Inside Hawaiian Electric's new plan to get to 100% renewables

LNG, the NextEra merger and the role of DERs are the major sticking points emerging from the utility's new power supply plan

After failing to satisfy regulators twice in the last few years, the Hawaiian Electric Companies (HECO) filed their third attempt at a power supply plan at the beginning of this month.

In a nutshell, HECO's Power Supply Improvement Plan (PSIP), filed April 1, is a roadmap detailing how the utility will comply with Hawaii's historic Act 97, which mandated last year that the state shift to 100% renewable electricity generation by 2045.

The filing comes in the shadow of rejection of HECO's last PSIP in November 2015, in which Hawaii regulators outlined eight specific objections to the plan and directed the utility to go back to the drawing board. 

It also comes against the backdrop of rising anxiety over what the Hawaii Public Utilities Commission’s (PUC) decision will be on the proposed $4.3 billion merger between HECO and NextEra Energy. Rejection of HECO's PSIP last year was seen as a bad omen for the merger, given NextEra's support for the plan.

In an interview with Utility Dive, Colton Ching, HECO's vice president for energy delivery, said the new plan will help his utility end its current reliance on fossil fuels (especially fuel oil) for electricity generation.

“Act 97 is a dramatic statement of our state’s energy policy and goal and it was among the main things we had to work on in this report,” Ching said. “We had to extend it out to 2045 and design a portfolio for our system that will achieve the 100% renewable portfolio standard.”

HECO’s intention with this PSIP is “to change the paradigm so that renewables do not supplement the system but are the entire energy system,” Ching added.

To do that, he said, the plan calls for a diverse portfolio of renewables “so that we don’t become overly reliant on one technology.”

The two-volume, 1,200-plus page filing (docket 2014-0183) provides details of the power supply mix on each of the state’s islands. Overall, its preferred plan calls for Hawaii’s 2045 electricity generation mix to be composed of 16.1% distributed solar, 10.2% utility-scale solar, 33.4% onshore and offshore wind energy, 26.9% biofuels, 6.5% geothermal energy, 6.5% waste and biomass, and 0.4% hydropower.

The utility intends to exceed Act 97 requirements by getting to 100% renewables for Molokai and Lanai by 2030 and by 2040 for Maui and Hawaii Island. Achieving those levels of renewable penetration will allow it to meet the 70% system-wide renewables target by 2040 while it scales Oahu, the most populous island, up to 100% renewables.

Aiming for regulatory concerns

The utility’s second PSIP, filed last November, was met with a list of eight specific concerns from the PUC.

Among them, regulators wrote that the utility had not aggressively sought utility-scale renewable generation, addressed distributed distributed resources, or justified plans for its fossil fuel plants. They also raised concerns with HECO's cost estimates, ancillary service proposals, and detail of its analysis for an inter-island transmission system — something the state currently lacks.

Much of HECO's new plan was written to address those concerns. Early in the first PSIP document, a chapter lists the regulatory concerns and reports the utility has “integrated them throughout our planning, modeling, analyses, and decision-making.”   

“We were very attentive to seven of the commission’s eight objections to the last PSIP,” Ching said.

Only its concern about the inter-island cable was not fully answered by the plan, according to the utility executive. A complete assessment of that, he said, will be delivered later this year.

The PUC’s first concern was about customer rate and bill impacts. Closely related to that was the commissioners’ concerns about implementation risks for the utility and for customers, Ching said.

To address those concerns, the utility established what it calls “themes" for different power supply decisions. For each theme, HECO planners devised 30 to 40 resource plans, each built to achieve specific strategic objectives, Ching said.

The first theme involves 30-year plans with an accelerated deployment of renewable resources. A second aims to meet the 100% renewables mandate with slower renewables deployment and the use of imported liquefied natural gas (LNG) between 2021 and 2040. A third theme involves similar renewables deployment to the second, but assumes LNG is not available.  

After designing the plans, the utility then analyzed them “for the lowest 30-year costs and most moderate rates and bill impacts and lowest levels of risk,” Ching said.

It then selected “one resource plan for each of the three themes for each island, based on a thorough rate and bill analysis.”

The “stepwise and transparent process” allowed HECO to arrive at a “preferred” plan with the best strategies to balance costs, bill impacts, and risks, Ching said.

Mixed reactions

Several important observers of HECO’s efforts to present the commission with an acceptable plan offered Utility Dive preliminary evaluations of the new PSIP.

