Seven proposed solar farms recently announced by Hawaiian Electric Co. are projected to raise Oahu residents’ electricity bills in the long run.

That’s in part because natural gas, which Hawaii is planning to import in coming years, is expected to drive down overall electricity rates, making the solar pricing less competitive.

The solar contracts submitted to Hawaii’s Public Utilities Commission — five of them last week — could add as much as $19 a year to typical residential bills, according to 22-year cost analyses conducted by HECO.

Most of the solar projects, if approved by the PUC, would deliver power from 2017 through 2038.

Paradise Solar Energy Center in New Jersey on September 26, 2011

NextEra Energy’s solar power farm in New Jersey

Doug Murray/FPL

If the contracts are approved by regulators, Hawaii residents would also be paying double what many mainland customers pay for solar energy. The average pricing for the solar farms, which take into account a federal subsidy, is about 14 cents per kilowatt hour, according to HECO. Prices for utility-scale solar on the mainland have been averaging about 7 cents per kilowatt hour, according to the U.S. Energy Information Administration.

The contracts raise questions about whether HECO’s procurement process attracted the best solar prices. HECO was granted permission by state regulators to circumvent the competitive bidding process after utility officials argued that more direct negotiations with developers would allow it to more quickly obtain low-cost renewable energy.

The utility told developers that it was seeking renewable energy below 15.8 cents per kilowatt hour. Many developers submitted bids just below this benchmark.

“It was frustrating to see developers bid just under that threshold number,” said Jeff Mikulina, executive director of Blue Planet Foundation, a Honolulu-based clean energy advocacy organization. He noted that some of the pricing came down during negotiations, but contended that competitive bidding is generally a better process.

PUC Approval Still Needed

The pricing of the solar farms could also make it more difficult for the contracts to gain approval from the PUC. HECO has to justify in PUC filings why the rates are in the best interest of consumers.

In November, regulators rejected HECO’s own proposed solar farm on land it owns near its Kahe power plant, in part because the commission found that the utility “failed to prove that the Kahe PV project will result in a lower cost supply of electricity or its otherwise in the public interest,” according to a PUC press release.

The project was priced at 14.5 cents per kilowatt hour.

Jeff Ono, Hawaii’s consumer advocate who represents ratepayers in PUC proceedings, said that falling oil prices will also make the solar contracts “look uneconomic on their face.” But he noted that there are benefits to solar beyond the costs, such as reduced greenhouse gas emissions and less dependency on oil with its volatile prices.

Alan Oshima, HECO’s CEO, told Civil Beat on Tuesday that the the projections for future electricity prices are speculative and subject to change based on market conditions.

“It’s a snapshot in time,” he said. “We are dealing with total fluidity.”

Oshima also said that the pricing for solar farms in Hawaii tends to be more than on the mainland because of higher land and permitting costs.

“We all know the price of paradise,” he said. “It’s economies of scale as well.”

He said that HECO’s threshold price submitted to developers of 15.8 cents a kilowatt hour was based on the utility’s estimate of what it would cost to build the Kahe solar facility.

The price of the solar farms could come down if state tax incentives are still available when the projects break ground.

Price Analysis “Surprising”

Critics say that HECO has a history of approving pricing for renewable energy projects slightly below the cost of oil-generated electricity, as opposed to the actual cost to build a project, which could generate greater customer savings.

David Feldman, a senior financial analyst at the National Renewable Energy Laboratory, said that Hawaii’s solar prices are probably much higher than the average for both reasons — there are legitimate cost premiums to doing business in Hawaii and market conditions aren’t driving down prices.

“There really is a great amount of variation (in prices) and some of those things are due to a pricing environment that causes developers to get higher margins than what they would otherwise,” he said. “But there are legitimate costs associated with certain PV systems.”

The contracts include the Ka La Nui solar project proposed by NextEra Energy, which earlier this month announced that it was in the process of buying Hawaiian Electric Industries, the parent company of HECO, in a $4.3 billion deal.

NextEra executives have said in recent weeks that they will focus on large-scale solar and wind projects to help drive down Hawaii’s electricity rates, which have been averaging three times the national average.

“The surprising thing to me is that someone has been able to produce an analysis that shows that (solar) wouldn’t save customers money,” Eric Gleason, president of NextEra Energy Transmission, told Civil Beat on Tuesday.

He said that as the new owner of HECO, NextEra would be focused on getting the best prices for solar. NextEra is one of the largest developers of renewable energy, particularly wind power, in the country.

“We understand those markets,” Gleason said. “We have a sense of what the costs should be and we are going to be very focused on driving costs down for the benefit of consumers.”

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