Energy & Greenhouse Gas Solutions
Mission: To provide rigorous and timely information to decision-makers and the public regarding energy and greenhouse gas related policy in Hawaii and beyond.
The Energy and Greenhouse Gas Solutions research program (EGGS) was launched in 2007 by the University of Hawai‘i Economic Research Organization (UHERO). It serves as a resource for those interested in issues of energy and greenhouse gas emissions reduction in Hawaii and beyond. EGGS takes a transdisciplinary approach to research by bringing together economists, planners, engineers and system modeling experts to address urgent issues of energy and climate change mitigation.
EGGS Core Goals
- 1. Engage in rigorous analysis that contributes to a global community of scholars.
- 2. Develop and maintain data and models on Hawai‘i’s energy, economy, and resulting greenhouse gas emissions.
- 3. Develop solution-oriented analyses for decision-makers and energy-related stakeholders.
- 4. Design interactive education and outreach programs for a variety of audiences.
- 5. Showcase Hawai‘i-based energy policy solutions that may benefit other jurisdictions, including other States, the U.S., and island areas.
- November 5, 2015 Research Driven Energy Policy
Hawaii is in the midst of transforming its electricity system into one with a lot more renewable energy. It’s an exciting time, but also a challenging one that is forcing the State to make tough decisions amid many uncertainties. There appears to be confusion about who bears responsibility for making these decisions. Take, for example, public discussion surrounding the potential merger of HECO and NextEra, which has focused at times on whether NextEra can be trusted to keep their commitments to meeting Hawaii’s clean energy goals. At face value, that discussion seems odd given the utility is regulated and obtains approval from the state Public Utilities Commission (PUC) for important policy changes. Meeting clean energy goals is a statutory mandate or regulatory requirement, not HECO’s or NextEra’s “choice”.*
It is possible that these concerns arise from the fact that the State’s goals have escape clauses. The Renewable Portfolio Standard (RPS), for example, includes a long list of reasons why the utility can be allowed to fall short of prescribed targets, including the cost of achieving the goals. Clearly, there are many ways the State might achieve its renewable energy goals, and the path we choose will have many consequences—for the cost of electricity, how the burden of those costs are allocated, how much energy we use, and the environmental impacts. Regardless of how the PUC decides the merger case, it is their job to ensure that the State’s goals are met in a cost effective manner.
Regardless of who owns the electric utility, given the pace and scale of changes to our electric system, there has to be a better way to fully utilize our local academic resources as we take on this formidable energy transformation. We need a mechanism for the utility, the PUC and other entities to engage in collaborative processes that results in an effective strategy befitting of the state’s multifaceted goals. These should include rigorous and transparent analysis of a wide range of policy alternatives from neutral parties.
We believe UHERO, as an objective data and research driven entity, can play a role in achieving the State’s clean energy goals and the need to lower and stabilize the cost of electricity. Several UHERO faculty and fellows have recently joined forces to form the Energy Policy and Planning Group. You may have seen some of the many blog posts or working papers we have released over the past year. A few things stand out from this line of research. First, is the merely obvious, reducing the cost of electricity in Hawaii can have significant impacts on our economy. Makena Coffman’s research showed that a 25% reduction in the price of electricity could raise Hawaii GDP by close to 1.5%. Moreover, focusing on making the business of contracting and pricing more efficient to get the incentives right is likely to create economic development opportunities through innovation in the production, delivery and use of energy.
Demand shifting is another active area of work that was discussed in some detail in "Efficient Design of Net Metering Agreements in Hawaii and Beyond" by Makena Coffman, Michael Roberts, Mathias Fripp, and Nori Tarui. This paper lays out several policy goals that are achievable in the near term, and some longer term goals. For example, Coffman et. al recommend an optional tariff, available for all customer classes, with hourly prices that reflect the continuous variation in supply and demand of electricity. In that way, customers will have incentives to reduce their use during times of high marginal cost (high loads with low renewable power production) and increase their demand during times of low marginal cost (low loads and/or high renewable power production). Customers who are able to shift demand will reduce their own costs and the system’s costs. And, variable pricing will open the door even wider to storage and related innovations. Such variable pricing will require smart meters, and HECO has already filed with the PUC to install smart meters.
