Prisoner's Dilemma

Through an integration problem statement, the Staff Report and Proposal (Staff Report) in Docket No. 2014-0192, Decision and Order No. 32737, describes the current impact of distributed generation (rooftop photovoltaic systems) on the HECO Companies' systems (I underlined and bolded what I thought was most significant):

Under today’s paradigm for distributed generation, customers typically size the capacity of their PV systems to meet most or all of their annual energy demand, which results in a PV system that often produces more power than their home or business needs during the middle of the day. When this occurs, the PV system exports power onto the utility grid and essentially uses the grid to store excess energy during the daytime. Later in the day, as the PV system’s output declines and eventually produces no power when the sun sets, the customer draws power back from the grid to meet their evening and nighttime electricity needs. At low levels of DER (Distributed Energy Resources), this mode of operation results in a small reduction in load on the overall utility system, and the aggregate impact on the grid is minimal. With significant higher levels solar PV expected in the next two years, integrating additional customer-sited PV that operates in this mode becomes more challenging. 

At a basic level, the overall electricity system currently has a finite capacity to integrate variable renewable energy sources that may be defined by the total gross load on the system and the minimum amount of conventional generation need to maintain a stable grid through potential contingency events, and provide reserves to accommodate load and generation forecast errors.

 In Hawaii's high electricity bill environment, it is understandable that an electricity customer may want to install a rooftop solar system to have greater control and certainty over their electricity bill. However, absent correct pricing signals and fueled by generous tax credits this kind of individual focus can be detrimental within an island environment that is very sensitive to the imbalances of supply and demand limited by its finite capacity and inability to export excess power.  (Note:  I know many will say that's why we should move faster with energy storage, to store the excess power to use at night.  While storage can help, it is not a panacea.  With the possible exception of pump storage, in general, energy storage is still an expensive investment for nascent technology.)

The ongoing electric utility versus solar debate further puts forth a false argument and a premise that one must choose sides. Renewable energy advocates have been very successful in promoting and gathering support for and addressing mainly one side of the electric system equation, the supply side. Buzzwords like ‘100 percent renewable’ and aspirational concepts like ‘energy democracy’ may prompt near-term achievements for individuals but often lack detail to achieve an advanced electric system that is accessible and affordable for all electricity users. Even with Hawaii’s high penetration of rooftop solar installations, over 80 percent of electric customers still lack access or funding, or have no desire to install a distributed generation system and must rely on the electric utility while shouldering more of the fixed-cost burden of the electric system under the current net energy metering program.

While a few, like economists and others who study game theory, may understand the strategic and methodical decision-making process that Hawaii must employ to achieve optimal results in the design of an advanced electric system, the rationale and enormity of this transformation and paradigm shift has not been adequately explained to the electricity customer, who must, inevitably, pay for all costs.

Hawaii faces a real-life prisoner's dilemma as the continuation of the present situation may produce some short term gains for a few but it will eventually become an unsustainable dichotomy for all. Therefore, cooperation and a managed transition, informed by technology and economics, is critical in recognizing that the finite capacity of the electric system should be viewed as part of the commons, a vital infrastructure and resource that must be shared and carefully managed to promote the public good.  

Inserted below are South Park friends demonstrating the concept of prisoner's dilemma followed by a matrix I developed to outline the possible outcomes of cooperation and no cooperation between the electric utility and DG.

(Note:  While KIUC's fixed cost shift amount are not as acute as the HECO Companies and KIUC appears to be tackling the DG integration issues with lots of ingenuity, nonetheless, the challenge still is present for the coop to establish policies that are fair for all its members.  In my personal opinion, the coop has mitigated this challenge somewhat through the pursuit of lower cost utility scale renewable projects.)

Price Tag of the NEM Cost Shift and the REITC

Yesterday I quoted from and referred readers to Professor Severin Borenstein's May 4, 2015 blog, Is the Future of Electricity Really Distributed?, where he said, "Instead of seeking the most affordable way to scale up renewables, the loudest voices (though possibly not most of the voices) in the renewables movement are talking about "personal power", Home energy independence", "empowering the consumer", and rejecting "government-created monopolies."  Generally, I would not have a problem with these opinions, but it is a problem when these advocates fail to understand the economics of producing reliable and affordable electricity and to whom the burden will fall to ensure this essential service.  Our failure to rectify and properly manage Hawaii's energy transformation may inadvertently create an unaffordable electric grid to serve the public good.

