Gov. David Ige isn’t anyone’s idea of a disruptive force, but he helped to shake up the islands’ power elite at the recent 2015 Asia Pacific Resilience Innovation Summits & Expo at the Honolulu Convention Center.
The unassuming governor turned the clean-energy event on its side in his opening-day speech when he made it clear that he intends to help drive a radical transformation of Hawaii’s most critical industry: electricity.
Ige called on hundreds of executives, CEOs, financiers, inventors and engineers to bring their ideas, technology and investment to the “test bed” that is Hawaii’s energy sector.
Then he sent shockwaves through the rest of the multi-day summit when he forcefully came out against the use of liquefied natural gas to power the state’s electricity-generating plants. There will be no half-measures, he suggested, as Hawaii leapfrogs toward its “100 percent renewable” energy commitment by 2045.
The governor’s all-in stance signaled that Hawaii has become the multi-faceted renewable industry’s Petri dish for the development of a sustainable energy-driven society.
“What you prove viable here,” Ige told the crowd, “will one day change the world.”
The state’s energy ecosystem is ripe for economic disruption.
Hawaii had already been moving to make renewable energy a more significant part of the power supply base. And in May, the Legislature passed the renewable electricity commitment, which must be met by 2045.
Meanwhile, Hawaiian Electric Co., the state’s predominant electric utility that can trace its roots to the days of King Kalakaua, is in the process of being taken over by Florida-based NextEra Energy in a deal worth $4.3 billion.
Hawaii residents and businesses already pay, by far, the highest electric costs in the country.
To bring down the cost of power for everyone, Hawaii has been weighing a shift toward liquefied natural gas for energy generation as a multi-decade bridge before shifting again to cleaner renewable energy sources to meet the 2045 goals.
Hawaii Gas and HECO have both expressed keen interest in that potential LNG-driven electricity market but, as Ige demonstrated at the summit, the ground can shift quickly.
“Hawaii is sending the rest of the U.S. a postcard from the future.” — Ron Binz, an energy industry regulator-turned consultant
If a lot of money — including yours — rides on decisions made today, it is largely because HECO opened this door. The company has proved unable to bring prices down in a meaningful and enduring way. That is largely due to its use of oil-powered electricity generators. Despite the recent cratering in prices, oil powered energy in Hawaii remains very expensive.
Most of us who aren’t using rooftop solar remain a captive market for the utility, paying about three times the average rate nationally. HECO has been unable to bring prices down in a meaningful and enduring way because most of its generators use oil. Petroleum prices have proved to be extremely volatile and — despite the recent cratering in prices — exorbitant.
The shift to increasingly affordable renewable energy sources, especially solar power, is handicapped by an aging electric grid that, according to the utility, can only safely handle a limited — and much debated — amount of customer-generated renewable energy flowing into it. With the NextEra deal before the Public Utilities Commission, HECO has let the percentage of distributed generation on Oahu climb this year.
Just about everyone agrees on one thing: That grid, along with other elements of the system, needs revamping.
So it is no wonder that the recent energy summit felt like a land of opportunity with startups pitching their solutions to problems large, small and perhaps non-existent. There were even speed dating-like “energy excelerator” presentations by young companies seeking to win over clients. And the military took part in panels to highlight its own multi-faceted push toward greater energy sustainability, which it sees as a security issue.
Other parts of the country and places around the globe that are contemplating their own energy futures would do well to monitor the transformation in Hawaii, former energy industry regulator Ron Binz explained during a recent visit to Honolulu.
“Hawaii is sending the rest of the U.S. a postcard from the future,” said Binz, now a consultant to Blue Planet Foundation which is is working to end fossil fuel consumption.
Electric utility customers in the islands are forking out less money than we did in mid-2014 for the amount of energy we consume. The lower cost is fundamentally about dropping oil prices, which have cascaded due to broader economic and geopolitical factors, and reached their lowest point since 2008.