There are thoughtful ways of incrementally modernizing the grid in a way that also facilitates customer choice. At first, smart meters need only be installed for households most willing to juggle variable pricing. Well-designed experimental pilots can be used to measure efficacy and guide future policies. To implement these policies it is imperative that the PUC possess the capacity to analyze the technical and economic merits of proposals or issues to be deliberated. UHERO faculty and fellows have been working on building such capabilities for several years. For example Matthias Fripp’s open source SWITCH model allows optimization of investment and electric system operation decisions to study alternative pathways to extremely high penetration renewables. And the UHERO electric sector model is tied to our General Equilibrium Model to translate energy systems decisions into economic outcomes.
We recommend using UHERO’s Energy Policy & Planning Group as a neutral, research-driven evaluator to model and analyze Hawaii’s energy policy. This role could be modeled after the role of the UH Hawaii Natural Energy Institute as a neutral evaluator of energy technology, or it could be less formal.
- October 19, 2015 Does PV Add Home Value?
Circuits with installed PV up to and greater than 250% of daytime minimum load. Source: HECO
Hawaii leads the nation with the highest per capita installation of solar photovoltaic (PV). High electricity rates—three times the national average, —a generous state tax credit, plummeting PV costs, and net energy metering (NEM) policy have all contributed to the proliferation of PV. Considering future cost savings, PV is an attractive investment, yielding an internal rate of return of 23% with the state tax credit, equivalent to a payback period of four years (Coffman et al., 2016). In a recent analysis I answer the question of how PV is capitalized into a home’s value.
Using econometric tools, I assess the impact of PV systems on home value for single-family resale homes on Oahu. Using home resale and PV building permit data from 2000-2013, I find that PV adds on average 5.4% to the value of a home. This translates to approximately $34,000 relative to the sales price of the median non-PV home of $630,000.
This means that PV already installed on a home is worth about $4,000 more than the median value of a PV permit (approximately $30,000). While this may appear puzzling at first, issues of circuit saturation may well-explain this result. Calculating the stream of electricity savings* over 9 years (the average household tenure) and a typical 30-year mortgage respectively, reveals that a homebuyer is effectively paying $4,000 more for a PV home to receive between $14,000- 30,000 in electricity savings. This makes sense given many of the circuits in Hawaii have reached legal limits for PV installations and therefore new homebuyers have an expectation that future installations will be limited. Thus for many the choice isn’t purchasing a house without PV (and then installing it) but rather to gain access to PV (and future electricity savings).
An area of further inquiry in light of the recent PUC ruling is to extend the dataset to examine whether homes that are grandfathered under the NEM program are worth more.
Coffman, M., Wee, S., Bonham, C., and Salim, G. (2016). “A Policy Analysis of Hawaii’s Solar Tax Credit Incentive.” Renewable Energy, 85, 1036-1043.*The net present value calculation assumes a 5% discount rate, electricity price of 30 cents/kWh, a system cost of $4.50/watt (year 2013), 5.2 solar hours per day, 75% efficiency factor, and daily household consumption of 18 kWh.
- July 20, 2015 Net Metering Agreements in Hawaii
In Hawaii, like most U.S. states, households installing rooftop solar photovoltaic (PV) systems receive special pricing under net-metering agreements. These agreements allow households with rooftop solar to buy and sell electricity at the retail rate, effectively using the larger grid to store surplus generation from their panels during sunny times and use it when the sun isn’t shining. If a household generates more electricity than it consumes over the course of a month, it obtains a credit that rolls over for use in future months. Net generation supplied to the grid in excess of that consumed over the course of a full year is forfeited to the utility. Net metering agreements often include a monthly fee to support billing, transmission and operation of the grid.
