Hawaii regulators made big news last year with their high-profile decision to terminate net metering. This column will look at what Hawaii actually did with its rule changes for retail solar and what impact those changes have had so far.
Hawaii’s net energy metering (NEM) went into effect in 2001. It was modified over the years until a substantial change in 2008 that eliminated the system-wide cap for NEM systems and raised the size limit for individual systems.
Over the course of the next few years, NEM was responsible for a major increase in installed solar photovoltaic and hot water systems. I live on Hawaii’s Big Island part-time (not too far from Hilo) and the difference is remarkable in the number of visible solar systems on rooftops here in Hawaii, compared even to California, where I live most of the time.
About 15 percent of homeowners and businesses now have solar on the Big Island, and solar penetration has almost reached the same level across Hawaii. The state now has about 500 megawatts of distributed solar installed, according to the utilities’ revised Power Supply Improvement Plan from February 2016.
Wholesale solar hasn’t fared as well in Hawaii, even though a very promising feed-in tariff was approved for solar in 2010. That promise has not been realized, however, and most wholesale solar projects have been procured under different programs.
What did the Hawaii PUC do to net metering?
Hawaii was the focus of the increasingly hostile fight between solar advocates and the electric utilities for much of 2014 and 2015. Hawaii’s major energy company, Hawaii Electric Industries (HEI), was struggling to deal with the rapid growth in solar during this time.
(HEI has numerous subsidiaries -- HECO for Oahu, MECO for Maui and Molokai, and HELCO for the Big Island, collectively known as “the HECO utilities." Kauai has its own electric co-op, KIUC, that is separate from HEI.) HECO utilities argued that its circuits couldn’t handle the large daytime solar production.
The Hawaii PUC (HPUC) eventually agreed and gave the utilities more than they were asking for. This resulted in a major decision to end net metering in October of last year and put in place a new system with less favorable incentives.
The most surprising thing about the new NEM decision was that the HPUC didn’t conduct a “value-of-solar” study before making this important decision. The assumption, it seems, is that the NEM incentive was a subsidy that costs ratepayers money, but no public analysis was completed to support this assumption. A lawsuit was filed after the decision by The Alliance for Solar Choice, alleging the same shortcoming in the HPUC’s decision-making process.
A meta-study from Environment America in late 2015 found that most entities looking at this issue have concluded that NEM incentives are a net benefit to ratepayers because solar provides more value to the grid than the amount of the incentive. The three studies that didn’t find a net benefit were conducted by utilities. A study on this issue for Hawaii was proposed by the Interstate Renewable Energy Council.
Figure 1: Value-of-Solar Studies From the U.S.
Source: Environment America
Here are the key changes that the HPUC’s October decision made:
- A streamlined interconnection process was introduced to clear the backlog of over 2,700 NEM applications. It also created an online integrated interconnection queue and a fast track for new non-exporting (self-supply) DER systems.
- It ended the net-metering program and created two new options: 1) grid-supply, limited to 100 kilowatts per system; 2) and self-supply for non-exporting systems, for customers who would otherwise use net metering.
- Reduced the bill credit for excess solar sent to the grid from the full retail rate to the following values: Oahu, 15.07 cents per kilowatt-hour; Maui, 17.16 cents per kilowatt-hour; Big Island, 15.14 cents per kilowatt-hour; and considerably higher for Molokai and Lanai.
The grid-supply option is the key NEM replacement and allows customers to send power back to the grid during times of excess generation, as with NEM. The major difference is a substantially lower credit for excess power, plus only a two-year window of known credit values, because the HPUC is set to change the credit rate again in the next phase of its regulatory process.
The self-supply option is for customers who will not be exporting excess power to the grid. This means, effectively, that these customers will have to install battery storage systems to absorb excess power -- and such systems aren’t cheap. An interesting side effect of the October decision is that it may inspire an increasing number of utility customers to defect entirely and just go off-grid, particularly for new construction, where the costs of building a new service line will probably be hard to justify when considering the much lower grid credit for excess power.
With these changes, the HPUC created an explicitly “transitional market structure” that set the stage for broader market changes for solar and other DER in Phase 2 of the proceeding. For example, with the reduced bill credits only in place for two years, we’ll probably see a continued harmful impact on solar, and DER more generally, until the long-term market structure is put in place by the HPUC.
This is the case because homeowners and DER investors need far more than two years of known cash flow to justify relatively large investments with expected lives of 20 years or more. Very few people or companies can justify major investments knowing the revenue for only the first two years of the project life. This unfortunate consequence was not discussed in the HPUC’s decision.
(A note to the HPUC: Please enter the 21st century and issue your decisions in searchable PDFs, not photocopied typed pages. Mahalo.)
