Why Hawaii Residents Can’t Build Their Own Private Power Grids
As solar systems and battery storage gain popularity, some say Hawaii’s law needs to catch up with the technology.
When R.J. Martin was planning a small subdivision of seven homes, each powered with photovoltaic solar cells and large Tesla Powerwall batteries, there was one idea that was quickly dimissed: the notion of linking the homes together with a small power grid that would let the homeowners share surplus power with one another.
It was a good idea, says Martin, who is developing the Green Homes Hanalei Street project with engineering assistance from the Honolulu solar company Revolusun.
“Both of us knew that this was impossible,” Martin said of Green Homes and Revolusun. “There was no way legally that we were going to be able to do a little microgrid.”
Martin isn’t alone. As it becomes increasingly easy to produce and store electricity from renewable sources, the question becomes how to transfer the power between private producers and customers without getting bogged down in a regulatory quagmire. Also central to the discussion: What role will Hawaiian Electric Co. play?
Martin’s envisioned microgrid might not be completely illegal, Hawaii energy law experts say. But building rooftop solar systems and sharing surplus energy with neighbors could potentially put homeowners in murky legal territory, said Timothy Lindl, a California attorney who practices before the Hawaii Public Utilities Commission.
Specifically, under Hawaii law, it could turn the homeowners into public utilities, the equivalent of HECO. According to Lindl, even if a homeowner sold only a few dollars’ worth of power to a handful of neighbors across the street the owner could face the same regulations designed for a 2,600-employee company that sells more than $2 billion in power annually to some 460,000 customers across the state.
“The most critical regulation you could be subject to is the ratemaking regulation, which tells you how much you would have to charge your neighbor,” says Lindl, a partner with the energy boutique law firm Keyes & Fox. “But there are many, many other regulations.”
The bottom line: “Being designated as a public utility undermines the cost effectiveness of any project,” Lindl said.
‘A Really Archaic Law’
As Hawaii moves toward its goal of producing 100 percent of its electricity from renewable sources, projects like Martin’s envisioned microgrid, which could operate free from HECO’s grid or attached to it, represent a potential tool in the state’s renewables toolbox.
The problem is the law hasn’t caught up with the state’s vision or the current technology, says state Rep. Chris Lee, chair of the House Energy and Environmental Protection Committee.
“It’s a really archaic law and situation that needs to be fixed,” said Lee, who represents Kailua and Waimanalo.
Lawmakers have tried to do just that recently, Lee said.
But, he said, “The utility has opposed us at every turn.”
Generally, under regimes overseen by the PUC, people can transfer their extra power, but only to HECO. One question is how to let producers sell to customers without requiring them to use HECO as a middleman.
A 2016 bill to make it easier to set up microgrids made it through the House but stalled in the Senate. The same thing happened to another 2016 bill that would have required regulators to set up a system to let independent energy producers use the utilities’ grids to deliver power to third-party customers, a practice known as “wheeling.”
More recently, even more modest proposals have died. Measures proposed in 2017 would have set up microgrid demonstration projects at the National Energy Laboratory of Hawaii and at campuses in the University of Hawaii system. Both measures stalled. Even a bill requiring the PUC merely to study wheeling stalled, with HECO testifying against it.
“The gist of it is the utility has opposed this vociferously over the years and has never offered an alternative solution,” Lee said.
HECO takes exception with the idea that it has blocked efforts to use renewables.
“That’s disappointing to hear because it’s just not true,” said Jim Alberts, HECO’s senior vice president for customer service.
During an interview with Alberts, HECO senior spokesman Peter Rosegg, and HECO’s director of corporate communications Shannon Tangonan, Alberts and Rosegg repeated a talking point that Alberts described as a HECO mantra: the utility, they said, wants to collaborate with customers on ways to use renewables to solve problems.
Rosegg, who joined HECO long before the state adopted its policy to phase out fossil fuels over the next generation, said the company’s culture shift is real.
“In the 15 years I’ve been here, we’ve gone from ‘No, we don’t do that’ to this kind of attitude,” said Rosegg.
Paniolo Power’s Big Island Plan Has Stalled
It’s not just smaller players like Martin who have run into challenges. In 2013, Hawaii Island’s Parker Ranch, the historic landowner known for its vast cattle pastures, began planning a system to provide power to North Kohala and the upcountry Hawaiian cowboy town of Waimea through its subsidiary Paniolo Power Co.
With Hawaii residents paying the nation’s highest rates – and more than twice the national average – Parker Ranch commissioned a study by the energy and engineering giant Siemens Industries and the consulting firm Booz Allen Hamilton. The study found Paniolo Power could cut the region’s electricity costs by building a system of windmills and massive “pumped storage” systems, in which uphill reservoirs hold water that can be released through hydroelectric turbines to produce power when needed.
The report is somewhat dated. It envisions, for example, the supplemental use of liquefied natural gas, which Gov. David Ige has adamantly opposed as a fuel source. Still, the overarching finding is sound, said Jose Dizon, Paniolo Power’s general manager.
