Friday, December 02, 2011

 

Cost of electricity is silent factor in Hawaii energy policy (part 2)


By Henry Curtis
ililani.media@gmail.com


On November 30, 2011 Larry Geller wrote a blog post (Cost of electricity is silent factor in Hawaii energy policy) which received a lot of comments.


Here are my answers to the issues raised




(1) Why are “green energy projects” important when they are ultra-expensive?

Low climate impact, low environmental impact, low cultural impact, local projects keeping money circulating in Hawai`i is important. Avoiding destructive climate change is important. Neither green energy nor clean energy is defined in Hawai`i law. All prices should be public so consumers can truly understand what different technologies cost. The price should include transmission and distribution. Obviously a rooftop system needs less transmission than an inter-island wind system.

(2) If you object to mining coal because it is *dirty*, to be consistent shouldn’t you objective to mining rare earth metals for wind turbine magnets  & solar panels manufactured in China because they too are likely even *dirtier*?

Yes, trace minerals should be incorporated into all models. But they should not be assumed to be dirtier, rather their true impacts should be analyzed and accounted for.

(3) Why not increase the amount of coal that Hawaii imports because it is ultra-cheap at 3 cents/kWh (and combined with OPXBIO its CO2 emissions produce $2.50/gallon drop-in transportation fuels with a *negative* carbon footprint to save the planet)?

Coal is just plain dirty. The problem with coal is that most of it is incredibly dirty. Using a little bit of “nice” coal, if it exists, may get many people to change their views on coal, and allow more use of dirty coal.

Wind turbines are partly dirty in that magnets can be dirty to make.  The giant hole that must be dug for wind towers and then filled with cement, concrete, etc. made from pulverizing rocks and then shipping the cement/concrete  to the site may account for 5-10% of any proposed net CO2 savings for windfarms.

OPXBIO is an experimental technology. Like many experimental technologies, proponents argue that it is the ultimate solution.

AES offset carbon emissions by preserving a forest in central/south america. If instead of cutting down forest blocks 1, 2, 3 ... the country started instead on number two: 2, 3, 4 then there was no gain even though AES was claiming one. In any case, the site was fenced off and the native people were removed. I know of no independent Hawaii person monitoring this offset.

(4) Even more amazing is how HECO is benefitting from ...Energy Efficiency Portfolio Standard (EEPS)

Energy Efficiency Portfolio Standard (EEPS) was taken away from HECO and given to an energy efficiency utility. The current implementer is Hawaii Energy, a subsidiary of SAIC.

(5) Even more amazing is how HECO is benefitting from decoupling

Yes it is amazing. DBEDT wanted the reward of decoupling to be coupled with reductions in fossil fuel use. The Consumer Advocate likes to make HECO happy and said decoupling should be decoupled from utility performance. The PUC went with the Consumer Advocate’s position.

(6) HECO ...new business model is transmission & distribution (T&D) and backup power generation.

Not really. They do that but also want biofuels to power their existing generators and they want to get back into energy efficiency.

(7) The beauty of decoupling for HECO is that it perversely rewards *economic inefficiency* in that over-investments and screw-ups are incorporated into its rate base.

Decoupling must be monitored by regulators. Bad investments should not go into the ratebase.


(8) Both wind & solar (and interisland cable) will be *useless* during HECO’s peak demand event of post-sunset muggy Kona weather days when everyone comes home from work and blasts their air conditioner

In Spain concentrated solar power was able to supply electricity for a continuous 24-hour period.  Concentrated solar power (CSP) utilizes parabolic mirrors heating a pipe containing molten salts then sent to a holding tank to create time-delayed electricity. The benefit of solar and wind is designed to reduce fossil fuel use, if that occurs, what happens in the evenings is less important.


(9) There will be a massive duplicate fuel-based infrastructure with low fixed-asset capacity utilization i.e., non-revenue generating assets that are idle for most of the year.

You are right.

Most infrastructure sits idle for most of the time. Highways are fairly empty at 3 am.

