power from outside companies — it essentially cuts out the middleman.

The business strategy could also boost HECO’s financial security as it wrestles with an exodus of residents and businesses switching to rooftop solar. That’s cut into HECO’s electricity sales and raised questions about the company’s long-term future.

But HECO’s plans are also sending ripples through Hawaii’s burgeoning solar sector. Some companies are worried that a major HECO solar operation will reduce market competition and give the utility an unfair advantage over independent solar companies.

A Conflict of Interest?

HECO’s solar plan includes a 15-megawatt facility near its Kahe Generating Station. The proposal, which would be the largest solar farm in the state, is currently being reviewed by the Hawaii Public Utilities Commission.

HECO’s turn toward operating it’s own renewable energy plants is being met with mixed reactions from clean energy advocates, however.

“The community has been asking the utility to get into the renewable energy business for decades,” said Jeff Mikulina, executive director of Blue Planet Foundation, a clean energy advocacy organization. “Finally, here they are saying we are here and we want to do this,”

But at the same time, Mikulina says that the utility should be investing in technologies that allow the utility to absorb more solar and wind energy instead.

“As we see the utility of the future, it is really in investing in those areas of grid modernization and storage and things that will enable more clean energy,” said Mikulina.

Hawaiian Electric Co. is already struggling with how to integrate more solar and wind energy into its isolated grids on Oahu, the Big Island and Maui County without destabilizing power flow.

Last week, HECO CEO Richard Rosenblum told a sustainability conference organized by the University of Hawaii’s Sea Grant Program and U.S. Sen. Brian Schatz that the utility’s future business model will mirror that of the online company Amazon.

HECO has traditionally owned and maintained oil-fired generators and distributed electricity through a system of transmission lines that it also owns.

“We are talking about a vastly changed system where we are not the only player,” he told conference attendees. “We are the player that helps the other players get their job done.”

In many ways, HECO has already moved in that direction, purchasing solar, wind, geothermal and hydroelectric power from companies throughout the islands and distributing it to customers.

But actually owning and operating the renewable energy systems is a new strategy.

The Hawaii Solar Energy Association has opposed the plan. The trade group worries that it will disrupt the solar market, sending it out of balance.

But Joseph Saturnia, president of Honolulu’s Island Pacific Energy, says that while HECO’s entry into solar presents the appearance of a conflict of interest, there are benefits to the model, namely cheaper solar energy for consumers. Saturnia’s company bid on building the Kahe solar project, but was beat out by SolarCity.

“It appears that it is good for the ratepayers in the sense that it sounds like they are constructing a project for cheaper than what the private market is doing,” he said. “But I think the danger is we want to be careful that we don’t get into a situation where the utility can use their sheer size in the marketplace to dominate it.”

He said that’s a particular concern as Hawaii tries to move toward a more competitive model that brings down electricity rates.

“The question is, does this move us down the path of less competition? I don’t know,” he said.

How Low Can Solar Prices Go?

The cost for renewable energy projects on the mainland average about 12 cents a kilowatt hour, but rates in Hawaii have been hovering around 34 cents to 42 cents a kilowatt hour.

In recent years, HECO has been signing contracts for wind and solar farms at prices above 20 cents a kilowatt hour, or just slightly less than what it costs to produce electricity from oil.

The prices for solar and wind in Hawaii have been as much as double those on the mainland.

HECO’s Rosenblum told Civil Beat last week that there are a number of reasons for Hawaii’s high prices. The state doesn’t have a “workably competitive market” with an unlimited amount of bidders, land is scarce and more expensive, there are smaller projects so economies of scale are lost and labor and construction costs tend to be higher, he said.

But how much higher should they be?

HECO’s Kahe solar project is priced at 14.5 cents a kilowatt hour over 20 years. This is slightly less than prices for nine other solar projects that independent solar companies hope to build — the average price is 15.8 cents per kilowatt hour.

HECO is hoping to get all of the projects exempted from the state’s competitive bidding requirement and has submitted them to the PUC for review. So far, three of the projects have gotten approval to move forward with negotiations, said HECO spokesman Peter Rosegg.

HECO asked companies to submit project proposals that came in under 16 cents a kilowatt hour.

And the utility has said that it’s own solar project in Kahe also acts as a check on prices from independent solar companies.

“I think there is some truth to that,” said Mikulina. “But the market is getting a lot more competitive and it is a pretty diverse ecosystem.”

Severin Borenstein, co-director at the University of California Berkeley’s Energy Institute, says that utilities in California have been getting solar bids at 7 cents a kilowatt hour. He told Civil Beat that prices in Hawaii shouldn’t be that much higher.

“There’s probably some difference in labor and siting costs. But it shouldn’t be a 100 percent difference,” he said, pointing to HECO’s current pricing for it’s Kahe solar plant.

He said the cost might make sense if it didn’t include federal and state tax incentives, which greatly reduce project costs.

Rosegg said that the pricing for the Kahe solar project, as well as its nine other waiver projects, factor in federal tax credits, but not state tax credits.1

The cost for HECO’s Kahe power also takes into account the price HECO had to pay to acquire the land it will be built on, Rosenblum said last week.

Saturnia said that makes sense.

“If they are going to take the land and lock it up for 20 years, they can’t build on it, sell it, etcetera,” he said. “I don’t see anything wrong in doing it that way.”

UPDATE: After this story was published, Rosegg said that the Kahe solar price does not include any “lost opportunity value” for the land.” He said Rosenbaum’s comments were likely misconstrued.

Jeff Ono, Hawaii’s consumer advocate, said he didn’t want to comment on HECO’s Kahe solar project because it’s still pending PUC approval.

But in general, he said, energy developers are making more money off of energy projects in Hawaii than on the mainland.

“Their rate of return is greater over here than they are on the mainland,” he said. “Is that appropriate given the amount of risk involved? That is a difficult question to answer.”

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