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Economic Currents

Keep up to date with the latest UHERO news.

Up to $100 Million in Monthly Electricity Savings for Hawai’i After Oil Prices Plummet

Posted January 22, 2015 | Categories: Hawaii's Economy, Blog

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


Dropping Oil Prices Boost Hawaii's Economy

Posted January 15, 2015 | Categories: Hawaii's Economy, Blog

The drop in crude oil prices from $112/ barrel in June of 2014 to $46/barrel today will, if sustained, provide a nice boost to Hawaii’s economy. Beyond the gains that Hawaii’s tourism industry will see from lower energy costs, there is a direct effect on local households, businesses and government that is larger than you might expect. It is well known that Hawaii is the most oil dependent state in the country, and so it stands to reason that we will benefit significantly from a drop in the cost of petroleum. A few quick back-of-the envelope calculations illustrate this point.

In 2014, Hawaii businesses, households, government and visitors consumed gasoline at a rate of 449 million gallons/year, 4 million more than were consumed in 2013. The average price of a gallon of regular gasoline has fallen by $1 from a high of $4.40 in the spring of 2014 to about $3.40 today. If oil prices average $55/barrel for all of 2015, our models suggest gasoline prices will fall below $3 per gallon, saving Hawaii more than $600 million. Of course oil prices could bounce back sharply from lows in the $40s, but even an average of $70/barrel will lead to savings of over $400 million. To put that in perspective, $600 million amounts to almost 1.5% of total consumption, and nearly 1% of Hawaii’s Gross Domestic Product (GDP).

Of course these simple calculations are just that, simple. We are likely to see some increase in consumption of energy due to falling prices, not all of the savings will be spent, and some of the savings accrue to businesses that may or may not pass on savings to their customers. But the research on the impact of oil price movements suggests consumers can respond with even larger changes in spending than the changes in their energy budgets, particularly on durable goods (autos).

These calculations only reflect the impact via lower gasoline prices. Hawaii imports an average of almost 2.6 million barrels of foreign crude each month. Oil is used to produce gasoline, jet fuel, and fuel that generates most of our electricity. If the oil we import is 50% cheaper in 2015 than it was in 2014, we can expect savings of close to $1.4 billion, or nearly 2% of GDP.

These back of the envelope calculations are crude (no pun intended), but they make it clear that Hawaii’s economy can expect a boost in 2015 if energy costs remain anywhere near their current low levels.

- Carl Bonham


The UHERO Dashboard Project | Flying to Hawaii: Comparing the Cost and Frequency Across States

Posted December 19, 2014 | Categories: Hawaii's Economy, Blog

The latest installment in the UHERO dashboard project is packed with information on the cost of travel to Hawaii from the US mainland. The visitor industry is one of Hawaii’s largest, and more than 60% of all visitors to the state come from the US mainland. In this dashboard we look at how airfare and arrival patterns to Hawaii have changed over the past 20 years.

The data for this dashboard comes from the Airline Origin and Destination Survey administered by the US Bureau of Transportation Statistics. The survey gathers information on airfare, itinerary, and number of passengers from a sample of roughly 10% of all airline tickets sold by domestic carriers. Data is collected each quarter in a large database that we query for Hawaii specific information.

The detailed sample allows us to analyze fluctuations over time and across states. We count the number of passengers that booked round trip tickets to Hawaii from each state for each quarter from 1993 through the second quarter of 2014 (the most recent data available). From the prices of round-trip tickets, we calculate the median airfare for each state. For some smaller states airfares can be quite volatile from one quarter to the next due to the tiny sample size and the mix of first class, business class, and coach fares, as well as discounted and promotional fares. We also calculate an average US fare by taking a weighted average of each state’s median airfare.

