Tag Archives: Hawaiian Electric Company

Biofuel, Lowering Electric Rates, Renewable Energy Sources

Is HECO Seriously Damaging Its Credibility?

A proposed biofuels project that Hawaiian Electric Company (HECO) supports is going through PUC approval process right now.

HECO’s public relations people say that as a result of this new project going through, the average Hawai‘i rate payer’s electricity bill would increase by only about $1 per month.

But let’s look at that in a little more depth. HECO is seeking approval to pay Aina Koa Pono (AKP) $200/barrel for the biofuel it produces on the Big Island at Ka‘ū, and would pass on any extra cost (beyond what oil actually costs at the time) to its rate payers, both on the Big Island and on O‘ahu.

HECO has kept that $200/barrel price secret – they are still keeping it secret – but the Big Island Community Coalition folks figured out the price, and how the “$1/month rate increase” was determined.

Using the Energy Information Agency’s (EIA) Annual Energy Outlook (AEO-2012), one can see that HECO is using the highest price scenario, which projects an oil price close to $180/barrel in 2015. In the AKP discussion, it was said that the price of oil would exceed the actual price projected at the end of the period.

We can see that the line hits $200/barrel in 2035. Since they assume that oil will be $180 in 2015, they can therefore say that the difference (between the actual and projected price) would be very small: Hence, an increase of only perhaps $1/month for the average rate payer.

However, it follows that if the actual price of oil is much lower than $180/barrel, rate payers will be paying the difference between that amount and $200. What if the actual cost of oil in 2015 is $120/barrel? That would cause rates to go up much more than $1/month – especially for high-power users.

I cannot help but think that HECO is damaging its credibility immensely by pushing this project. HECO is spending hundreds of
thousands of dollars on public relations to convince us that it is trying to lower people’s rates – when, in secret, it appears to be doing exactly the opposite.

By the way, HECO says the hundreds of thousands of dollars it spends on PR comes from its shareholders. How can rate payers tell when HECO is speaking on behalf of its shareholders, and when it’s speaking on behalf of its customers?

This Aina Koa Pono project needs to be rejected because it will make our electricity rates rise. Rising electricity rates act like a giant regressive tax, because as folks who are able to leave get off the grid, those who cannot afford to are left to pay for the grid.

This results in farmers and other business folks having higher operating costs. For everyone else, it takes away discretionary income. And we know that two-thirds of our economy is made up of consumer spending.

There are also problems with the project itself. Fuel has never actually been produced using the process and feedstock that Aina Koa Pono proposes. AKP does not know what it is going to grow. So far, the feedstock it is testing experimentally is white pine. The Micro Dee technology that AKP wants to use is still experimental.

There is also a risk that this process might use more energy than it generates. Generating electricity is generally about boiling water and making steam that turns a turbine. It is cheapest to burn the stuff, boil water and make steam.

But Aina Koa Pono’s proposed process is extremely energy-intensive and expensive: It would make electricity to make microwaves to vaporize the cellulose to get the liquid and then take the pyrolysis oil, refine it to make it burnable, and then haul it down to Keahole in tanker trucks to make steam. Why should the rate payer pay for all that?

Cellulosic biofuels are not yet a cost-effective technology. On the mainland, in the middle of last year, the Environmental Protection Agency drastically decreased its 2011 estimate for cellulosic biofuel from 250 million gallons to a paltry 6 million gallons.

In 2010, cellulosic biofuel companies on the mainland needed to buy their feedstock for $45/ton. But because farmers were earning $100/ton for hay, the biofuel firms received a $45/ton subsidy.

I asked how much AKP expected to pay for feedstock, and the AECOM Technology Corporation consultant said between $55 and $65/ton. The problem there is that Hawai‘i farmers have been earning $200/ton for hay for 10 years now.

There is an agricultural production risk, as well. Palm oil is the only industrial-scale biofuel that can compete with petroleum oil. AKP has 12,000 acres and it says it will produce 18 million gallons of biofuel annually, and another 6 million gallons of drop-in diesel. So it will produce 24 million gallons using 12,000 acres. That is 2,000 gallons per acre, and that is four times the production of palm oil. More likely they would need at least four times as much land, or 48,000 acres. But where?

Consider too that Ka‘ū Sugar relied on natural rainfall, and it was one of the least productive of the sugar companies. There is a drought right now. And at 22 degrees N latitude, the area has less sun energy than the palm oil producers located on the equator.

