Hawaiian Electric’s Supply-Chain Transition to 100% Renewables

How will Hawaiian Electric Industries, the largest utility in Hawaii, achieve the state’s goal of 100% renewable generation by 2045 while continuing to deliver reliable and affordable service to its customers?


The United States is focused on transitioning to a clean energy future, and this transition is affecting businesses in numerous ways. The State of Hawaii has set an especially lofty goal of achieving 100% clean energy by 2045 [1]. Whether one believes that this goal is completely attainable within this timeframe or not, the majority of the burden to strive towards 100% clean energy will fall on Hawaiian Electric Industries (“HEI”), the utility that has powered Hawaii, Maui and Oahu for the last 125 years. Achieving the 100% clean energy goal is not only required by law, it is also incredibly important to HEI’s customers, the people of Hawaii, who deeply believe in protecting the environment.

In 2016, HEI generated 26% of the total energy provided to customers from renewable sources [2]. In order to increase that proportion to 100% over the next three decades, HEI will need to modify its entire electricity supply chain, including power generation, transmission, and distribution. However, HEI will face several constraints; first, HEI will need to work within the Hawaiian Public Utility Commission’s (“PUC”) regulatory framework, which requires HEI to receive PUC approval for all capital expenditures before they can add those amounts to “rate base” to recover their costs and earn an allowed return on equity. Further, HEI will need to generate energy from clean sources in a cost-efficient manner, without dramatically increasing the rates charged to customers.

In the short term, HEI is focused on several initiatives that aim to bring additional renewable energy online while continuing to deliver customer value at a reasonable cost. Each of these projects will significantly impact HEI’s supply chain and the way that the Company delivers energy to its customers. These initiatives, as outlined in the 2016 Power Supply Improvement Plan (PSIP), include [3]:

  • Supporting the growth of private rooftop solar projects
  • Expanding the use of energy storage systems (e.g., batteries)
  • Modernizing the grid to integrate an estimated 165,000 private solar systems by 2030
  • Community-based renewable energy programs
  • Demand Response Programs (shift use of electricity to times when more renewable energy is available)

HEI is also considering several long-term projects to help Hawaii transition to 100% renewables. For example, HEI is considering the use of liquefied natural gas as a potential lower-cost bridge fuel. In addition, HEI continues to evaluate the economic feasibility of building an inter-island cable between Lanai and Molokai. This cable could potentially be a key component to achieving 100% renewables in Hawaii as some islands have the capacity to develop renewable energy projects that could exceed their own needs, which would result in a surplus of renewable energy that could be sent to other islands via an underwater cable [4].

While HEI has dedicated extensive resources to formulating a strategy to get to 100% renewables, their plans do not go far enough. To transition to 100% clean energy by 2045 while protecting the profitability of the company and the interests of the customers, I believe HEI needs a better long-term energy sourcing strategy. In particular, HEI should consider significantly altering their supply chain by insourcing a larger portion of clean energy generation. In 2016, roughly half of the energy that HEI provided to its customers was purchased from independent power producers (“IPPs”) [5]. If HEI does not alter their strategy, this proportion will likely grow; the Company’s current plan as laid out above focuses on expanding clean energy generation by supporting the growth of private rooftop solar and community solar, and assumes that HEI will enter into long-term power purchase agreements (“PPAs”) with third-party developers who have built renewable projects. In order to provide energy to their customers at the lowest possible cost, HEI should insource a larger share of this generation as they can finance and build clean energy projects in a more cost-effective way than an individual consumer or IPP can. In addition, by insourcing clean energy production they can cut out the margin that an IPP would otherwise charge.

Given the regulatory and financial complexities facing HEI, and in the wake of NextEra’s failed acquisition bid, I wonder whether a different owner or management team may be better equipped to lead this transition to 100% renewables?

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[1] Energy.GOV (2017). Renewable Portfolio Standard. [online] Available at: https://energy.gov/savings/renewable-portfolio-standard-4 [Accessed 13 Nov. 2017].

[2] Hawaiian Electric Industries Annual Report. (2016). [online] Available at: http://www.hei.com/interactive/newlookandfeel/1031123/HEI2016AR_03212017.pdf [Accessed 10 Nov. 2017].

[3] Hawaiian Electric Industries Annual Report. (2016). [online] Available at: http://www.hei.com/interactive/newlookandfeel/1031123/HEI2016AR_03212017.pdf [Accessed 10 Nov. 2017].

[4] Hawaiian Electric Industries Annual Report. (2016). [online] Available at: http://www.hei.com/interactive/newlookandfeel/1031123/HEI2016AR_03212017.pdf [Accessed 10 Nov. 2017].