The amount of backup electric power varies by island. HELCO on Hawai`i Island has far lower spinning reserves that Oahu has (as a % of load). That is, HECO considers avoiding blackouts on Oahu to be a higher priority than for the Big Island. Downtown Honolulu (not Waikiki) is the only distributed network in the state, whereby every customer is tied to two substations. More expensive, but offering a higher level of reliability for the core business area.

The problem of idling power started in the 1880s. They had high night-time use and low day-time use. To level the load, trollies were introduced. Now we have the opposite problem. This also varies by State. California has peak power use while the sun is shining. We have peak power use after the sun has set.

Thus this is a difficult question to give a simple answer to.


(10) For the Energy Efficiency Portfolio Standard, its purpose is to justify a smart grid which will likely have massive software development cost overruns – perhaps in perpetuity.

Installing energy efficiency is an economic benefit for customers who see lower costs. They spend the savings on other things which need energy. This increase in energy demanded benefits both fossil fuel producers and utilities. Everyone is happy, except Mother Earth since greenhouses gases tend to rise with greater energy demand.  

The real reason for Smart Grids are to handle intermittent loads and to increase the ability of the electric company to spy on you and to market that consumer information.

(11) The beauty of decoupling here is that rather than waiting until the smart grid is completed before capitalizing its software development cost, it is capitalized into the rate base as expended.

In the last few years a number of surcharges have been introduced to get all kinds of money upfront.

(12) Proof of all this is HEI’s investor presentation in which it forecasts a *5% average growth ...with *zero* business risk with decoupling’s perverse incentive of capitalizing over-investment

All businesses seek to externalize risk thereby increasing profits. HECO tries to manipulate regulators.

(13) HECO did exactly what folks like Henry Curtis demanded and judo flipped it to its benefit.

?!

We do not advocate energy efficiency as a way to cut energy use. We do not favor high priced “green” energy. We do not favor decoupling as it was implemented.  We have been seeking to make all prices public. We have been seeking to get true information on energy offsets such as spinning reserves. We sit on the PUC Reliability Standards Working Group.



(14) So with coal being ultra-cheap & energy secure, using the code word “fossil fuel” to conflate coal with oil is intellectually dishonest.

The price and security are irrelevant in the definition of fossil fuel. Carbon-14, 14C, or radiocarbon is found in all organic life. It can be used for carbon dating since it has a half-life of 5,730 years. After 22,000 years only 1/16th is left. After 40,000 years just 0.2% is left. When the amount becomes to small, to measure, the substance's definition goes from “organic” to “fossil.” Coal, by definition, is a fossil fuel. If 14C were detected it would be called biomass or biofuel.

(15) Another perverse unintended consequence of Hawaii's green energy policy is that HECO has planned a massive 215 MGY purchase of biofuels for its fast load-following generators to compensate for the intermittency of wind & solar.

Without checking the specific numbers, that sounds logical. But HECO does not know or will not share the data on spinning reserve offsets. On a side note, both the time of production and the difference in fluctuation rates means that different amounts of offsets are needed for solar vs. wind.

(16) Transportation (the remaining two-thirds of Hawaii's oil consumption)

2/3: Ground transportation (1/3) and air transportation (1/3)


(17) Most shocking is HECO CEO Rick Rosenblum saying that when the HCEI Agreement was signed in 2008, "we don't know how to do this." Yikes!

When HECO proposed HCEI no one on an isolated grid had ever succeeded in this approach. So they did not know how to do it.


(18) Coal is destroying the State of West Virginia along with it citizens.

Yes, however our coal does not come from there. Primarily it comes from Australia with the rest from the South Pacific/Asia.

(19) The burning of coal is destroying the environment and with that causing many health related diseases. Coal is subsidized by tax payer dollars. The coal industry has managed to internalize the profits and externalize the costs to humans and the environment. Coal is expensive and dangerous. Coal is cheap only if you pretend it is cheap.

True.