In fact, Dizon said that with wind and solar, Paniolo Power could light the whole island with renewables in 10 years, far sooner than the state’s 2045 goal.
“There’s enough potential on the ranch to fuel the whole island 100 percent renewable,” he said.
The challenge, Dizon said, is that it would simply be too expensive for Paniolo Power to create its own network of power lines. Instead, it would need to rent the Hawaii Electric Light Co. grid. But the last time Paniolo Power brought this up, he recalls, the company said no.
HECO wouldn’t let Paniolo Power or anyone else simply use its grids to transfer power. One issue, Alberts said, would be to figure out what would be a fair rate to charge for using the grid; otherwise, other customers would end up shouldering the cost of maintaining the grid while companies like Paniolo essentially used it for free.
Alberts said the Big Island is already close to reaching that goal of producing 100 percent of its electricity from renewable sources. Hu Honua Bioenergy is finalizing an agreement to use an old power plant retrofitted to burn biomass. When that comes online the Big Island’s electricity sources will be 75 percent renewable, Alberts said.
To demonstrate HECO’s commitment to work with customers, Alberts pointed to a recently announced deal that would enable the University of Hawaii to use its land for a renewable project, such as a large solar farm with battery storage, which could distribute the energy on HECO’s grid to various campuses. HECO would create a long-term contract to buy energy from the energy supplier and a separate contract to sell to UH.
According to the proposed deal, third-party developers could submit proposals to HECO to develop the solar farm. The power company also could submit a proposal. Alberts said HECO would create an ethical wall within the company to ensure the company did not favor its own proposal.
Matthew Kamakani Lynch, UH’s System Sustainability Coordinator, said the university has formed a working group to discuss details but that nothing has been finalized.
“We haven’t agreed to anything yet other than we’re going to work together,” Lynch said.
Utility Opposed ‘Wheeling’ Proposals
Despite the green tariff proposal, HECO has hardly been a standard bearer for legislative reforms to open up its grids to wheeling. The practice of wheeling essentially establishes the electric grid as a common carrier that anyone can use to transport electricity for a fee. Wheeling is common on the mainland, where the Federal Energy Regulatory Commission regulates the grid under the federal government’s constitutional authority to oversee interstate commerce. But since HECO’s grids don’t cross state lines, FERC can’t regulate them.
House Bill 2076, which Reps. Chris Lee and Nicole Lowen introduced in 2016, would have set up a retail wheeling program in Hawaii. It received support from the Hawaii Department of Education, Parker Ranch and the Blue Planet Foundation, a nonprofit organization that promotes the use of renewables. The Hawaii Consumer Advocate supported the bill’s overall intent.
HECO opposed it, arguing that before exploring retail wheeling, the PUC should conclude an ongoing investigation on wheeling between government agencies. That inquiry has been going on for more than 10 years.
In HECO’s testimony opposing the retail wheeling program, the company said wheeling could benefit just a few customers, undermine the state’s efforts to promote renewables, and increase prices for most customers.
“They think of it as an existential threat.” — Jeff Mikulina, Blue Planet Foundation
Henry Curtis, executive director of the environmental organization Life of the Land, said there’s another reason wheeling might not make sense: the widespread addition of solar systems and other distributed energy resources to the grid raises questions about whether the grid has capacity to add more.
But Jeff Mikulina, the Blue Planet Foundation’s executive director, said there’s a less altruistic reason HECO has opposed wheeling.
“They think of it as an existential threat,” Mikulina said.
Green Homes isn’t the only Hawaii developer that’s looked at setting up its own grid, said Josh Powell, Revolusun’s chief executive.
Instead of building millions of dollars of infrastructure and essentially giving it to HECO, Powell said, developers could effectively own their own grids and maintain and operate them more efficiently than the behemoth power company.
In light of technological changes, the law prohibiting small-scale sales of electricity makes no sense, said Powell, a former U.S. Navy officer and construction manager for the military homebuilder Actus Lendlease.
For instance, the PUC might be able to stop neighbors from selling power to each other via a power cable. But, Powell asked, Could the PUC stop someone from charging a big wall battery and taking it to a neighbor’s place on a hand truck?
“The reality is you can produce all the energy you need for your house and your car on a 5,000-square-foot lot,” Powell said.
With that in mind, Martin is moving ahead, creating his subdivision as a “demonstration project” that shows a big house can operate with power only from a solar cells and batteries, although he said the houses will be connected to HECO’s grid.
Martin got into real estate while earning a doctorate in history at the University of Hawaii. His first project, financed in part with family investors and credit card debt as well as bank loans, was a 25-home affordable housing project in Nanakuli, which consisted of 15 affordable homes and 10 houses sold at market rate.
Standing in one of his newly built homes next to the Tesla batteries, Martin says it’s only a matter of time before such devices become standard.
“This is where we all should be in the coming years,” he said. “All the homes should be off the grid.”