When I first started working on energy legislation, the primary objective in establishing a net-metering program (NEM), revising the Renewable Energy Income Tax Credit (REITC) and adopting a Renewable Portfolio Standard (RPS) was to create a renewable energy market. Establishing Hawaii's renewable market was critical because of our over-dependency on imported fuels and the impact of fuel price volatility on our economy, as well as environmental issues such as climate change. The NEM program and REITC would incentivize and reward early adoption and the RPS would establish a minimum floor to give certainty to investors that there would be a buyer (the electric utility) for electricity produced from renewable resources.  

Simply put, Hawaii progress has surpassed the need for the NEM and REITC early adoption strategies, with the burden of paying for the NEM program and REITC falling on non-NEM electricity ratepayers and taxpayers and causing the "purchase" of electricity generation that may not be the most cost-effective option.  Here is a snapshot of some of the past costs impacts on non-participants (unfortunately, more current, on-going cost were not publicly available for the REITC):

In a Motion filed with the HPUC (Docket No. 2014-0192, Hawaiian Electric Companies' Motion for Approval of NEM Program Modification and Establishment of Transitional Distributed Generation Program Tariff at 34-35), the HECO Companies quantified the NEM cost shift as follows:

The Companies estimate annualized lost contribution to fixed costs (cost shift) of approximately $53 million (Hawaiian Electric, $38 million; Maui Electric, $7 million; and Hawaii Electric Light, $8 million) based on installed NEM capacity as of December 31, 2014 . . . The total lost contribution to fixed cost across the Companies has increased from an estimated annualized $19 million based on installed NEM capacity as of the end of 2012, to an annualized $38 million at the end of 2013, and to an annualized $53 million at the end of 2014.

For the tax year 2012, the State Department of Taxation reports that the REITC accounted for 48.41% (total $179,018,000) of all state tax credits claimed (total $369,811,000).

Besides the HECO-NextEra merger application, I believe the most critical docket before the Hawaii Public Utilities Commission is the Distributed Energy Resources (DER) Investigation (Docket No 2014-0192) where the technical (integration and interconnection) and economic (correct pricing signals) are being investigated. Therefore, I am not writing this post to argue about the fair or unfair valuation of services distributed generation provides or its impact on the electric system but to bring awareness to the fact that Hawaii's energy policies are in need of review.  We are at a critical juncture where some of these policies are detrimental to the customer who does not own or does not have access to or chooses not to have a distributed generation system.

A successful energy transformation requires that everyone benefits from Hawaii's clean energy policies.   

What's the Overall Objective?

On April 15, 2014, the University of Hawaii Sea Grant College Program convened Ascent: Building a Secure and Sustainable Water and Energy Future for Hawaii.  After the morning session, which I participated in as a panelist, and prior to the capstone session with former Vice President Al Gore, the afternoon working group sessions consisted of experts from the public and private sectors who were focused in energy, green building, community design and water sustainability solutions.  In the energy working group, Severin Borenstein, a E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business and a Research Associate of the Energy Institute at Haas was a presenter. He is also Director Emeritus of the University of California Energy Institute and the Energy Institute at Haas.  It was too bad that his presentation was somewhat overshadowed by Ralph Cavangh's, the Co-Director of Natural Resources Defense Council's Energy Program, big personality and the fact that the session was not that well publicized or attended for it should have sparked a conversation on the costs and benefits of distributed generation in meeting Hawaii's overall objectives to lower electricity costs and move towards cleaner, renewable resources.

Professor Borenstein's May 4, 2015 blog, Is the Future of Electricity Really Distributed?, needs to be carefully considered by Hawaii's policymakers as we move forward.  What he describes is very much the rhetoric being advocated in Hawaii by rooftop solar advocates:

. . . Instead of seeking the most affordable way to scale up renewables, the loudest voices (though possibly not most of the voices) in the renewables movement are talking about “personal power”, “home energy independence”, “empowering the consumer”, and rejecting “government-created monopolies”. . . 
. . . That’s not to say that distributed generation couldn’t be the best way for some people at some locations to adopt renewables, but simply that DG should not be the goal in itself.  We desperately need to reduce greenhouse gases from the electricity sector, not just in the U.S., but around the world, including some very poor countries where affordability is a real barrier and electricity access is life-changing.  If DG is the least costly way to get that done, I’m in, but the choice should be driven by real cost-benefit analysis, not slogans about energy freedom.  