(20) Question of Values: PV & wind turbines are cheap because they are made in China.

They are cheap because China is selling them for cheap prices to capture market share.

(21) PV manufacturing & rare mining for wind turbine magnets are destroying China along with its citizens.

Our cell phones are run on rare earth materials. Perhaps we should lump together wind systems, solar systems, cell phones, and some personal computers. Rare earth materials are abundant in Afghanistan. Maybe we should declare war. Just kidding. Buying rare earth materials is a serious world-wide problem that should not be minimized. The third deadliest 20th century war was fought over control of rare earth materials. Few Americans are familiar with that central African war.


(22) PV & wind energy are *not* cheap for Hawaii while HECO pays coal-burning AES Hawaii *only* 3 cents/kWh.

AES gets 3 cents/kWh. However, the price externalizes all health, environmental and cultural impacts. Furthermore, coal use is a leading cause of climate changes.

(23) Obviously whether coal is acceptable is a question of values

Yes, short term profits vs.  short term savings vs.  long term climate change.

(24)  At least the United States has EPA & OSHA to protect the environment and ensure worker health

Is that what they do?


(25) Coal is destroying the village of West Virginia and other coal mining villages by poisoning the water supply, contaminating the air, and removing mountain tops . Coal is killing the villagers in those states. Coal is has destroyed the quality of life of those villagers. The question we must ask ourselves as a nation is, are we going to exploit those villages so we can have what we falsely perceive to be cheap energy.

True.


Comments:

Proof: 3 cents/kWh Coal-burning AES Hawaii

Henry Curtis: “You got to be kidding. You think AES gets 3 cents/kWh? No way.”

Way! Proof:

January 2011 (see slide 7)
http://www.hawaiienergypolicy.hawaii.edu/PDF/2011/2011-1-14-Robbie-Alm.pdf

HECO EVP Robbie Alm Senate testimony (jump 13:12)
http://olelo.granicus.com/MediaPlayer.php?view_id=13&clip_id=17969

HECO EVP Robbie Alm House testimony (jump 47:28)
http://olelo.granicus.com/MediaPlayer.php?view_id=31&clip_id=18260

May 2011 (see slide 5)
http://hawaiicleanenergyinitiative.org/storage/media/7.HCEI%20Plenary%20Update_5.02.11_HECO.pdf

July 2011 – HECO EVP Robbie Alm at the Hawaii Democratic Party Caucus (jump 22:28)
http://www.ustream.tv/recorded/16099279
 


Transcripts: HECO’s Decoupling Business Model implementing Henry Curtis’ 1997 proposal (not exactly but close in spirit in that HECO’s generation variable fuel cost is a pass-through)

(6) HECO new business model is transmission & distribution (T&D) and backup power generation.
> Henry Curtis: “Not really.”

Transcript from Democratic Party Caucus roundtable (July 18, 2011) http://www.ustream.tv/recorded/16099279

HECO EVP Robbie Alm [1:36:23]: “Let's go to a blank piece of board and you tell me what you want us to do as Hawaiian Electric. I mean let's start from scratch, we don't have anything what we are doing now, what do we do as a company? [Maurice Kaya] said okay, first thing is T&D—and by the way that is transmission & distribution. So the big wires that you see along the highway or in the mountains, those are big transmission wires, when you get down to your neighborhood those are distribution wires. So T&D is the whole wire system of the company. Okay, so you've got to do T&D. Okay. You've got to be the control rooms. Okay. You've got to be the meters. Okay. And by the way we want smart meters because that is very important for customer choice. Okay. You've got to figure out how to regulate this load. Okay. You've got to be backup power because at some level a lot of this stuff is going to need some level of backup power. By the time you finish with that list I looked at it and said, if you can't make money doing that as a company you should quit. There is enough in facilitating this stuff called electricity along with some piece of backup power that our company has a bright future.”

