People power: Hawaii utility wants to pay households to share clean energy

Source: By Julian Spector, Canary Media • Posted: Tuesday, February 15, 2022

Sunrun foreman Oliver Walker installs a residential battery. (Mel Melcon/Los Angeles Times via Getty Images)

Something unusual is happening in Hawaii: An electric utility and rooftop solar installers have agreed on a proposal to reward households for sharing clean energy with the grid at useful times.

In many places around the U.S., utilities treat rooftop solar as an obstacle. They say it shifts grid-maintenance costs from customers who have solar to those who don’t, or causes headaches for their system planning and operations. Utilities in California are currently urging regulators to levy a monthly fee on anyone who adds rooftop solar, regardless of how it operates.

But things are playing out differently on Oahu. Hawaii’s most populous island, with a million residents, is struggling to ramp up enough clean energyahead of shutting down its largest fossil-fueled power plant in September. To that end, the monopoly utility, Hawaiian Electric, teamed up with advocates of customer-owned energy to say households should earn money for using solar and batteries to keep power flowing to the grid.

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“The two groups that are usually the most opposed to each other, the utility and the [distributed-energy] community, did come together,” said Anne Hoskins, chief policy officer at Sunrun, the nation’s largest rooftop solar installer.

Specifically, these groups asked the state’s regulators earlier this month to approve a program to pay households an upfront cash bonus plus a monthly credit on their bills for adding a battery to their rooftop solar.

To earn the money, customers must agree to export power to the grid during the two hours in the evening when the island needs more electricity. Essentially, they would use their battery to store up solar power during the day and then export it after the sun sets to help meet peak demand.

Participants would be paid at the relatively high retail rate for whatever electricity they feed into the grid during those two hours. The utility and the rooftop-solar advocates disagree about how many years that retail rate should be available, but that’s a small point of friction in an otherwise broad swath of agreement.

Chances are high that regulators will approve the proposal because the utility and solar companies want the same thing, and the regulators specifically asked for the proposal in a January decision. The stated goal is to implement the policy update by March 1.

“A common goal” for rooftop solar policy

Across the United States, rooftop solar policy tends to converge around one of two extremes. On the rooftop-friendly side, net-metering policies pay solar owners the retail price for exports at any time, regardless of how valuable the power may be to the overall system. This allows solar owners to use the grid as a sort of battery: When they produce more power than they can use, they in essence earn money by ​“storing” it on the grid, leaving the utility to figure out what to do with it. These types of policies are in place in most of the country.

On the less-rooftop-friendly side, policies target customers with rooftop solar by imposing flat fees or by making it uneconomic to export excess power at any time of day. Compensation for rooftop solar in California would head this way under a proposal released by regulators in December. Bills working through the legislature in Florida would similarly lower compensation for solar exports and add fixed fees for owners of solar systems.

Hawaii has bounced between those extremes, and now it’s landing on a middle path: It wants to reward customers for using batteries to deliver clean electricity when the grid actually needs it.

The proposal updates net metering by incentivizing households to behave in a way that’s more valuable to the overall network. ​“It’s not going to be using the grid as a battery; it’s using the battery as a battery,” said Earthjustice attorney Isaac Moriwake, who represented Hawaii’s distributed energy industry in the discussions.

In its early days, Hawaii’s rooftop solar industry thrived under net-metering policies. But rooftop solar adoption moved so quickly that the utility and regulators pumped the brakes in 2015, ending net metering and disincentivizing grid exports. That move pushed households to only produce as much solar power as they consumed, or to buy a battery and use it to store electricity for their own use during non-sunny times. Hawaii’s rooftop installation market slumped as a result.

But circumstances changed in the last year or so, as Oahu’s AES coal plant, the largest source of power on the island, edged closer to its retirement date, which is now less than seven months away. The large-scale solar and battery projects meant to replace it fell behind schedule, and any source of clean electricity suddenly looks much more attractive.

Hawaii’s regulators, led by Public Utilities Commission Chair James Griffin, approved a more limited Battery Bonus program last summer as an emergency effort to access more electricity in those high-demand hours. This initial version caters to customers who installed solar before the 2015rule change and are grandfathered in under the old, generous net-metering policy. It allows them to add up to 5 kilowatts of new solar, provided they install a battery and set it to export at the right times.

Net metering offered a ready framework to compensate Battery Bonus participants for the power they sent to the grid — they already earned the retail rate for electricity they exported. But that meant only a narrow subset of the population could participate.