I'll touch more about the economics of rooftop solar and its impact on the general fund and ratepayers tomorrow.

Here's a clever European wind commercial that I saw on FaceBook recently.  Capacity factor is another issue that needs to be carefully considered as we move forward but I'll leave that discussion for another day.

Coal Exemption & 100% RPS Target - What does that say about Hawaii's energy policy?

Juxtaposing the recently passed bills exempting coal from the carbon tax and establishing a 100% renewable portfolio standard (RPS) goal appears to make Hawaii's energy policy contradictory. While the Hawaii Legislature should be commended for transitioning the tax on a barrel of oil to a carbon based tax, that achievement has been marred by the coal exemption.

Unbelievably, the exemption language was handled by the energy/environment committees, the very committees pushing the 100% RPS goal and very concerned about climate change issues.  If the impetus for the coal concern was current power purchase agreements (PPA) in effect, that could have been resolved with language addressing timing and applicability because the HC&S PPA will soon terminate and AES is in the process of renegotiating an extension with HECO.  The wholesale exemption for AES, supposedly to address the dubious concerns noted in their testimony, was unwarranted.

I want to clarify that the use of coal does help to moderate Oahu electricity prices and the AES power plant has a role as an existing asset during a transformative time where it may be better to wait out uncertainty than to jump in with new investments.  But all this does not justify a tax exemption and the carbon tax should be equally applied to all fossil fuels.

I already made my views known about the 100% RPS goal in my February 4, 2015 post, "Is A 100% RPS Sound Policy?".  While I think we should aspire to the use of cleaner, renewable fuels, the RPS should be a real strategy stressing cost-effectiveness and a well managed transition for the public good.  We are in a period of rapidly advancing technologies and changing customer preferences and the fact that energy infrastructure investments are expensive and long-lived, therefore, each energy investment must be well well thought out to avoid or minimize stranded assets.  Even though the 100% target is far out into the future, it creates a race with a propensity to drive up costs to meet a target of aspiration, not an informed strategy.  Unfortunately, it is those who can least afford it that will be paying for this potentially expensive sound-bite.

Hawaii's carbon-based tax would have firmly established and reaffirmed Hawaii's premier role and leadership in advancing clean energy policies but, unfortunately, the coal exemption diminishes that recognition.  In exempting coal, the energy/environment committees played right into the coal industry's lobbyists' hands and left a big puka in Hawaii's clean energy policy.

Kickstart - Solar Puffs

Okay, enough excuses and distractions that gave me reasons not to blog so I am "kickstarting" myself into action by sharing this Kickstarter for SolarPuff.  As I write this blog there is less than 15 hours left in the campaign and SolarPuff has met its goal.  However, I think its efforts to focus on Nepal is so worthy.

My niece, Lisa Terada, who is a nurse volunteering with the Inspire Church medical team in Nepal wrote me the following:

There are so many areas that have not received aid.  Nepal's mountains have small villages scattered everywhere, and the only access is by trekking paths that have been covered by landslides.  Flying into and out of Nessing, one such village, many landslides were visible from the air.  The people throughout this tiny nation need food, building supplies, and medical attention.  Give, but be careful about to whom you make your donations.

I had a post on FaceBook last week suggesting that if people were interested in contributing to Nepal's relief efforts, the North Shore Kauai Lions Foundation is receiving contributions.  Michael Van De Veer, who passed away in 2006 was a Lions Club member, helped to establish a Kauai tie to Nepal.  A life time advocate for social justice and peace, Michael used his ties with the Lions Club to get aid to Nepal, among the many other activities he was involved in to improve the quality of life for Nepali peoples.  Wicki, his widow, tells me that she personally knows the members of the Lions Clubs in Kathmandu and feels comfortable that the money will make it to those in need and that these types of organizations are heavily relied on as the Nepali government is incapable of meeting social/medical needs.  So please consider making a tax-deductible donation through the Kauai North Shore Lions Foundation, P.O. Box 985, Hanalei, HI  96714.  In the memo line of your check write "Nepal Earthquake" or send SolarPuffs to Nepal.

In developing countries, clean drinking water and improving indoor air quality help to raise the standard of living.  An implement like the SolarPuff can replace lighting requiring dirty and/or expensive fuel hugely improving indoor air quality and quality of life.  But what is brilliant about the SolarPuff is its design.  Just the aesthetics of it makes it a hot commodity and so marketable!