“This updated PSIP is a vast improvement,” said former PUC Chair Mina Morita. “It appears to have been developed within a decision framework where the assumptions and processes were transparent, and the analysis supports the preferred plan."  

There are also indications in the plan that there was "collaboration with NextEra," she added, "which is important because this gives a window into the future of HECO under NextEra ownership.”

A leading energy voice in the administration of Gov. David Ige (D) also offered tentative praise for the new power supply plan. 

“We agreed with the PUC’s critique of the last PSIP, but there appears to be a completely changed approach,” said Mark Glick, head of Hawaii's State Energy Office, a division of the Department of Business, Economic Development, and Tourism (DBEDT).

“It won’t be until we add up the numbers that we will know if they match the rhetoric, but it appears that issues brought up about planning transparency and optimization were in their thinking for this PSIP,” he added. “We are going to give them the benefit of the doubt and then we will ask questions.”

Despite that approach from state officials, some environmental advocates are already critiquing the new plan. 

“They say the words but the results say something else,” said Earthjustice Attorney Isaac Moriwake, who represents the Sierra Club in the PSIP proceeding.  “It is more of the same failed planning with the same two recurring themes: Switching coal and oil to liquefied natural gas and slowing the growth of distributed energy resources.”

“The PUC called for an aggressive pursuit of renewable energy, but that is not what this is,” he added. “This is still a fossil fuel switching plan first and converting to clean energy is almost an afterthought.”

LNG a sticking point

While Glick's State Energy Office may be striking a conciliatory tone at the outset of PSIP analyses, a number of sticky issues lurk below the covers of the thousand-page plan. Chief among them is the utility's proposal to import liquefied natural gas — something that Gov. Ige opposes, calling it a "distraction" from the island's 100% renewable energy goal. 

HECO’s 100% renewables goal can be met with or without LNG, Ching said. But if the utility uses it in an upgraded thermal fleet of highly-flexible, combined-cycle turbines with minimal new fuel delivery and regasification infrastructure it could produce “huge cost savings and tremendous reductions in greenhouse gas emissions."

Biofuel is now significantly more expensive than the oil that is used to generate 70% of Hawaii’s current electricity and is expected to be somewhat more expensive through 2040, Ching said. LNG is expected to produce the lowest-cost electricity.

The preferred plan calls for the gas plants and LNG delivery system to be online by 2021 and fully depreciated and out of service by 2040, something that raises eyebrows among skeptical parties. 

“They claim to use LNG only as a transition but they don’t have a real plan for what they are going to replace it with,” Moriwake responded.

Figure ES-4 in the PSIP’s Executive Summary does not show a ramp down of LNG use, Moriwake pointed out. 

“It magically disappears in 2040,” he said. “In its place in the graph is ‘future alternative resources’ that are unspecified. What are they?”

It remains unclear what the "future alternative resources" will be to replace LNG.

Text in Chapter 5 verifies this reading of the graphic, Moriwake added.

“At the conclusion of the 20-year LNG contract, alternative fuels to provide the remaining power to the island during this 70% RPS period were considered,” it reads. “Potential fuels include to provide this energy include LNG, oil, biofuels, or a mix of all three. Under the current fuel prices forecasts, oil is cheaper than biofuels so it was selected as the fuel until the use of biofuels was necessary in 2045 to meet the 100% renewable energy.”

Moriwake understands this to mean that after 2040, “they may replace LNG with LNG."

“It appears that they are going to prolong their LNG generation as long as possible and, in 2045, suddenly switch to biofuels," he said.

He described this as the “ongoing, utility-centric way of moving to renewables” but it does not follow the commission’s guidance and move Hawaii to renewables as quickly as possible. “It is incrementalism, not transformative,” he said.

It is not clear that HECO’s LNG price projections will stand up to scrutiny, but this will be a focus of further review, Moriwake said. “The jury is out on whether their plan is the most cost-effective.”

The problem is that ratepayers bear the risk of fuel price volatility because contract riders allow the utility to pass through any price increases in rates, Moriwake said. The commission has described this "a major concern in need of reform" in a past white paper, he added. 

The commission could eliminate this “moral hazard” by imposing on the utility the financial burden of fuel price volatility and the cost of any stranded assets that result in the failure of its cost projections, Moriwake suggested.

“If, for example, solar plus storage grows so rapidly that LNG becomes obsolete far sooner than anticipated, then let the utility bear that burden,” he said. “That is the truth serum to see how confident HECO is that the LNG plan is the most cost-effective.”

