Stem Inc. in many ways illustrates the challenges facing Hawaiian Electric Co. as it tries to modernize the grid that brings electricity to some 450,000 customers statewide.

Stem has set up massive battery systems and software that diagnose energy consumption at 29 businesses on Oahu.  The company says its systems store energy from HECO’s grid and let businesses use the energy during peak times to help even out energy consumption and thereby lower electric bills.

Combined with rooftop solar systems some customers have, the technology creates “virtual power plants,” says Kimberly Setliff, a spokeswoman for Stem, which is based in Milbrae, Calif.

Such virtual power plants, along with other distributed energy resources, will play a key role in Hawaii’s future, says Colton Ching, the power company’s senior vice president for planning and technology.

Hawaii’s goal is to produce 100 percent of its electricity from renewable resources by 2045. And, Ching says, “a good chunk of that will come from these distributed resources.”

The challenge facing HECO is how to modernize its power grid to deal with the distributed resources. On June 30, HECO is scheduled to present a draft grid modernization strategy to the Public Utilities Commission. Ways to deal with distributed resources are “very much central to the draft,” Ching said. A final strategy is due in August.

The June filing marks HECO’s second effort to convince regulators that HECO has solved what company executives call the “grid mod” puzzle. The PUC rejected a previous proposal calling for a $736 million upgrade, which HECO submitted in March 2016. The PUC said benefits to ratepayers didn’t justify the whopping price tag and that HECO’s vision was limited.

“HECO Companies have yet to articulate a sustainable business model that is aligned with customers’ interests and the State’s public policy goals,” the PUC said in its January 2017 order.

The PUC further questioned such a large investment for a project that asserted only an “indirect link to address the primary issue currently facing Hawaii’s distribution grids.”

Specifically, the PUC cited the need to accommodate the roughly 77,000 solar systems set up by HECO customers. The PUC said HECO’s application didn’t specifically address how the power monopoly intended to integrate such distributed energy resources, known as “DERs” in utility parlance.  And the PUC made clear its vision of a modern grid.

“The power grid must become a ‘plug-and-play’ platform that integrates an ever-growing set of DER technologies,” the PUC said.

The technical challenge facing HECO is enormous.

The grid was originally designed to carry power from a handful of large power plants to customers, Ching said.

In simple terms, it was like a train line designed to carry one type of big locomotive in one direction, he said. Now the grid must carry electricity in multiple directions from an ever-increasing array of distributed sources.

“Today,” Ching said, “we have upward of 100,000 generators across five islands.”

Eventually, Ching said, if Hawaii is to reach its goal of 100 percent renewable sources, there may be a system “effectively on every home.”

“How do you deal with the fact that you’ve broken up your power plant into a thousand pieces and put them out on the end of the power lines?” said Tad Glauthier, Stem Inc.’s vice president for Hawaii operations.

“It’s a big challenge for utilities around the world,” says Ben York, a senior project engineer with the Electric Power Research Institute, an independent, nonprofit organization that conducts public interest energy and environmental research.

Grid modernization is an evolving term, said York, an expert in distributed energy resources. Generally, he said, it involves “stretching infrastructure to accommodate what’s going on.”

That includes system planning, technology to monitor what is happening on the grid, and data communications and management systems, York said.

One executive summed up the situation facing power monopolies during a series of panel discussions organized by HECO in May.

“The grid is the greatest asset the utility has,” said Whit Fulton, chief executive of ConnectDER, which creates technology to connect distributed resources like solar systems to the grid. “But it has to transform from what it is today to something rich and deeper.”

Indeed, Ching said the modernized grid isn’t just about transporting electricity; it’s also a communications and information technology network, often referred to as a “smart grid.”

Communication technology is so important for modernized utility grids in fact that an organization called the WiSun Alliance is creating standards for that allow vendors to create products that can be used by a variety of utilities, something like WiFi for electric grids.

Modernizing In Phases Can Mitigate Risks

HECO’s previous grid modernization plan had an enormous amount of information. Running 587 pages, the document outlined 10 major components, including advanced meters and advanced systems to manage outages and data.

Although the PUC’s order left HECO the option of refiling, the company is taking a different approach, Ching said.

HECO has spent considerable time talking to stakeholders, he said.

This has meant h0lding focus groups with residential ratepayers, and organizing panel discussions events like the May series executives from companies ranging from smaller firms like Stem to giants such as Siemens and General Electric.

Instead of refiling a project application for a system-wide project with a specific cost estimate, the draft is more a strategy outline that envisions a modernization program that will take place in phases with “conceptual cost estimates.”

A phased approach will prevent HECO from being locked into any one technology that would then be applied to nearly half a million customers. That lowers risks, Ching said. It also lets HECO make upgrades strategically based on customer needs.

In simple terms, this means HECO won’t be locked into making everyone use the grid equivalent of an old Blackberry, when the news iPhone might be just around the corner.

“We’re not making one big bet on one product,” he said.

Meanwhile, companies like Stem Inc. are playing a role through pilot programs like its energy storage venture with HECO. Stem’s Glauthier said modernizing Hawaii’s grid is a long-term adventure.

“We’re embarking on a journey that we don’t know the last 10 years of, or the last five years of,” he said.

For now, he said, “There’s a lot of focus on the first five years.”

Whatever form it takes, Glauthier said, the grid is here to stay.

He said he doesn’t put much stock in the doomsday scenario of people leaving the grid after setting up their own solar and storage systems, thereby driving up the rates of remaining utility customers and causing more defections.

“It would be silly to think there aren’t economies of scale in energy production,” he said. “Of course, there are.”