When the Hawaii Legislature passed Senate Bill 1087 in 2013, the bill was hailed as a way to democratize access to energy-saving technology, such as rooftop photovoltaic installations. Nearly two years later, as the program anticipated in the legislation is beginning to take shape, its scope is far more modest and bears little resemblance to the hype.

“It is in the public interest to make cost-effective green infrastructure equipment options accessible and affordable to customers in an equitable way,” the bill stated.

“A green infrastructure financing program administered by the state that capitalizes on existing ratepayer contributions for green infrastructure equipment can serve a critical role in ensuring all Hawaii electricity ratepayers receive the greatest opportunity for affordable and clean energy,” the legislators went on to say.

Solar sign

Solar systems for low-income residents and renters were envisioned in the GEMS program through on-bill financing.

Civil Beat

The bill sailed through to passage, becoming Act 211 of the 2013 session. Testimony at the several committee hearings it received was almost universally laudatory. The only discouraging word came from Aaron S. Fujioka, then the administrator of the State Procurement Office. Every time the bill came up for a hearing, Fujioka urged legislators to delete the exemption from the state public procurement code that was carved out for the agency that is to administer the loan program at the heart of the system established by Act 211. (He was ignored.)

Since then, the Department of Business, Economic Development and Tourism has received approval from the Public Utilities Commission to float $150 million in bonds and to have those bonds be repaid through an irrevocable Green Infrastructure Fee – “nonbypassable,” in the terms of the PUC dockets, for the next 20 years – that has already begun to appear on the utility bills of Hawaiian Electric Co., Maui Electric Co. and Hawaii Electric Light Co. customers. (Kauai Island Utility Cooperative customers do not pay the fee and are excluded from the program.)

The bond sale occurred last fall, with associated fees taking some $3.66 million out of the net to the state. Since then, the state has earned $2.99 in interest on the funds raised in the bond float. It has spent $80,862.15 in administrative costs. Added to the fund has been $250,000 left over from a different DBEDT program. As of December 31, the date of the last balance report, the account stood at $146,510,101.79.

A Shifting Base

In late December, DBEDT released its “initial program notification” for the Green Infrastructure Loan Program, also known as GEMS (for Green Energy Market Securitization).

However, contrary to what was touted in testimony for SB 1087, customers participating in the program will not be able to pay off the cost of the energy-saving systems on their utility bills, through something called on-bill financing.

Two years earlier, in 2011, the Legislature ordered the PUC to investigate ways in which consumers might arrange for long-term financing of their energy-saving improvements by having their loans paid off through their monthly electric bills. The PUC studied the issue and established a working group to recommend how this might be carried out.

Contrary to what was touted, customers participating in the program will not be able to pay off the cost of the energy-saving systems on their utility bills through something called on-bill financing.

Not until June 3, 2014 – just days before DBEDT filed its applications for approval of the GEMS bond and loan program – did the PUC open a docket “to establish and implement an on-bill financing program.” In mid-November, the commission released a draft “Hawaii Energy Bill $aver Program” manual, which was widely panned by environmental groups participating in the docket. The pay-as-you-save option is still a work in progress.

Thus, by the time the GEMS program was ready for rollout, the state still had no means by which the loans to customers could be paid off through on-bill financing.

In a December filing with the PUC, the Energy Office stated, “In the event that on-bill repayment is available to serve GEMS participants, payments will be collected by the utility and remitted by the [Public Utilities] Commission’s Finance Program Administrator to GEMS-approved loan servicers.”

Nonprofits Only

Another significant change has to do with who can qualify. One of the big selling points for SB 1087 was the idea that it would democratize access to energy-saving technologies, which up to now have been out of reach of low-income customers.

Yet the initial program is not going to benefit renters at all, and very few homeowners. Only nonprofits – and well-established ones at that – are going to be eligible to participate when the loan tap is finally turned on. Nonprofits, which pay no taxes, are not able to take advantage of the tax credits for renewable energy installations. The credits are substantial. The federal tax credit, expiring the end of 2016, allows taxpayers to deduct up to 30 percent of their investment in renewable energy, while the corresponding state credit is 35 percent.

While the nonprofits cannot use the credits, other businesses can, provided they are the ones who pay for the system that ultimately ends up on the roofs of the nonprofits. The GEMS “nonprofit loan product” in effect allows for the transfer of those tax credits to businesses through the services of a company called Clean Power Finance.

As Alan Yonan, the DBEDT Energy Office communications officer, describes it, “In this transaction, Clean Power Finance will monetize the state and federal tax credits, which results in lower system and prepaid costs to the nonprofit.”

In a phone interview, Tanyan Chen with the Energy Office elaborated on the role of Clean Power Finance: “They are a solar developer, helping with the nonprofit product. Their role is essentially to combine tax equity with our financing to create a prepaid PPA [power purchase agreement] product.”

In other words, since the investors lined up by Clean Power Finance are getting a significant tax break, they can install the PV system at a discount and thus lower the cost-per-kilowatt-hour that the nonprofit is expected to prepay with the proceeds of the loan. Yonan estimates that the energy cost for participating nonprofits can be reduced to as low as 17 cents per kilowatt hour.

