Hawaii provides U.S. utilities a glimpse of the future

“While states are starting to debate these questions and looking to five to 10 years down the road, we are dealing with these challenges in real-time.”

Utility Dive
By Davide Savenije
June 11, 2020

Utility regulators in Hawaii have launched an ambitious initiative to move the state toward a clean energy future as fast as possible. Since then, many in the industry have wondered: Is Hawaii an example of what's coming to the mainland?

The answer, according to the state's regulatory commission and biggest electric utility, is a resounding yes. But executing on that vision is a different issue.

Hawaii's high power prices frustrate customers

The electricity on Hawaii’s self-contained island grids is priced in oil, the dominant fuel source on the islands. The price of importing oil accounts for Hawaii’s eye-popping electricity prices -- the highest in the country at between 30 to 45 cents per kilowatt-hour, Hawaii PUC Commissioner Lorraine Akiba said at the National Town Meeting on Demand Response and Smart Grid.

“In Hawaii, there is frustration with the high costs of energy,” she said, noting this is one of the main drivers for the PUC’s recently announced intentions to revamp the state’s grids and overhaul the traditional cost-of-service utility regulatory model.

The Hawaiian Electric Company (HECO), the target of the PUC’s proposals, knows this all too well.

“Our customers are understandably frustrated with high electricity prices and so are we,” Lynne Unemori, vice president of corporate relations at HECO, told Utility Dive. “When you add it all up, about 70% of the electric rate here is due to fuel and fuel-related costs.”

The state’s electricity prices “have been driven up by dramatically higher oil prices in recent years,” Unemori explained. “Prices for low sulfur fuel oil in Hawaii shot up in 2011 after the tsunami and earthquake in Japan. The subsequent shutdown of nuclear plants and replacement in large part by plants running on low sulfur fuel oil caused prices in the Asia-Pacific market, where our fuel purchases are priced, to skyrocket.”

Like the PUC, HECO’s focus is on “reducing the historical dependence on imported oil,” Unemori said. “In Hawaii, clean energy makes sense not only for environmental reasons, but for economic reasons as well.”

Economics shift in favor of clean energy

Customers’ frustration with high energy prices provides Hawaii with “a lot of opportunities for us to integrate even more renewables,” Akiba pointed out.  

Hawaii is “blessed with an abundance of natural resources,” Akiba said. “Renewables are actually cheaper in our state than oil units” -- wind being the cheapest fuel source, followed by solar.

Hawaii has a “very aggressive” 40%-by-2040 renewable portfolio standard and the state is already at 15% penetration today, Akiba said. “We are leading the rest of the country in terms of integration of renewables.”

“The energy environment is changing,” Unemori acknowledged.

HECO sees four “inevitable” shifts taking place on the grid: the transition from fossil fuels to renewables, from central station power to more distributed energy resources, from less flexible big generating units to more flexible small units, and from a one-way grid to a multi-directional grid.

These changes ahead “are not only inevitable but also strategically make sense for Hawaii to address our high use of imported oil and our high energy costs,” Unemori added.

All told, renewables met more than 18% of HECO customers’ energy needs in 2013, according to Unemori.

But despite there being significant opportunities to add more renewable generation to the grid, the HECO utilities themselves may not have the chance to do so.

In its white paper on HECO’s strategic direction, the Hawaii PUC observed that continued utility ownership of generation assets is an “obstacle” to HECO becoming a “world-class operator of a high renewables grid.” The PUC is now considering whether to preclude HECO owning any new generation.

“As to who owns the generation, the answer should be whatever is in the best interests of our customers,” Unemori told Utility Dive.

Hawaii regulators tells utilities to embrace customer choice

Hawaii’s high fuel costs have made customer-sited energy resources cost-competitive with the grid far sooner than on the mainland.

“The model is changing,” Akiba said. It is “no longer the central plant model, the traditional old-school way of generation.”

The Hawaii PUC commissioner listed microgrids, energy efficiency, demand response, electric vehicles, distributed generation and utility-scale renewables as key parts of the long-term energy solution for Hawaii.

“It’s about more distributed generation, more generation closer to the load [and] engaging customers more,” Akiba added.

HECO already has one of the highest rooftop solar penetration rates of any U.S. electric utility.

“We’ve installed 9% of the nation’s total PV despite having less than 1% of the country’s utility customers,” Unemori told Utility Dive. “We’ve gone from 850 PV systems in 2008 to more than 43,000 PV systems today.”

“As of the end of the first quarter of this year, about 11% of the residential customers on our most populated island – Oahu – had distributed rooftop PV,” Unemori added.

Utilities “need to really see that customers have choice […] if they want to be engaged in the business model of the future,” Akiba explained. “If the utilities of today do not provide customers with the choices that they want, there will be the disruption in the industry.”

“Customer are quite sophisticated and informed” in Hawaii, Akiba said, and “involving them and keeping them informed” is essential to the process now.

Because of this, the Hawaii PUC is “looking to give guidance to utilities in our jurisdiction as how to transform themselves to meet the challenges of a new distributed energy resource market where customers have choice,” Akiba said.

HECO stressed the importance of the relationship with its customers. “Our role and the electric grid must evolve to meet their changing needs,” Unemori said. “Our customers will increasingly become partners in helping manage the grid.”

Hawaii's clean energy future not without its problems

While Hawaii’s future looks certain to hold more renewable energy and distributed generation, this is not without its problems. And because the state is far ahead of the mainland in making this energy transition, many are closely watching what is unfolding in Hawaii as an early test case.

“More than 25% of the circuits on Oahu are over 100% of the gross daytime minimum load when it comes to PV,” Unemori indicated. “Because we are so far ahead, we’re encountering ahead of everyone else the technical issues that can impact safety and reliability.”

“For the typical ‘residential sized’ PV systems (single-phase, less than 10kW), we are generally allowing PV up to 120% of gross daytime minimum load on distribution circuits if simple mitigation measures such as approved fast-acting inverters are on their systems,” Unemori said.

“But we’re now reaching levels of PV where we need to look beyond the individual neighborhood distribution-level circuits and also consider the overall system impacts,” she added. “In the middle of sunny days, with the high amount of variable renewable energy online, system load is decreasing so much that we will increasingly need to turn down or turn off during those times other available generation sources, including other renewables.”

Due to the still-growing penetrations of rooftop solar, HECO needs to have “enough quick-starting, fast-ramping generation available to quickly compensate when variable generation is suddenly not available,” Unemori told Utility Dive. “Through programs like demand and dynamic and time-of-use pricing we can smooth demand profile to help address some of the issues we’re encountering with high amounts of DG.”

Is Hawaii a glimpse of the future?

While some in the industry point to unique regional constraints as the main drivers for Hawaii’s clean energy initiatives, both the PUC and HECO believe the situation in Hawaii is not one-of-a-kind.

“What we are doing in Hawaii is not unique to Hawaii,” Akiba said. “While states are starting to debate these questions and looking to five to 10 years down the road, we are dealing with [these challenges] in real-time.”

The opportunity to integrate more renewables and the resulting challenge of operating the transmission and distribution grids are already happening in other regions, Akiba said.

If anything, Hawaii’s uniquely self-contained grids provide the state with an opportunity to be a “living laboratory” for the utility industry, Akiba said. “We can’t sell that energy across state lines to another sister state or another jurisdiction. The solutions have to be done within our energy ecosystem.”

“We don’t really think that what’s going in Hawaii is ‘unique,’” Unemori echoed.

“As one of our PUC commissioners said, we are a ‘postcard from the future’ for the rest of the country,” she added. “We think that there will be many lessons learned and solutions refined here that can be applied elsewhere.”

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