}

Hawaiian Electric's plan to end solar net metering, explained

The utility says it needs a new valuation scheme to fairly compensate distributed generation

Hawaiian Electric, the Aloha state's dominant electricity provider, has proposed to end retail net metering by April, replacing it with an alternative tariff structure. The much-watched utility says the changes are necessary to ensure grid reliability and a fair cost distribution for its customers, but solar advocates worry the new valuation scheme is an attempt to tamp down on the spread of distributed generation.

“We are entering into a brave new frontier in terms of DG penetration on this isolated island grid,” said Marco Mangelsdor, president of installer ProVision Solar. “How much DG can today’s grid, not the smart grid of the future, accommodate? No one knows. It is a step-by-step groping through the dark and hoping that things won’t blow up in our faces.” 

Hawaii's solar conundrum 

Hawaii has over 51,000 solar owners, with penetration rates ranging from 9% to 12% on the several islands. By contrast, he national average solar penetration level was 0.5% in December 2013.

Also important is that Hawaii’s net energy metering (NEM) policy has “88% of the utility’s ratepayers subsidizing the 12% who have net energy metered systems,” Mangelsdorf said.  He believes utility’s concern about that shift of costs for system maintenance is reasonable. “The cost of NEM was $38 million in 2013 and it is estimated at $53 million in 2014. These are not trivial dollars.”

The plan submitted to state regulators last fall by the Hawaii Electric Companies (HECO), serving the islands of Oahu, Maui, and Hawaii, calls for getting 65% renewables, tripling distributed solar, and cutting customers’ bills 20% by 2030.

To resolve the challenges of meeting those and other ambitious goals, HECO filed a Transitional Distributed Generation (TDG) program Jan. 20 with the Hawaii Public Utilities Commission. The plan, according to HECO spokesperson Darren Pai, “focuses on a number of different issues that will help us grow rooftop solar in a safe, sustainable way that is fair to all customers."

To meet the cost burdens imposed by the NEM policy, the TDG program includes a cut in the value of the credit solar owners earn for the electricity their systems send to the grid. Instead of being credited at the retail electricity rate of $0.295 cents per kilowatt-hour (kWh), Oahu solar owners would get a TDG-estimated tariff rate of $0.147 per kWh; on Maui, solar owners would go from $0.351 per kWh to $0.223 per kWh; and on Hawaii, the credit would drop from $0.359 to $0.18.6 per kWh.

HECO says it will honor NEM agreements with current rooftop solar owners and those with pending interconnection applications.

To deal with high levels of solar penetration, the TDG program includes the introduction of new inverter and distribution system technology.

“We are prepared to increase the circuit threshold from 120% of daytime minimum load (DML) to 250% of DML,” Pai said. “This is unprecedented.”

Solar industry unhappy with proposal

Despite the promise to expand the daytime minimum load threshold, many solar installers are smarting over the HECO tariff plan. 

“We are deeply concerned about the proposal,” said Robert Harris, Public Policy Director for Sunrun, a leading national rooftop solar funder and installer. “HECO appears to be following the national utility playbook of trying to stop competition from solar.”

Some Oahu circuits are approaching 20% solar generation, HECO says.
 

Hawaii does have the highest level of PV penetration and the highest cost of electricity in the U.S., Harris acknowledged. “But HECO has filed two rate cases in the past two years and did not bring the cost shift issue up in either,” he said.

When cost shift concerns have been raised in other states, Harris pointed out, “they have gone through a public process of analyzing the costs and benefits of distributed generation in a rate case or a separate proceeding. That hasn’t happened in Hawaii. The new tariffs are clearly not the result of a cost-benefit analysis.”

Research done in partnership with SolarCity, the Electric Power Research Institute (EPRI), and the National Renewable Energy Laboratory (NREL) has dispelled HECO’s technical argument limiting rooftop solar to 120% of system circuits’ MDL,” said SolarCity Spokesperson Amanda Myers.

HECO is now “pivoting to an economic argument.” But its claim of a cost shift “doesn’t make it so,” she added. “We welcome the opportunity to work with HECO to develop a process based on hard data and evidence.” 

“The two most troubling things about the Hawaiian Electric filing,” said Regulatory Assistance Project Sr. Advisor Jim Lazar, “are (1) the apparently just wrong treatment of purchased power in the tariff and (2) there are no time of use [TOU] rates.”

The tariffs: How is solar value calculated?

“The tariff numbers have no rationale or explanation. Only an objective cost-benefit analysis based on complete data would provide that,” Harris said.

Hawaii PUC Docket 2014-0192, Instituting A Proceeding To Investigate Distributed Energy Resource Policies, was opened in August 2014 to examine such concerns, Harris said. A follow-up on a January 2014 preliminary study of Hawaii renewables policy by Energy plus Environmental Economics (E3) would be part of that docket.

“The preliminary E3 study proposes higher numbers — in the 24 cents per kWh range,” Harris said.

“HECO's calculation of its proposed tariff that will substitute for NEM is based on base fuel energy charge plus energy cost adjustment," Pai explained, quoting from the filing. “It is modeled on the Kauai Island Utility Cooperative (KIUC) Schedule Q, though it is not the same.”

It sets the credit “at the customer’s cost of electricity — or the cost we charge to customers for energy, excluding any operations, maintenance or other administrative costs,” according to Pai.