Alm [1:38:41]: “I really think for us it was a matter of getting the mindset away from the notion that we are primarily a generation company. But we are not at a point where we don’t do any generation, and I actually think that is a mistake. Let me spend one more minute on it. All independent power providers are essentially on contract to us. If they ever decide that they don’t want to produce power for us—for economic reasons or whatever—they can get up and walk away. There may be penalty provisions in there but the reality is that they can get up and walk away. The utility, Hawaiian Electric, has what is called “an obligation to serve.” We are obligated to provide the power even if we lose money doing it. That’s part of a public utility. And that is part of the tradeoff for operating. So most observers have suggested that you always want some measure of obligation to serve power on your system. You want somebody like us that has a responsibility to give you power no matter what at some level on the system. And so I think blending in outside generation by third parties with all those other functions, we have a good business model.”

Alm [59:49]: “I think most people know this but all fuel and all purchased power is a pass-through. There is no markup for the utility. There is no percentage for us. Whether we buy oil or fossil fuel or produce power or renewable power it is a straight pass-through.”

(13) HECO did exactly what folks like Henry Curtis demanded and judo flipped it to its benefit.
> Henry Curtis: “?!”

Henry Curtis [http://vimeo.com/25264810, jump 36:23]: “So we come to this problem that what we really need to do is change the way the utility does things to support a very local, very decentralized system. And we need to say to the utility, we will guarantee your profits but we need a stock split. Every person who owns a share of Hawaiian Electric Industries today will own one share of generation and one share of transmission tomorrow. And the companies will be separate, separate management, separate ownership, separate names — and we will guarantee the return on the transmission company but the generation company has to compete like everybody else. And we proposed this back in 1997.”
 


In 1997 Life of the Land favored splitting HECO into two entities: (a) a transmission and distribution company (TransCo) and a Generation company (GenCo). We favored guaranteeing the profits of TransCo only.

Decoupling is supposed to separate sales from profits. These are functions of generation (GenCo) not transmission (TransCo). Decoupling does not directly impact rates associated with transmission.

HECO payments for fuel, oil, and $ paid to independent power producers is and has always been a pass through as long as you ignore the fact that until very recently proxies were used and manipulated to increase profits. Without proxies it is harder but not impossible to profit from pass thrus.

HECO has agreed that climate change is real, they have decided to use waste oil biodiesel instead of palm oil, and they have opted for a wind farm at Kahuku instead of Kahe. These were all advocated by Life of the Land. So we do agree on things.

“All independent power providers are essentially on contract to us. If they ever decide that they don’t want to produce power for us—for economic reasons or whatever—they can get up and walk away.”

I can’t see a multinational company with a 20-year contract with HECO simply breaking the contract and walking away to a legal fight. And even if they did, the facility would still be here. The Governor could condemn it and HECO could operate it.
 


Henry, who is the "multinational company with a 20-year contract with HECO?"
 


There are three Independent Power Producers on O`ahu.

AES Corporation owns the 180 MW coal plant in Kalaeloa.
AES Corporation is in 31 countries, employs 27,000 people worldwide, and had total revenue was 16.1 Billion (2008)


PSEG Global et al own the 208 MW cogeneration plant in Kalaeloa. PSEG Global operations are in North and South America.

Covanta Energy owns H-Power. Covanta currently operates 44 waste-to-energy facilities around the world.

Maui:

Kaheawa Wind is owned by affiliates of First Wind Holdings, LLC and First Wind Energy, LLC and
JPMorgan Chase & Co., and by Makani Nui Associates, LLC.
First Wind is located in 8 states and is partnering with Canadian firms.
JPMorgan Chase & Co. has assets of $1.5 trillion and operations in more than 50 countries.

Sempra is building the new Auwahi Wind facility in Ulupalakua
Sempra Energy has revenues of $9 billion, 17,500 employees and serve more than 31 million consumers worldwide

Hawai`i Island

Puna Geothermal Venture is an affiliate of Ormat Technologies, Inc.
Ormat has installed approximately 1,370 MW of geothermal et al worldwide and their systems
are installed in more than 71 countries.
 


Thanks.
 

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