[5] Hawaiian Electric Industries Annual Report. (2016). [online] Available at: http://www.hei.com/interactive/newlookandfeel/1031123/HEI2016AR_03212017.pdf [Accessed 10 Nov. 2017].

 Other Sources:

Company Website (2017). Regulators accept Hawaiian Electric Companies’ plan to reach 100% renewable energy. [online] Available at: https://www.hawaiianelectric.com/regulators-accept-hawaiian-electric-companies-plan-to-reach-100-renewable-energy [Accessed 14 Nov. 2017].

Maloney, P. (2017). Hawaiian Electric takes first steps to utility-scale commercial energy storage. Utility Dive. [online] Available at: https://www.utilitydive.com/news/hawaiian-electric-takes-first-steps-to-utility-scale-commercial-energy-stor/506885/ [Accessed 11 Nov. 2017].



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Student comments on Hawaiian Electric’s Supply-Chain Transition to 100% Renewables

  1. In the aftermath of hurricane Irma and its effects on energy systems in the Caribbean, HEI may prove to be a useful case study for sun-blessed island nations around the world. This essay, however, touches upon a critical issue for a transition to renewables in any geography: production is just as important as distribution and diffusion of renewable technology. One question raised here is how does a company such as HEI insource clean energy production? What barriers exist either from a regulatory, capital, or technological standpoint to support this production? In many locations, it has been the utilities themselves to stifle the steady march forward of renewables (https://www.nytimes.com/2017/07/08/climate/rooftop-solar-panels-tax-credits-utility-companies-lobbying.html). How can HEI and the public align incentives to accelerate the implementation of clean energy production?

  2. Islands tend to be a very difficult challenge for energy production. They are isolated, they do not always have spare land to build energy plants and risks tend to be concentrated all together (in case of floods, for example). Therefore, achieving a 100% renewable energy production is even more challenging than in the mainland, particularly if they are far away for any land and the size of them is not very significant [1], as is the case of Hawaii.

    To ensure energy reliability and affordability, I believe HEI should acknowledge these difficulties and educate the public in the islands, developing practical long-term projects that drive the islands towards that target even if they are not 100% renewable. LNG as a bridge fuel is a very good example. Nuclear plants or fossil fuels with carbon capture and storage technology are also very interesting options to further explore. Not realizing how more challenging such a target (i.e. 100% renewables) might be for Hawaii versus non-island territories could lead HEI to make wrong decisions that risk the very first targets any energy system must have: reliability and affordability.

    [1] Jeff McMahon, “100% Renewables Increasingly Looks Possible”, Forbes, Oct 2016: https://www.forbes.com/sites/jeffmcmahon/2016/10/30/100-renewables-increasingly-possible/#382e2a981f98

  3. First off, wow! Fantastic essay with a mix of quality analytics and eloquent prose. The author clearly is an accomplish infrastructure expert with an interest in literature because this piece was so perfectly woven it almost made me cry! I agree with the author that the Hawaiian goal of 100% sustainable energy is the right target and I think the question is how do you get there. I would wonder if there was some efficient means of harnessing the power of Hawaii’s biggest asset – it’s powerful oceans. What does the author think of technology like the below that generates electricity through wave power?
    Given that Hawaii sits essentially at the top of a mountain range in the ocean, massive and powerful waves wash up on it’s shore on a daily basis. This may address the concerns the author has with sourcing. The real question is, will Hawaii hang 10 or get pitted??

  4. Very insightful article, and I am extremely intrigued by one theme in particular: why is HEI relying so heavily on third party, private, and individual power generators within the grid?

    As you discuss, electricity grids are notoriously difficult to manage. Incorporating so many suppliers, especially rooftop solar panels over which HEI has little control, seems like a strategy that will cause a significant increase in management difficulty and overhead. Individuals can choose to connect or remove their panels at will, and coordinating many corporate suppliers is difficult. You advocate to continue that approach, and I am certainly convinced that they have little choice in a resource-constrained environment like Hawaii. One wonders what impact that may have on reliability and management and whether a buffering system like batteries is sufficient to smooth those variations in supply.

    I also wonder how to assess the riskiness of PPAs. Renewable projects have certainly become more viable in the last 10 years, but the industry is still replete with stories of companies going bankrupt or pulling out of certain markets. How does Hawaii mitigate the risk that its PPA partner will remain in business? The cost and time to replace supply is not small.

    Overall, I thoroughly enjoyed your analysis and agree with your conclusions. Hawaii is in a difficult position, however, and I hope that they can find ways to address management issues and risk.

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