The October decision was the end of Phase 1 for the HPUC process revamping Hawaii’s Distributed Energy Resources (DER) policies. There is no date set yet for the beginning of Phase 2. Marco Mangelsdorf, a colleague and regular commentator on Hawaii solar issues, believes that the PUC is unlikely to open this new proceeding until near-close of the two-year interim period.
Phase 2 will create the long-term market structure for encouraging DERs in the context of Hawaii’s very ambitious goal to achieve 100 percent renewables by 2045. Given this goal, it is all the more surprising that the HPUC chose to end NEM in this manner and possibly cause an additional multi-year year slowdown in the solar market, perhaps one that will be far more significant than the slowdown that’s already occurred.
The rate of solar growth since 2013
The NEM solar market already saw a major slowdown from 2013 until 2015. In 2013, HECO utilities started to get seriously freaked out by the rate of growth in solar. The average rate of growth from 2010-2013 was 132 percent per year for HECO, 104 percent for MECO and 82 percent for HELCO.
Basically, the installed capacity of solar on each island was doubling each year, so it is not surprising that the utilities got nervous. The growth rate stalled for HECO and HELCO in 2014 and 2015, averaging negative 24 percent and 7 percent, respectively. It was 22 percent for MECO during these two years.
Figure 2: Solar Installations by Island
Source: HECO
We don’t have much installation data since the October decision, so we can’t assess the real impact yet. But we do have interconnection queue data for each island, as discussed below.
The good news is that NEM applications jumped from 3,900 applications waiting to be processed as of September 1, 2015 (according to the NEM decision) to over 13,000 NEM applications approved and ready for installation as of early March (according to the utilities’ integrated interconnection queue).
The major increase in NEM approvals may result, surprisingly, in 2016 being a big year for behind-the-meter solar. However, we have no way of knowing at this point how many of these approved applications will be installed, because there was a huge push by installers to get applications in the queue before the NEM option was shut down last October. Many of these applications may be “ghosts” submitted by installers hoping for a sale that didn’t actually go through.
However, the picture is not good thus far for the new grid-supply and self-supply options that replaced NEM. Figures 3 and 4 show the applications and processing of customer grid-supply (CGS) for the three biggest islands for February. For so few applications to be in the interconnection queue in the first five months of the new program suggests a new project application rate that is about one-tenth of that seen last year. (Almost no self-supply applications have been submitted yet.)
Figure 3: Grid-Supply and Self-Supply Applications Queued
Figure 4: Grid-Supply and Self-Supply Applications Approved
This data shows that applications are still low but growing fairly rapidly, and processing by the utilities is ramping up. However, we are now five months past the decision, and relatively few CGS projects have been fully processed, let alone installed. And customer interest in the CSS option seems to be pretty much nonexistent at this point, very likely because of the high cost of batteries to back up the system for full self-reliance and no export to the grid.
Assessing the impact of the NEM termination decision
The good news is that the death of NEM clearly has not killed the rooftop solar market in Hawaii. Again, it is too soon to tell whether approved grid-supply projects will be built, because customers may back out at any time before installation. There are obvious growing pains in this new system, as can be expected.
A minor spat occurred recently between the solar industry and the utilities. The Hawaii Solar Energy Association, The Alliance for Solar Choice and the Hawaii PV Coalition sent a letter to the HPUC complaining about the very slow rate of processing through February 23. The Feb. 24 letter stated, in part:
The Hawaiian Electric Companies' (“the HECO Companies”) weekly interconnection report from yesterday, February 23, 2016 (“Weekly Report”), shows that, to date, zero of the 459 grid-supply and self-supply applications accepted by HECO have been approved, and only one application has progressed past initial technical review. On Maui, MECO has not accepted a single grid supply or self-supply application into the queue. Only 19 of the 66 applications on the Big Island have been approved by HELCO.
The utilities responded quickly with their own letter on Feb. 26, stating in part:
Contrary to the [Solar Parties’ letter], as of today, Hawaiian Electric has approved a total of 102 Grid Supply applications O’ahu and 321 are in technical review following completeness review. The Solar Parties understand that the weekly queue report lags by a week. […] To clarify, since the Commission issued its [October decision], [Hawaiian Electric] has approved over 3,000 PV applications -- both Net Energy Metering (“NEM”) and Grid Supply -- in only the last four months.
In sum, it does seem that the utilities are ramping up relatively slowly in processing the new CGS applications. But there may be a good reason for this lag due to the large backlog of NEM applications and the difficulty in approving the new applications (a largely self-imposed issue).
The rest of us onlookers are left to wait and observe some more before we can make any firm conclusions about the state of the Hawaii solar market in the wake of the big NEM decision last October.
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Tam Hunt is a lawyer and owner of Community Renewable Solutions LLC, a renewable energy project development and policy advocacy firm based in Santa Barbara, California and Hilo, Hawaii