According to Energy Expert Robert Hirsch, in his book The Impending World Energy Mess, the best model for biofuel production is a circular one, where processing is done in the
center of a field (which does not exceed a radius of 50 miles) consisting of flat land and deep fertile soil with irrigation and lots of sun energy. This situation exists in Central Maui, where Hawaiian Commercial & Sugar Company (HC&S) is located. It explains exactly why HC&S is the sole surviving Hawai‘i sugar plantation.

To compete heads up in the world market would require the best possible combination of production factors. These are not them.

It’s also important to consider that locking ourselves into a 20-year contract now would preclude lower cost alternatives. Geothermal, for example, is the equivalent of oil at $57/barrel. Ocean thermal has the possibility of being significantly lower in price than $200/barrel oil.  LNG is on the radar and so is biomass gasification. Who knows what else would come up in 20 years?

Paul Brewbaker and Carl Bonham, both highly respected Council of Revenue members, have said, very emphatically and for a while now, that low energy cost is critical. We should listen to them.

The International Monetary Fund team modeled different oil supply scenarios and did a presentation at the Association for the Study of Peak Oil (ASPO) conference a month and a half ago. They could not model a constant $200/barrel oil. Those would be uncharted waters; and ones, by the way, that would devastate Hawai‘i’s tourist industry. Why should we start paying $200/barrel for oil in 2015 if we don’t have to?

Five people from Hawai‘i attended this year’s ASPO conference. Notably, Kamehameha Schools sent two high-level people. Next year, Hawai‘i should send 20 people to learn what’s happening with oil prices and energy.

In the meantime, the amount of risk involved in the AKP biofuels proposal is just far too great. In the investment world, reward is generally commensurate with risk. Except for protection from $200/barrel oil in later years, the AKP project would provide little reward for all the risk we rate payers would assume.

This is a very, very bad deal for consumers.

Big Island electricity rates have been 25 percent higher than O‘ahu’s for as long as anyone can remember. This probably adds to the reason why the Big Island has the lowest median family income in the state, as well as the social ills that go with it. We need lower rates, not higher rates!

Although this is not an official Big Island Community Coalition (BICC) communication, I would like to point out that the BICC has been very instrumental in getting lots of people to stand up and say, “Enough is enough.”

The BICC is a bare-bones, grass roots citizen group with some of the most recognizable names on the Big Island on its steering committee: Dave DeLuz Jr., John E K Dill, Rockne Freitas, Michelle Galimba, Richard Ha, Wallace Ishibashi Sr., Ku‘ulei Kealoha Cooper, D. Noelani Kalipi, Ka‘iu Kimura, Robert Lindsey, H M Monty Richards, Marcia Sakai, Kumu Lehua Veincent and William Walter.

Peak Oil, Renewable Energy Sources

HECO Starts TV Ads Explaining Increasing Electricity Rates

In an article in yesterday’s Honolulu Star-Advertiser, Hawaiian Electric Company (HECO) Vice President Robbie Alms talks about how current increases in electricity rates are due to forces beyond our control, and says that customers should “brace for an extended period of high electricity prices.”

The article mentions that HECO is starting to run educational spots on TV to explain what is going on.

HECO sees electric prices staying high

The utility will begin airing TV ads tonight explaining reasons behind the rate hikes

By Alan Yonan Jr.

POSTED: 01:30 a.m. HST, Dec 23, 2011

Hawaiian Electric Co. is launching its first-ever public awareness campaign telling customers to brace for an extended period of high electricity prices.

Electric rates on Oahu have hit record levels in four out of the past five months largely due to an unprecedented hike in the cost of petroleum-based fuel, which the utility burns for more than 75 percent of its electricity production. Read the rest

I’ve been to four Peak Oil conferences now. During the first, in 2007, I learned that the world had been using twice as much oil as it had been finding for the past 20 years (and that trend continues). Ever since, I have been trying to educate folks so we can transition to more sustainable energy sources in an orderly manner.

At the time, one could not tell if the leveling off of oil production since 2005 was the beginning of a trend or not.

By 2009 though, at the time of the Peak Oil conference in Denver, we could see that the leveling off of oil production continued. At that time, I started paying attention to an idea that Professor Charles A.S. Hall called Energy Return on Energy Invested (EROI).

The idea: It is the net energy, resulting from the effort to get that energy, that is what society can use. The more difficult it is to get oil in its final usable form, the less net energy that’s available for society to use.