A growing concern is that the utility has many costs besides the fuel used in electricity generation, and most of these “fixed costs” are lumped in with per- kilowatt hour (kWh) charges. As a result, under current net metering agreements, when a solar customer provides their own power, they don’t pay the fixed- cost component for each kWh they produce. Under a revenue-decoupling rule, those costs are shifted to households and businesses without rooftop solar. As less power is sold in Hawaii, fixed costs per kWh are rising fast. Most of the decrease in power sales is due to gains in efficiency, but some of it is due to installations of solar PV. Residential customers now pay roughly $0.17/kWh for fixed costs. After the drop in oil prices earlier this year, well over half the utility’s revenue from residential customers goes toward fixed costs.
The graph shows the average residential electricity price from 2000 to the present, and breaks out the generation component from the total (Adjusted ECAF). The difference between price and the Adjusted ECAF (Gap) accounts for all non-fuel or fixed costs.
A longer-term concern, particularly in Hawaii with its high electricity rates, is that an inefficient pricing system could encourage many households and businesses to install stand-alone systems, unplug from the grid, and further raise costs for everyone else.
In a new report UHERO's Energy Policy & Planning Group summarizes the benefits and challenges with distributed solar and sketch out a set of long-term solutions based on marginal-cost pricing as the primary platform. Marginal cost is the incremental cost of power production—the cost of generating one more kWh. This cost can vary a lot depending on total demand and the amount of renewable power, among other things, so ideal prices would vary over the course of each day, week, season and year. This is likely to become especially pronounced as the variable supply from renewable sources becomes more prominent.
- January 22, 2015 Up to $100 Million in Monthly Electricity Savings for Hawai’i After Oil Prices Plummet
As of January 12, the Brent Crude Price was just a shade under $47 per barrel. The last time prices were this low was nearly 5 years ago, in April, 2009. Since crude oil and its products feed into about
90%70% of electricity generated in Hawai’i, it is almost axiomatic to expect electricity prices to decline with oil prices.
But it takes some time for oil prices to feed into electricity prices. The price Hawaiian Electric Industries pays for oil in any month is closely connected to the average Brent crude price in the three previous months (figure 1). So, if prices stay this low, it will take up to four months before electricity prices fully reflect the drop in oil prices.
The relationship between the lagged average oil price and electricity price implies that each dollar per barrel decline in oil price should lead to a 0.22 cents/kWh decline in electricity price (figure 2). We use this relationship to project electricity prices under two assumptions about the future price of oil: (i) oil prices remain constant at the January 12 level, or (ii) oil prices follow the path predicted by the January 12 futures prices for Brent crude. (Futures prices are prices that can be locked in today for delivery up to 5 years from now).
Figure 3 shows these projections. Assuming oil prices stay at current prices, electricity prices should decline to around 18 cents/kWh by the middle of the year, and stay there. As of January 12, futures prices are above spot prices, so the second scenario has electricity prices falling to 18 cents/kWh but then gradually increasing to 23 cents/kwh thereafter.
Note that this forecast is based on the historical link between oil prices and electricity. In recent years electricity prices have drifted above this relationship, so it’s possible that prices will not drop as much as we project even if oil prices stay low.
Either way, the savings will be substantial. For a household consuming 600kWh, the 10 to 15 cent/kWh decline translates into $60 to $90 off their monthly bill. Since Hawai`i is consuming 790GWh on average, the almost $60 decline in oil prices should save the State’s economy about $104 million every month, with about three quarters of that amount going to businesses and municipalities and a quarter of it going to households.
With Hawai’i being the most oil-dependent state in the country, plus that fact that we import all of our oil, our state may benefit more than any other from the precipitous decline in oil prices.
- Karl Jandoc and Michael Roberts
- October 13, 2014 PV Growth in Hawai'i?
Public comments regarding Hawaiian Electric’s PSIP and DGIP were due last week. Here’s a recap of what Hawaiian Electric has proposed for rooftop solar PV.
