Hawaiian Electric Company has struck a deal to buy more than 300 million gallons of liquid biofuel from a local company over the next two decades.
The 20-year contract with Aina Koa Pono — which translates to “for the good of the land” — was signed Thursday and announced in a joint press conference at HECO’s Richards Street headquarters. Aina Koa Pono said it expects to make a $320 million investment to get the Big Island operation up and running.
“The time has come to take a bold step toward establishing a self-sustaining energy future for our state,” Aina Koa Pono co-founder Melvin Chiogioji said in a prepared statement. “This partnership is critical in helping Hawaii reduce its reliance on imported fossil fuels and expand our state’s green energy initiative.”
HECO Executive Vice President Robbie Alm said at the press conference that the collaboration will help Hawaii’s largest energy company stabilize rates, push the state closer to its goal of 40 percent renewable energy by 2030 and keep more money in the local economy. And he said the purchase, which will provide 4 percent of the utility’s fuel, is just the beginning.
The agreement, which is still subject to approval by the Public Utilities Commission, is an interesting one because it involves the purchase of liquid fuel and not electricity. Many traditional biofuel facilities burn biomass to create steam, which in turn is used to create electricity that is transferred to the existing power grid. The same model is generally used for wind, solar, geothermal and ocean thermal.
The liquid biofuel will be portable in that it can be stored in barrels or tanks and can be shipped between islands to be burned when and where it’s needed. That gives HECO flexibility as it seeks any and all clean energy options. If, for example, geothermal provides all the energy the Big Island needs, the biofuel processed there can be burned in a traditional generator on Maui or Oahu.
Another advantage of the new approach is that it works well with existing infrastructure.
“The power plants are paid for,” Alm said. The deal with Aina Koa Pono and others like it will merely “take the fuel that’s currently black and make it green.”
Jay Ignacio, president of the Hawaii Electric Light Company, the Big Island subsidiary of HECO parent company Hawaiian Electric Industries, said the contract includes provisions and specifications that require Aina Koa Pono’s biofuel to match the BTU (energy) content of traditional fossil fuels. That will make the biodiesel a “drop-in fuel” in existing power plants.
If the fuel doesn’t reach those standards, HECO might not be forced to buy or might be able to pay a lower price. If the quality exceeds the requirements, however, HECO won’t need to pay a premium, said company spokesman Peter Rosegg. That makes the deal a good one for HECO ratepayers, he said. The company declined to share the terms of the contract.
Aina Koa Pono has some well-known local and national names on its board of advisors, including Norman Mineta, former U.S. transportation and commerce secretary; Robert Clarke, former CEO of HEI; lawyer Paul Alston; and retired Admiral Ronald Zlatoper, former commander in chief of the U.S. Pacific Fleet.
The deal calls for HECO to buy 16 million gallons of synthetic biodiesel annually, which Aina Koa Pono will produce from burning unwanted invasive species as well as feedstock like sweet sorghum and eucalyptus grown on 13,000 fallow acres on the Big Island. The plant matter will be converted at an energy farm in the Kau region. Aina Koa Pono will invest some $320 million to build the energy facility and plant and harvest the feedstock, it said in a release.
Construction is expected to begin in late 2011 or early 2012. Initial delivery could take place by mid-2013 and the plant will be up to full speed by the end of that year, the company said. It will provide about 300 jobs during construction, and 100 or 150 jobs thereafter for 20 years.
If all 16 million gallons produced each year are burned at the Keahole Power Plant, that facility would become 100 percent renewable, Ignacio said. The project would produce enough fuel to generate about 16 percent of the Big Island’s total electricity.
The project sounds like a big one on its own, but it could be just the tip of the iceberg. HECO put out a request for proposals in April for the equivalent of 400 million gallons of fossil fuel annually, and Aina Koa Pono was just one of 10 companies to put in a bid.
Negotiations with some of those bidders are ongoing, and Alm said he hoped to hold additional announcements in coming weeks and months as more agreements are reached. He said he hoped the agreement with Aina Koa Pono serves as a signal to landowners and others across the state who have thought about going into the biofuel business: “This is for real.”
He also said he hopes biofuel can be a spark to re-start agriculture through a new business model. Twenty years of guaranteed purchases can open the door for other agricultural operations to produce transportation fuel and food, he said.
“We think we can be the anchor tenant,” Alm said.
HECO declined to reveal how much money it committed to the deal, saying it would undermine the ongoing negotiations with other potential partners. The only mention of money in HECO’s official release was an assurance to ratepayers that the impact of the deal will be minimal — one-third of a cent per kilowatt-hour or between $1.55 and $1.86 per month, based on current oil costs.
Alm said that figure is based on the current price of oil and that the deal could result in considerable savings if the price of oil rises in coming years, as some speculate it might.
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