By 2010, Lloyds of London had issued a white paper alerting its business clients to be prepared for $200/barrel oil by 2013. By then, it was generally agreed that oil fields begin, peak and decline in a bell-shaped curve. And the decline rate of all the world’s oil fields could be estimated to within reasonable limits, say between 3 and 6 percent.

So the natural decline rate would be between 2.5 and 5 million barrels/day each year. Since Saudi Arabia produces 10 million barrels per day, we would need to find the equivalent of a Saudi Arabia every four years. Or, in the worse case scenario, every two years.

Renewables would have to fill that amount just for us to stay even.

Somewhere along the way, I picked up that our world economy is about manufacturing – building or making things – and that takes energy. But if the primary source of energy is not increasing, could it mean that the world economy cannot grow? It sounds plausible.

By this most recent Peak Oil conference, in October – and as recent events are starting to show – it looks like there is a fundamental change occurring in the oil market. Normally, one would expect to see the price of oil declining in a recession. But something different is happening: Oil costs close to $100 per barrel.

In China, the per capita usage of oil is around 2, while in the U.S. the per capita usage is around 26. At $100/barrel oil, China’s economy is still growing. The upside of this is that we have a cushion.

If oil supply is not able to keep up with demand, it seems reasonable that the price of oil will be rising. If this results in higher gas and electricity costs, it will put a drag on consumer spending, two-thirds of which affects economic growth.

The EPA is requiring upgrades to oil-fired plants, which will cost ratepayers even more.

It feels like we will be starting down the backside of the oil supply curve soon. And as it becomes more difficult to get oil, the net oil available to society will be less and less.

We in Hawai‘i are so lucky to have geothermal as an option for base power electricity, which is 80 percent of our electricity use. Geothermal is proven technology, environmentally benign and it’s affordable: Geothermal-generated electricity costs less than half that of oil at today’s price, and the cost will stay stable for 500,000 to a million years.

As the price of oil rises, and if we rely on affordable geothermal for a large portion of our electricity base power, our economy will become more competitive compared to the rest of the world, and our standard of living will rise. Our farmers and food manufacturers will become more competitive and Hawai‘i will become more food secure. Our young people will be able to find jobs at home.

I saw the first of the new HECO television spots a short time ago. Congratulations to HECO for starting them. There is a huge amount of catching up to do. It will be a challenge.

If we move urgently toward affordable energy, we will strengthen our Aloha way of life – where people aloha and take care of each other. Together we can make a better tomorrow for all.

Happy Holidays!

Biofuel

HECO: The Most Ingenious Production/Marketing Model I’ve Ever Seen!

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HECO has come up with a rather ingenious model to solicit biofuels for running its electrical generation equipment for the Big Island. It works like this:

If the farmer growing the product for biofuel needs a higher price than the current market price – which is way too low – HECO will raise the return to the farmer by raising the cost of electricity it sells to the farmer.

Also, to create demand-pull in the market place, HECO will promote “green” fuels. The message will be:

“There’s more to life than just money. Support expensive green biofuel – it’s a quality-of-life issue.”

It’s brilliant! By far the most ingenious agricultural production/marketing model I’ve seen yet!

Some farmers are old enough to remember The Great Liliko‘i Glut of the 1950s. Farmers were told to grow liliko‘i and “they” would buy it all. Practically every house had a liliko‘i trellis or two. When the promoters could not buy the liliko‘i, everybody made liliko‘i juice. People who are my age and live around Hilo know a lot about liliko‘i.

In the early 1980s, it was The Great Cacao Rush. A company came into town saying they would buy the entire local production of cacao, which would be used to make extra special chocolate for the ultra-high-end market. All the farmers had to do was buy certain “special” seedlings, which only the company happened to have.

Although the HECO idea for biofuel production is brilliant, I think that farmers would prefer that HECO grew the biofuels crop themselves, and that farmers get the exclusive right to provide the really, really special rare seedlings from a farmers’ co-op (made up of all the farmers in the state) at a pre-determined, kind-of-high price – with an escalator that moves up with the electricity bill. Payments, by bank draft, would go straight into the co-op’s bank account, six months prior to planting.

This way, the farmers would make money. And as we all know: “If the farmer makes money, the farmer going farm.”