HECO's Ching responded to Moriwake's concerns by saying that projections 25 or 30 years out can change depending on policy, technology and environmental factors. The fuels that complete Hawaii's transition could be "a variety of renewable resources or cleaner fuels such as LNG," he said.

Multiple fuel forecasts showed natural gas prices to be lower and more stable than oil for the foreseeable future, Ching  said. LNG price projections are "less susceptible to volatility in commodity prices" because they include both supply chain and fuel costs. 

Reliance on oil during the transition, Ching added, "exposes our customers to greater volatility in fuel prices."

LNG and the NextEra merger

Although HECO officials are aware their merger with NextEra is still up in the air, the large capital investment necessary to do the LNG build-out “require us to be part of NextEra in order to make that happen in that form and time frame,” Ching said.

The PSIP offers alternative themes that don’t include LNG, he said, but the preferred and most cost-effective one is in partnership with NextEra.

Glick’s response to that assertion was qualified. There are, he acknowledged, significant gains from the more efficient combined cycle turbines the PSIP proposes.

“The state has always questioned why there has not been a more aggressive replacement of the dirtiest and least efficient power plants in their system,” he said. “That was one of the commission’s major objections to the last PSIP.”

But it is not yet clear to him that reliance on LNG for the fuel optimizes the system. A clear and complete analysis of the costs and benefits of LNG, biofuel, low sulfur fuel oil, and diesel oil is needed, he said.

“There is a strong case to be made for some power plant replacement but I will be looking at the complex calculus they make for the combined cycle plant fuels and how that fits with the governor’s stated opposition to LNG,” Glick said.

Gov. Ige is concerned that reliance on LNG “will divert focus away from a 100% renewable energy future,” the PSIP notes. HECO, however, says it can "move aggressively towards 100% renewables with LNG as a transitional bridge fuel through 2040, limiting permanent infrastructure while allowing for variable demand and lessening the cost burden on customers as we make the transition to renewables.”

The governor's policy, Glick responded, “does not rule out the benefits to ratepayers from improved power plant heat rates and flexibility, regardless of what fuel they burn.”

Another part of his evaluation will be understanding the utility’s explanation for why they need NextEra to do the LNG part, Glick said.

“What is so advantageous about the capital structure of NextEra that couldn’t be duplicated in a power purchase agreement with a third party to build and operate new combined cycle generation?” Glick asked. “Others have strong enough balance sheets to get least-cost capital and build these projects."

"Hopefully," he said, "they won’t argue this can only be done with a company Hawaiian Electric merges with.”

HECO regularly obtains resources through power purchase agreements with independent power providers (IPPs), Ching said. In the PSIP “we assume that almost all the utility-scale resources except those natural gas plans are acquired through contracts with IPPs and without utility capital investments.”

There is one exception, however. NextEra’s resources will be necessary to execute the centerpiece of the LNG theme, a retrofit of an existing oil-burning plant on Oahu, according to the PSIP. The most cost-effective plan would use NextEra’s capital and experience to rebuild onsite and replace four existing generators with a high-efficiency, fast-ramping gas-burning turbine.

The alternative is contracting with an IPP to build at a different location but that would increase costs by failing to take advantage of existing infrastructure, Ching said.

To move forward with higher renewable penetration and lower customer bills, the use of LNG as a bridge fuel has to be considered, former PUC Chair Morita concluded.

“This is an LNG versus oil issue, not LNG versus renewables, as the governor likes to portray," she said. "To lower customer bills you have to minimize the fuel pricing and risk. LNG does this better than oil.”

In every one of HECO's scenarios, the utility says integrating LNG would be cheaper, but skeptics say more study of alternatives is needed.

Renewables and DERs

Fuel supply diversity is central to the PSIP, Ching said. But, motivated by customer interest, it includes significant additions of distributed solar, utility-scale solar, and community solar.

It also includes plans to develop Hawaii’s high-capacity-factor onshore wind and to harness the state’s rich offshore wind resources with floating turbines expected to be commercially available after 2020.

It will balance variable resources with firm, dispatchable geothermal and biomass resources on Maui and Hawaii Island, Ching said.

The combined system will reach the mandate’s 70% renewables by 2040 interim target but it will have reached the limit of Oahu’s “available and developable renewable resources, according to a study by the National Renewable Energy Laboratory (NREL),” Ching explained.