Hawai'i is characterized with small island electricity grids and some of the highest rates of solar PV penetration in the world. With over 10% of O'ahu households having PV, exceeding that of any mainland utility, the Hawaiian Electric Company and its subsidiaries have recently stalled the interconnection of new systems. The Hawai'i Public Utilities Commission ordered that further study be completed that might facilitate the adoption of more solar PV in Hawai'i. Along with circuit and power system upgrades, Hawaiian Electric's Distributed Generation Improvement Plan (DGIP) devises an alternative rate design that increases the interconnection fee and makes it more favorable to the utility to allow more households to install solar PV. Hawaiian Electric projects that DG customers could triple to upwards of 900 MW, while reducing the cost shift to non-DG customers, which they estimate to the tune of $38 million in 2013, or $31 for each non-DG customer.
In Hawaiian Electric's proposed tariff structure, referred to as "Gross Export Purchase program," all residential customer groups—current Net Energy Metering (NEM) customers, “DG 2.0” customers, and “Full Service” customers (non-DG)—incur a fixed monthly charge of $55 and pay retail rate for any energy consumed from the grid. The idea of the Gross Export Purchase Program is to account for some combination of interconnection and grid service charges. The first major proposal is to switch the NEM program to one where customers are compensated at wholesale rates rather than retail rates (similar to KIUC and many other utilities). This is to account for, as Hawaiian Electric puts it, “the value of DG to the grid.” Following the duck-shaped load curve, the bulk of electricity generation from DG occurs during the day, while peak consumption occurs in the late afternoon/early evening. Under the current rate structure, DG providers are providing “cheap” electricity while consuming “expensive” electricity. Current NEM customers will be grandfathered according to their original agreement (i.e. the utility pays retail rate in credits which expire at the end of the calendar year). Future NEM customers, called DG 2.0, will pay an additional monthly fixed charge of $16 and any excess electricity generated would be compensated at the lower rate of 16¢/kWh, reflecting that of wholesale rates.
Source: Hawaiian Electric Companies, 2014. Hawaiian Electric Power Supply Improvement Plan (PSIP).
The second proposal is to quicken interconnection for what is termed the “non-export option.” It allows customers to offset their electricity use so long as they do not send excess generation to the grid. The non-export option includes several variations. There are those that operate in parallel with the distribution system (grid-interactive) and with or without customer-side energy storage; and those that are independent from the grid (non-parallel operation) and with energy storage. A type of parallel non-export system without energy storage is an over-installed system under Hawaiian Electric’s Standard Interconnect Agreement—where there is a possibility for energy to “leak” back to the grid, though the customer receives no compensation. On the other hand, systems configured for non-parallel operation serve only an isolated load, thereby negating any possibility for reverse power flow into the distribution network. As filed in Docket 2014-0130, non-parallel systems are therefore eligible to bypass the full screening process under Rule 14H. Systems that have the potential to operate in parallel may also be granted expedited approval if reverse power protection measures, such as stand-alone inverters, is installed.
Will it Increase PV Installations?
The underlying question remains—will PV installations increase under Hawaiian Electric’s proposal? Certainly the change away from retail to wholesale rates for NEM customers, along with technical upgrades, increases utility revenue and its incentive to allow for more PV system connections. It also decreases potential customers incentive to install solar PV – though arguably the return on investment has been remarkably high and customers are still likely to install even if incentives decline slightly. Moreover, there is an element of increased fairness to non-DG customers through the revised NEM rates (assuming savings are passed through accordingly). So the answer is, it depends. On the continued decline of PV system costs, tax credits, the cost of battery technology and electricity rates. Whereas a decline in battery technology costs might lead to increased solar PV yet fewer connections to the grid, declining electricity rates would have the opposite effect. Within Hawaiian Electric’s proposal, they also project substantial cost savings primarily due to the introduction of LNG. This, however, is a more long-term endeavor than the granting of near-term solar PV permits.