Hawaiian Electric approved 4 megawatts of Battery Bonus applications last year, said Yoh Kawanami, the utility’s director of customer energy resources overseeing operations. But the program was intended to supply 50 megawatts of capacity. The utility and solar industry had been talking about ways to improve it since the launch in July.

“We had a common goal to accelerate the pace and increase enrollment, allowing us to agree on the majority of the proposed amendment,” Kawanami said. ​“We do expect this proposed amendment will further increase participation in Battery Bonus.”

The new proposal greatly expands the pool of eligible participants by stipulating how to reward households and businesses for helping supply the grid at peak hours. Anyone who doesn’t have solar but wants to get it, and anyone else who got solar after net metering ended, would get paid the retail rate for exports in the two-hour evening peak, even though they wouldn’t get paid that much at other times.

Participants in Battery Bonus already earn an $850-per-kilowatt upfront bonus for committing a battery to 10 years of program participation. The new proposal would add a $5-per-kilowatt monthly bill credit for 10 years. A 5-kilowatt battery thus would get $4,250 immediately, plus $3,000distributed over a decade’s time in $25 monthly credits. That’s not enough to fully cover a typical battery purchase, but it would greatly reduce the cost.

The retail-rate export payments aren’t an incentive so much as an effort to remove a penalty for participation, Moriwake said. Otherwise, households would be exporting electricity for less than it costs them to buy it from the utility, so the economics would reward using a battery to hold on to that electricity and avoid purchasing more later in the night.

“A substantial majority of customers don’t have any [distributed energy resource] participation yet,” said Moriwake. ​“Let’s take away the disadvantage for new customers. Let’s throw this wide open to the market.”

Lessons for other states

Hawaii is already in the thick of its transition to clean energy. It was the first state to pass a law requiring it to move to 100 percent renewable electricity, in its case by 2045. Hawaiian Electric just announced that it produced 38.4 percent of its electricity from renewables in 2021, up from 34.5percent in 2020.

As an early mover, Hawaii has a lot to teach the rest of the country. Even states that aren’t as far along in their energy evolution are encountering a loss of traditional coal-burning power plants, a surge in intermittent renewables and constraints on the land available for more large-scale clean energy development. And a number of states are considering reducing compensation for rooftop solar, much like Hawaii did years ago.

The rooftop solar industry fights hard to maintain policies that boost its profitability. In Hawaii, it had already lost them, but a looming electricity supply crunch meant small-scale solar had something to offer that the utility needed.

The collaboration proves that compromise is possible between utilities and solar installers (something similar is afoot in South Carolina, though it hasn’t yet come to fruition).

“Here you have Hawaii that sees a challenge and says…‘Get together and tell us what you need to make this happen,’” said Sunrun’s Hoskins. ​“The utility really did come to the table to work with the industry. That’s the lightbulb that we need to get turned on with utilities and also with some regulators [elsewhere].”

If other states learn from Hawaii’s bumpy ride, they could fine-tune solar policies to help with peak demand without undergoing years of policy whiplash.

The obvious audience for this history lesson is California, which has more rooftop solar and more customer-owned batteries than any other state. The economic powerhouse has already suffered rolling blackouts due to a well-documented shortfall in evening grid capacity, which will only get worse as gas plants and the last nuclear plant in the state shut down in the next few years.

But California’s utility regulator, which is currently reevaluating rooftop solar policies, in December proposed slashing compensation for exported solar and imposing a flat monthly fee of $8 per kilowatt of solar capacity for new rooftop solar owners. This would penalize solar-plus-battery households for signing up to share power with the grid, whether or not they help California meet its evening peak demand.

“It’s a cautionary tale for California,” Moriwake said of Hawaii’s recent history.

Penalizing solar for connecting to the grid could push people to ​“load-defect,” meeting their own needs without participating in the broader energy system, he said. Under this scenario, the broader grid would still need to socialize the cost of large, utility-scale batteries to store clean energy, but it wouldn’t benefit from the fleet of batteries already installed in homes.

The alternative path that Hawaii is now poised to take would avoid redundant battery investment by paying customers to share their power at valuable times.

“Are we going to leverage and optimize the full benefits of [distributed energy] serving the grid?” Moriwake asked.

To complete the lesson, Hawaii regulators first need to finalize the program and see if Hawaiian Electric and solar installers can enroll a full 50 megawatts. Then the batteries actually need to perform as expected — thousands of devices delivering power reliably when the two-hour evening peak rolls around.

At the very least, trying to tap customer-owned batteries for the public good is more likely to succeed than not trying at all.