Turning to the visualization, the differences in airfare and visitor volume from state to state are fairly intuitive. For the most part, tickets from the West Coast are cheaper than tickets from the East Coast. And visitor volumes from more populous states like California and Texas are higher than less populous states like Wyoming and Vermont. One interesting fact is that seasonal fluctuations in visitor volume vary significantly from state to state. For example visitor arrivals from Minnesota follow a very strong seasonal pattern, whereas visitor arrivals from Arizona does not exhibit much seasonality.

Increases in airfares in recent years may help to explain why US arrivals to the state still haven’t recovered to pre-recession levels. Between the fourth quarter of 2006 (the peak quarter for US visitor arrivals) and the second quarter of 2014, the US average airfare to Hawaii has increased by more than 50%. In addition, hotel room rates in Hawaii have increased by almost 25% during the same period. Such increases in the cost of a trip have pushed a Hawaii vacation out of reach for many would-be visitors, especially given the lackluster gains in US household income over the past decade.

- James Jones and Peter Fuleky

view dashboard


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.

- Sherilyn Wee and Makena Coffman


Understanding the Links Between Local Ecological Knowledge, Ecosystem Services, and Resilience

UHERO’s Project Environment has received funding from the National Science Foundation to participate in an interdisciplinary, international project that spans the natural and social sciences as well as the terrestrial and marine spheres. UHERO is partnering with scientists, resource managers, cultural practitioners and private landowners in Hawaii and Fiji. The project has two distinct parts; the first examines the relationship between local ecological knowledge and social, economic, and ecological outcomes across twenty rural villages in Fiji. The second part of the project explores the effects of different management and climate change scenarios on ecosystem services and indicators of resilience in three Pacific island watersheds.

For Part 1 of the project, we will focus on twenty rural coastal communities across four districts in Fiji. The team will collect household and village-level data within each of the four districts on ecological knowledge, customary skills and intergenerational knowledge. This will be matched to new and existing data collected from nearby forests and reefs. The goal is to develop an index of local ecological knowledge, as well as an index of social-ecological resilience, and examine relationships between these new indices and other ecological, social and economic outcomes. Of particular interest is the influence of local ecological knowledge on our indicators of resilience.



In Part 2 we will conduct three in-depth case studies at the watershed level, focused on quantifying ecological, cultural, and economic values of various land/ocean uses and covers, and their implications for resilience to climate change. The three watersheds were chosen where collaborators have long-term studies to leverage strong existing relationships with landowners, resource managers and users. The watersheds include Kaupulehu on the leeward coast of Hawaii Island, Haena on the north shore of Kauai, and Kubulau on southwestern Vanua Levu.

In each watershed we will collect new terrestrial data on vegetative composition, canopy cover, and indicators of habitat connectivity. Marine ecological surveys will include reef fish assemblages, benthic cover, species composition, biomass, and trophic structure. Ecosystem and cultural services for land and ocean uses will be calculated based on existing data, ecological characteristics, participatory mapping, and interviews.

To understand what combination of land-use practices best enhance social-ecological resilience under different climate change scenarios, we will evaluate the levels and resilience of ecosystem services under multiple future scenarios of climate change and management. These scenarios will represent a range of likely future climates crossed with a range of possible management decisions for each of the three watersheds. After developing an understanding of the ecological, cultural, and economic benefits of each of the management scenarios, we will then assess the costs of various management regimes under different climate change scenarios. The team can then identify a series of “optimum” scenarios – those that appear to maximize resilience indicators and emphasize the cultural, economic and ecological values identified to be of interest to the community members, land managers, and other stakeholders.

Our dual focus on Hawaii and Fiji provides a spectrum of cultural values and land and ocean uses, from functional agroforestry and traditional subsistence fishing in Fiji, to systematic habitat conservation and restoration in Hawaii. As a result, we can capture a wide spectrum of land management paradigms and their potential outcomes under different climate change scenarios, and our results can inform decision making elsewhere in Hawaii, in the Pacific, and throughout coastal areas more broadly.

-Kim Burnett and Cheryl Geslani


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