Base fuel energy charge” and “energy cost adjustment (ECA)” are categories of energy charges in the HECO bill. From data on the utility’s website, Lazar determined that the first is $0.136 per kWh and the second is $0.011 per kWh on Oahu. That is how the $0.147 per kWh tariff was calculated, he believes.

But to set the tariff at the actual charge for energy, as was done in the calculation of KIUC’s Schedule Q, HECO should have included a “purchased power” price of $0.031 per kWh “because HECO purchases about a third of its power from a coal plant and an oil plant,” Lazar said. That exclusion “is a fundamental flaw.”

Including TOU rates would make the proposal more equitable, Lazar believes. New net metered customers could be charged peak prices for peak demand period electricity consumption and credited at peak prices for electricity sent to the grid during peak demand periods. “That they did not put TOU rates on new net metered customers is living in the past.”

The TDG program has multiple mentions of energy storage but offers no incentives to develop it, Lazar added. “TOU would be an incentive to have on-site energy storage.”

“As an installer, I wish the tariffs were higher,” Mangelsdorf said. “But I am glad they are not as low as avoided cost.” And, he added, the payback period for a rooftop solar PV system is affected more by three other still favorable factors:

  1. the dramatic decrease and still falling installed cost of PV
  2. the federal investment tax credit that will remain at 30% through the end of 2016
  3. the Hawaii tax credit of 35% of system cost or $5,000, whichever is less, that has no sunset date

HECO estimates the current 5 year payback period for a typical Oahu rooftop residential system will become 9 years, Pai said. On Hawaii, HECO expects the current payback period of 4 years to become 7 years with the new tariffs; on Maui, the current 4 year period will go to 6 years.

Those paybacks are based, according to the filing, on HECO’s assumption that only a quarter of the solar energy-generated electricity will be consumed on site.  

“If the customer can shift their loads to use more power during peak solar generating hours to minimize surplus, they would maximize the value of those solar kWhs,” Mangelsdorf noted.

Going from 125% MDL to 250%

HECO is pushing for expedited PUC approval so it can begin instituting the inverter and distribution system technology upgrades that will allow circuit threshold increases from 120% to 250% of Daily Minimum Load, Pai said.

“We are going to argue that the MDL advances should move forward absent action on the filing by the PUC,” Harris said. “Bundling this with an economic issue is startling and perhaps a ploy to slow down solar.”

Interconnection limits have always been resolved by the utility, he said. “We will ask that the PUC not take on that additional authority but instruct the utility to apply its normal reliability and safety standards.”

Mangelsdorf does not share what he calls the “presumption of bad faith” of which many in Hawaii’s solar community accuse HECO. But even so, he is concerned about the new interconnection plan.

“The change in the MDL from 120% to 250% is a big thing,” he said. “But the HECO filing implies they are planning to do that on circuit after circuit. They can’t. It can’t even be most of the 400-plus circuits because at that level of surplus generation, there will be significant effects on grid stability.”

The filing also requires a remote controllable PV disconnect on every new system and gives HECO broad discretion to determine when disconnects are necessary, Mangelsdorf noted.

“Some might take this as a way for HECO to curtail when they want to. If I was in HECO’s position, I would want to do the same thing. But it is a risk, a liability, for a system purchaser and for all the leasing and PPA companies,” he said.

Installers hope HECO's new plans will allow it to connect more rooftop solar systems
 

What will the PUC do?

Net metered solar owners’ billing arrangements will be unchanged, Pai said. “This only applies to new customers who interconnect but we are asking the PUC to make a decision within 60 days.”

The PUC is unlikely to respond that quickly or to agree to HECO’s request that a decision be made without hearings, Lazar and Harris agreed.

“I do not think the PUC will act on this motion until a cost-benefit analysis is completed,” Harris speculated.

If the purchased power issue is squared away, HECO’s proposal is not unreasonable, Lazar said. It could make an interim ruling and then hold hearings.

The entire filing represents an interim action, according to HECO. “The Transitional Distributed Generation program would remain in effect while the PUC works on a permanent replacement program,” a statement said.

With electricity use declining, PV penetration increasing, and costs being shifted, “it is unrealistic to expect that the high growth in distributed solar PV capacity additions experienced in the 2010 - 2013 time period can be sustained, in the same technical, economic and policy manner,”  HECO quoted from an April 2014 PUC Order.

“From HECO’s perspective it is reasonable to request an expedited decision-making,” Mangelsdorf said. “There are real and substantive issues both on a per-circuit basis and on a system-wide basis and a greater sense of urgency now than there was even a year ago. HECO is saying to the commission this it not something that wait for a six month debate.”

Technical obstacles have already driven solar sales down. “The total number of interconnection permits was down 50% from 2013 to 2014, 2013 was a reduction from 2012, and it looks like January will be the lowest month for permits issued in three years” Mangelsdorf said. “As much as I would like to, I can’t come up with any factors that lead me to believe this will change.”

The Kicker: Oil prices

Because so much of Hawaii’s power is generated from burning oil products, the plunging price of oil introduces another challenge to solar. It will bring the ECA part of the tariff down, probably a lot. It could, according to calculations from Lazar based on HECO data, bring the overall value of the credit to solar owners down to the $0.10 per kWh range. That would certainly add new urgency to an already crucial question.

Editor's Note: This post has been updated to reflect the fact that Hawaiian Electric will honor net metering agreements with current rooftop solar customers and those that have submitted interconnection applications.