According to a description of the “nonprofit loan product” that DBEDT provided to the PUC in December, the qualifying nonprofits must own or have a long-term lease on the premises where the renewable energy installation is to be sited. Interest rates are capped at 9.999 percent, with a “minimum loan amount of $150,000.”

A major piece of the puzzle that DBEDT is still trying to figure out is how the customers receiving the loans will be able to connect to the Hawaiian Electric grid, given the near-moratorium on solar PV systems.

Mark Glick, head of the Energy Office, justified the decision to address nonprofits as the first class of customers eligible for GEMS loans. “Part of the trick in getting the nonprofit community served was to address the inability of the nonprofits to take advantage of the cost benefits that accrue from having tax credits involved. So, basically, we designed a package that allowed that nonprofit sector to accrue the benefits that private individuals with tax liability have.”

“When it comes to strategies involving nonprofits,” he added, “being able to take advantage of something in place at the federal level makes sense to do while it’s there.”

The Energy Office has indicated it is considering a “consumer loan product” as well as the “nonprofit loan product.” In addition to having the ability to purchase the long-term agreement with Clean Power Finance, customers would also have the option of buying the PV equipment on their own, and thus qualify for tax credits – if, that is, the “consumer loan product” is up and running quickly.

With the federal tax credits for installed systems expiring the end of next year, it may be a challenge for the Hawaii Green Infrastructure Authority to put money in consumers’ hands in time for them to avail themselves of the tax advantages.

Contrary to the promise of low-interest loans being made available to renters however, the “consumer loan product” – should it become available – would be available only to owners of fee-simple or leasehold properties.

“We’re currently in program design for the renter market,” said Chen. “That’s harder to crack, since the property is owned by the owner, and the renter is not there for the long term. So we’re trying to address incentive issues – how to incentivize the owner to be willing to install a system.”

Glick said that the department was supporting passage of a “community solar bill.”

“Then you’d be able to wrap renters into purchasing shares in a communal system,” he said. “Essentially that would solve the renter dilemma.”

Next Steps

If all goes well, Glick expects that the first GEMS loans will be issued sometime in April. “We originally thought we’d be running by December 2014, but it will be more like March 2015,” he said.

From the time of passage of Act 211 to that point, he added, “is a fair time to get a complicated, multi-headed program in place that will lead to installations across the board.”

So how much of the bond proceeds will be distributed this year?

“In the next 10 months, I would just be guessing,” he said. But by the time the federal tax credits close in December 2016, he added, he expects all the funds to be distributed.

Grid Lock-ups

A major piece of the puzzle that DBEDT is still trying to figure out is how the customers receiving the loans will be able to connect to the Hawaiian Electric grid, given the near-moratorium on solar PV systems that the HEI utilities have imposed for the last year. Hawaiian Electric has argued that before new PV systems can be authorized, costly and time-consuming studies need to be done to demonstrate that the new systems will not have an impact on circuits that the utility claims are already saturated with PV.

To address this, at least in part, the Hawaii Green Infrastructure Authority has told the Public Utilities Commission that it “plans to make GEMS financing products available to fund grid-connected, non-export PV systems that allow for the installation of PV without excess energy flowing back onto the grid.”

This also means that the PV systems purchased with GEMS funds would have to include some sort of storage to allow energy generated during daylight to be used at other times, since the excess energy would no longer be able to flow back into the utility circuits.

But anyone installing a battery back-up system also needs to obtain utility approval.

Given the challenges associated with new PV systems, Glick was asked, who made the decision to finance only PV systems in the first phase of the GEMS program.

“When we began program design, (we thought) the interconnection issue … would be in the hands of the Public Utilities Commission, which would issue standards for and approvals of interconnections, as opposed to leaving it up to the utility, but that never materialized,” he replied.

“There were a number of other measures underway at that time that we thought would be in place, and we would’ve been way ahead of the curve if that had been the case. In any event, since that time, we have also – we’re still in programmatic design to expand (what is offered). It is not a difficult process to go back to the PUC and add additional uses.”

Last June, in compliance with a PUC order, Hawaiian Electric filed with the PUC a proposed rule to clarify just what customers would be required to provide for systems that ran in parallel with, but did not feed into, the utility grid. Since then, it has become apparent that the company and the installers of solar PV systems are at loggerheads.

Although Hawaiian Electric claimed in its original filing that it had consulted in advance with all the interested parties, as the docket progressed, it became clear that there was no agreement on the level of utility review that should be required for such “non-export” systems.

In its statement of position filed in this docket, Hawaiian Electric acknowledged “that the interconnection review process can be improved” and added that it had made “significant efforts to do so.”

“However, rather than attempting to eliminate all oversight over the interconnection process, … all interested stakeholders should work towards the goal of implementing interconnection standards … that support the safe and reliable operation of the distribution system for all customers and utility employees in a fair and sustainable manner.”

Progress in the docket is slow. In early February, the PUC approved an extension of time to February 19 for the parties to file their reply statements of position.

For Further Reading

For more on the GEMS program, see the following sidebars in Environment Hawaii’s March 2015 issue, available at www.environment-hawaii.org:

Reprinted with permission from the current issue of Environment Hawaii, a non-profit news publication. The entire issue, as well as more than 20 years of past issues, is available free to Environment Hawaii subscribers at www.environment-hawaii.org. Non-subscribers must pay $10 for a two-day pass.

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