Its analysis of biofuel and other resources in the three alternative themes, what it learns from its coming study of the inter-island cable, and the evolution of offshore wind potential will help the utility determine exactly how it builds out to 100% renewables in 2045, he added.

Distributed Energy Resource (DER) integration was the commission’s third concern last year, and it is an ongoing effort for the utility, Ching said. The PSIP offers a detailed analysis of the distribution system’s 600-plus feeders across all the islands.

With that granular information, HECO modeled two separate options for DERs. One assumes compensation to rooftop solar owners at the utility-scale solar plant price, which it calls “market DG-PV.” The other assumes compensation that recognizes some of distributed generation’s unique values, which it calls “high DG-PV.”

“Distributed solar is about a third of the portfolio’s nameplate capacity in 2045, but a smaller portion of actual generation because it has a smaller capacity factor,” Ching said.

The earlier, 2014 PSIP planned for a tripling of 2013’s rooftop solar to about 900 MW of installed capacity. This updated PSIP would increase rooftop solar 370% to just over 1,200 MW.

The 370% increase in rooftop solar to 1,200 MW instead of 900 MW may seem significant, Moriwake said. But the 900 MW represented annual growth of only about 2% to 4% through most years through 2030, "so 1,200 MW by 2045 would still be a major deceleration of Hawaii’s recent distributed solar growth.”

More importantly, he said, “that 1,200 MW figure is based on valuing distributed solar at utility-scale solar prices,” Moriwake said. “This continues the utility-centric bias against and undervaluing of DER seen throughout all their plans.”

It is also contrary to the commission’s third concern about the last PSIP that pushes the utility to make DERs part of the system by properly capturing its unique values, he added.

“Valuing distributed solar at the price of utility-scale solar is a major red flag that requires further review,” Moriwake said.

The commission's guidance, Ching responded, was to "take full advantage of cost-effective utility-scale renewables, so all customers can benefit and not just those with the ability to add their own distributed resources."

Valuing distributed solar exports at the utility-scale solar price "not only creates a tremendous market for DG, it also allows for the mix of distributed and utility-scale renewable resources at prices that benefit all customers," he added.  

The 370% planned increase of rooftop solar “may not be enough,” Glick said. “It could raise the question of why they can’t grow rooftop solar more rapidly. But, as with offshore wind and inter-island transmission, it is clear they are still working to get to complete answers, he added.

“It may be premature to get thoughtful answers at this stage,” he said. “My sense is that some of the PUC’s objections have been answered but some may not have been. Then the question becomes why?”

The 370% increase is "an almost fourfold increase on a level of distributed solar that is already 20 times the national average," Ching responded. That gives distributed "a significant role in our plans."  

HECO envisions a diverse mix of utility-scale and distributed resources to get it to 100% reneawbles.


'A work in progress'

Though rushed by a commission-established deadline of April 1, the biggest improvement in the new PSIP may be its higher degree of transparency, Glick said.

“They have done a good job of laying out the premise, the components, and the assumptions," he said. The earlier PSIPs weren’t as user friendly.”

Much of the improvement came, Glick said, from an outside consultant with a utility background who was recommended by DBEDT and was able to communicate with HECO planners “on a peer basis.”

HECO’s heightened transparency was in response to the commission’s second concern about technical cost and resource availability, Ching said.

Though time was limited, “we made sure we had a set of well-vetted inputs on those questions because the planning is only as good as the inputs,” he said. “We used our own information, input from independent third parties like NREL and the Electric Power Research Institute, and information from the parties in our docket.”

The utility posted its planning inputs on a website in real time and asked for perspectives from proceeding participants on resource availabilities, technical costs, and forecasts. It developed its decision framework in consultation with DBEDT and advocacy group Life of the Land and made that publicly available as well.

“That was to make more clear how the preferred plan was chosen,” Ching said.

The question of whether it is transparent enough remains to be decided.

“This PSIP was done in an abbreviated timeframe,” Moriwake acknowledged. “With the opening of the commission proceeding to evaluate it, the real work of revealing the proposal and engaging the parties can begin.”

It has a clear 30-year path and very qualified 5-year and 10-year windows, Glick said.

“My sense is that it will point in the right direction on a lot of issues but fall short of proving details," he said. "It is a work in progress and we need to make progress based on things the utilities and the PUC and the energy stakeholders can agree on.”

Filed Under: Solar & Renewables Distributed Energy Regulation & Policy
Top image credit: Flickr; Roxanne Ready