In just a year, the price of a barrel of crude has descended — almost unimaginably, to many forecasters — from $115 to less than $40. Even though the low-sulfur diesel blend that HECO uses is a bit more expensive, its cost has also declined sharply and a chunk of oil savings is translating into lower electric bills (albeit after a delay of several months).
But it is worth remembering that what oil-market instability gives to consumers, it usually ends up taking away. The factors helping to drive oil prices down — increased production from major foreign oil producers and newer domestic companies engaged in fracking, as well as fears of a sharp economic slowdown in China — will one day be replaced by new sources of demand and fresh destabilizing geopolitical events that drive prices back up.
And while our current electricity bills aren’t as bad as they’ve been, they remain a multi-billion-dollar drag on residents and businesses across the state.
Hawaii’s electricity hasn’t always been so outlandishly priced. In the 1990s, residents paid rates similar to other states. (See graph above.) Other states adapted more affordable energy sources, like coal and natural gas, but Hawaii stuck largely to oil, spending billions of dollars per year on it.
So it was no surprise when respected economist Joseph Stiglitz felt compelled, in a 2012 speech at the University of Hawaii, to highlight the detrimental impact of America’s highest electricity rates on this state’s economy.
The Nobel Laureate emphasized the importance of creating an efficient and competitive electricity system based on renewable energy, especially solar, which doesn’t require a massive scale to drive down costs. “And I think if you do that,” Stiglitz said, “it would do much to increase standards of living here and make Hawaii more competitive.”
From a cost-of-living vantage point, our electricity prices act like a tax on individuals and nearly all business activity — but without the revenue going to government for things like social services, roads and other infrastructure.
We use less energy — generally between 50 percent and 60 percent less than people on the mainland. The financial resource website WalletHub lists Hawaii as having the nation’s most expensive average monthly electric bill, at $179, despite the fact that we don’t need heating in winter.
A 2014 report from the Department of Business, Economic Development and Tourism, found that direct per capita spending on electricity in Hawaii in 2012 was $1,072 per year.
DBEDT’s Eugene Tian, the chief state economist, specifies that this amount doesn’t include indirect costs from high electricity prices that run through the economy like a whipping sheet, raising the cost of everything from building a home to groceries.
Truly affordable electricity would bring a multitude of benefits, like getting more money coursing through the state’s economy, according to economists. It could be a boon to innovation by leaving companies more money to invest in upgrades. Businesses could lower their prices, buffer their bottom lines, increase salaries, pay off debts or otherwise grow.
Beyond individuals and companies, markedly cheaper energy would benefit the state government since it is a big direct and indirect consumer of energy, too. Lower energy prices would mean bringing down the cost of running Hawaii.
Energy executives note the many challenges in bringing the state’s energy costs to anywhere near mainland levels: high land, labor and shipping costs, not to mention regulations. Binz also points to the 20th century habits of an energy utility that hasn’t been required to change enough.
At some point, the state will need a detailed vision laying out the mosaic of infrastructure, energy sources and oversight that will ultimately result in an essentially renewable Hawaii by 2045.
How Hawaii modernizes and manages an aging power grid, and interweaves alternatives into it is a key part of the challenge. So is the road map that convincingly demonstrates what this transition will look like. These plans will also need to make sure large swaths of the population are not left in the dark.
But beyond just keeping electricity flowing, a key definer of success or failure will be whether prices come down sharply in the coming years.
Gov. Ige tacitly acknowledged that even he is unsure about exactly how to get to the renewable future Hawaii has signed up for, and that the price issue could stir up trouble.
“I do recognize that if oil prices rise dramatically in the coming years, some will say ‘Why didn’t we invest in LNG?’” Ige said at the energy summit. “I am willing to take that chance to leave Hawaii on the great path it has ahead of it.”
Do you have a story about the human impact of the cost of living in the islands, whether about you or someone you know? If so, drop me a note at firstname.lastname@example.org.
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