Biofuel, Geothermal, Renewable Energy Sources

I Have Lost Confidence In HECO

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I am becoming more and more critical of the Hawaiian Electric Company’s (HECO’s) top-level decision makers, and of their policies. I am sad to say that I have lost confidence in their ability to lead us safely into the future.

A Wall Street Journal article last September noted that Spain – the world leader in solar technology – stopped its generous subsidy to support the solar industry. Basically, ratepayers could not bear the cost of the subsidy.

So I was not surprised recently to hear HECO say it could not accept any more solar. What I was surprised about was that they reversed their direction immediately. Did things change? No. It was a missed opportunity to educate the public about what is truly going on. They chose not to.

Recently, HECO was turned down regarding its attempt to initiate Smart Grid on O‘ahu, Maui and the Big Island. Smart Grid is a developing system, and there was no need to be the first in the world to implement this. At Hawai‘i’s size, it is much smarter to be best in the world at copying the most successful systems. You get a tested system that does not cost the ratepayers as much.

Several years ago, HECO chose the biofuel path, but it did not have a serious conversation about it with farmers. Farmers know that they will not grow anything for 7 cents per pound. They might switch from growing food to growing fuel for 35 cents per pound, but oil prices would have to be $400 per barrel before it would send that price signal.

And small farmers would not be able to grow biofuels on the kind of scale that HECO needs, anyway. More likely, it would be on the scale of redemption of cans and bottles.

When HECO brought the biofuel meeting to Maui, there was
discussion about ultimately importing palm oil from Indonesia. Many of the folks in the audience were distressed at what would happen to animal habitat, especially the orangutan. HECO replied that it would source “green” biofuel. 

We know that biofuels will be more expensive than fossil fuels. Will the rubbah slippah folks be able to afford it?  Can small businesses afford to pay the resultant higher electricity rates?

Is this the solution that will give a continuous, competitive advantage to the islands, relative to the rest of the world?

We should look at the resources available on each individual island before we decide what is best for that particular island. It is the cost of the fuel, not whether it is brown or “green,” that is important.

On the Big Island, we know it must be done right. Geothermal
for base power is: proven technology, a low-cost alternative, has the smallest footprint and gives off no greenhouse gases.

The Oil Age is only 150 years old, and already we are worrying about depletion. According to Jim Kauahikaua, Scientist-in-Charge at the Volcano National Park Observatory, though, the “hot spot” under the Big Island will last for half a million to a million more years.

What about HECO’s general renewable energy strategy? They
say they are for everything – wind, solar, geothermal, ocean thermal, biofuels, biomass, etc. But being “for everything” seems to be a way of not talking about any one thing. HECO does not put any effort into enabling geothermal, so we can only assume that they do not really want it.

On the other hand, they do really want biofuels. “Shameless”
comes to mind. I am not for geothermal exclusively. But I do think there should be a prioritization of the various resources based on many factors, such as: proven technology, relative competitiveness, scalability, net energy, social consequence, geographic appropriateness, etc. 

In other words, what will give us the best chance of surviving since we are living out here in the middle of the Pacific? “We are for everything” falls way short.

I think that the rubbah slippah folks intuitively have it figured out when they say: “One day, the boat not going come.” That is their shorthand way of saying: “One day, things will be too expensive, and the boat might as well not come.” In that scenario, we will be going back to the basics. The most important question one asks all day might be, “I wonder what color malo I going wear tomorrow?”

Two weeks ago, former Chancellor of UH Hilo Rose Tseng invited Bill Steiner, the Dean of the UH Hilo College of Tropical Agriculture and Forestry and myself to attend an REIS retreat put on by the UH Manoa College of Engineering.

I immediately noticed that the Big Island was not a focus and that geothermal was not on the radar. But we were able to express the Big Island’s concerns, and we were welcomed to participate fully. This is very encouraging.

HECO sent many of its people to the retreat because many of
those people work as engineers, and many graduated from the UH College of Engineering. I found HECO’s new Director of Renewable Energy Planning, Dora Nakafuji, impressive because she is willing to discuss alternatives in an inclusive way.

The most recent issue of Hawaii Business magazine describes the restructuring of HECO. I hope the new folks will change HECO’s
corporate culture, and take the time to understand the needs of the rubbah slippah folks. We can take the right path to survival and accommodate everyone’s needs at the same time.

In an ideal reorganization, HECO gains the trust of the community, and because its plan is mutually beneficial we go down to support it at the PUC. Not, no can. CAN!