KIUC targets 2015 energy transformation

KILAUEA — The Garden Isle is undergoing an energy transformation, Kaua‘i Island Utility Cooperative CEO David Bissell said during a recent Member Update meeting, but it promises be a capital-intensive and difficult process.

Transitioning Kaua‘i from 92 percent fuel-based energy production to the co-op’s goal of 50 percent renewable energy by 2023 will require a capital investment of more than $350 million, he said.

Conventional energy generation is heavy fuel costs and low on capital costs, Bissell said. “As we move into renewable that changes to lower fuel costs and a lot higher capital.”

He said that KIUC has access to the low-interest, long-term federal loans necessary to develop its own renewable energy projects, such as the co-op’s proposed small-scale hydroelectric plants.

The co-op took the opportunity on April 18, 19 and 20 to give its members a comprehensive overview of its renewable energy plans during its three quarterly Member Update meetings throughout the island. Bissell and a Free Flow Power representative provided a 42-slide presentation, which focused largely on explanations and justifications for pursuing hydroelectric energy.

Energy economics

The most important part of energy economics today is oil, Bissell said. Depending on the pricing, the cost ranges between $60 million and $100 million per year. KIUC burns 15 million gallons per year of naphtha and diesel, which is currently about $3.25 per gallon.

“All of that money goes offshore,” he said, “and in many cases to people that don’t like us. Part of the motivation for renewables is to stimulate the economy and keep jobs here.”

Another motivator is the wild swings in oil.

Prices over the last several years. “Oil has fluctuated between $37 and $147 per barrel, which makes it incredibly hard to manage budgets. It makes it almost impossible for businesses to manage their budgets year to year with such energy volatility out there,” Bissell said.

One of the reasons electricity is so expensive on Kaua‘i is that, unlike the Mainland, it cannot burn coal for energy and does not have access to natural gas. Diesel, naphtha and renewables are the options, he said, and the best option is renewables.

 However, it is unlikely renewable energy will reduce utility bills. KIUC’s goal is to stabilize prices and be competitive with Hawai‘i’s other islands, he said.

“Ultimately, we’re betting oil is going to go high, and we’re basing our renewable projects on beating that oil pricing and try to keep ourselves somewhere around where we are today on pricing. The renewable technologies that are out there today for Kaua‘i aren’t likely to lower our bills, with the possible exception of hydro,” he said.

On average, utility rates in 2010 were 40 cents per kilowatt-hour.

‘We can’t afford to wait’

Bissell said one of the strategic changes KIUC has made is to shift its focus from developer-sponsored projects to KIUC-owned and developed projects.

“Over the years, I think we’ve made mistakes by counting too highly on too few developer-done projects,” he said. “Going back to 2002, we’ve had a steady slew of purchase power agreements for various technologies. Not one of them has succeeded other than the 1-megawatt photovoltaic farm in Kapa‘a.”

KIUC is working with private energy developers on projects, and Bissell said he hopes they succeed. Meanwhile, the utility is going to have its own projects because “we simply can’t afford to wait.”

Windmills ‘off the table’

Wind and hydro are the only options that could conceivably lower energy costs, he said, but windmills are not an option because they may pose a threat to migrating shearwaters.

“The problem is birds and endangered species,” Bissell said. “We’re not going to build a windmill that we would own because of the bird situation. No developers are interested in building wind projects on Kaua‘i. Birds are part of it,” and Fish and Wildlife fines for incidental takes (bird deaths).

 He also asserted that only small-scale wind projects can be done on Kaua‘i, and developers want to do things on a large scale to make money.

“Why do some 10 MW project here when they can do 100 MW on the Mainland?” he said.

“There is no interest from developers and we’re not going to take the risk. Maybe when we get our take permits things will change a little bit and we can reinvestigate wind. But for right now, it’s off the table and well into the foreseeable future.”

Solar clock ticking

 KIUC is likely to have the highest concentration of solar in the whole world, Bissell said, up to 25 percent of grid’s load on a sunny day.

“We’re looking at 10 to 15 MW of photovoltaic,” he said. “The price is good with tax incentives, but incentives are expected to expire at the end of this year. We’re really looking to get the PV projects locked up.”

In addition to the 1-MW solar farm in Kapa‘a, AES Solar has planned a 3 MW solar project in Po‘ipu on a 15-acre site. Bissell said KIUC must provide the battery storage to protect the integrity of the grid.

“Battery storage is expensive,” he said. “We procured our first one for 1.5 MW that will produce output for an hour. The price is about $2 million. With the cost of the battery, it raises the price to about 25 cents per kilowatt hour, but that’s over a lifetime. We’re pushing 23 cents per kwh right now for the price of fuel alone. So if there is any escalation in the price of oil it will be good for members going forward.

“Solar is great,” he said. “We like it, but we’ve got problems when clouds come over. Kaua‘i has a lot of intermittent clouds that will pop over at any time. When that happens the output can drop dramatically. We can’t rely on storage to help stabilize it.”

KIUC’s power purchase agreements for PV are 20 cents per kwh, fixed for 20 years.

50% from biomass

KIUC is seeking 7 to 37 MW of biomass, which offers firm capacity. Firm capacity means it supplies a consistent level of energy all the time. Solar is intermittent.

Bissell said biomass would be a key part of Kaua‘i’s renewables future, citing the PPA with Green Energy for 6.7 MW, which equates to 10 percent of KIUC’s energy supply. The project, currently before the Public Utilities Commission, is scheduled for completion in 2013.

KIUC signed a PPA with Green Energy in 2006 for 6.4 MW of biomass, but in 2007 the energy developer fell on hard economic times, Bissell said. A German company has stepped in and is providing 50 percent of the equity, technology and engineering.

Green Energy needs to come up with the other half of the financing, he said, and KIUC has given them until the year’s end. “It’s a stimulus project,” he said, “and in order to get the tax grants, it has to be done by 2013.”

Bissell said KIUC issued an open invitation to private developers to propose biomass projects of 15 to 20 MW, equal to 20 to 25 percent of the island’s energy needs.

“We’ve had about two or three developers on island working biomass projects through various parts and ideas,” he said. “All are saying, ‘Hey, we’ve got to get a purchase power agreement with you guys now because we need to close on it so we can get the stimulus money as well as the financing.’ So we said all right. If it passes an engineering assessment from an international firm and can come to an agreement on the pricing, we’ll take it to the (Public Utilities Commission for approval).”

PacWest ended up staying with the process for biomass at Kekaha Mill and is doing the engineering assessment, he said. That would be 10 percent of our supply. 

However, PacWest announced last week it will not be pursuing biomass at Kekaha Mill, citing nearby residents’ concerns, and is searching for an alternative site.

Bissell said KIUC has kicked off preliminary engineering on a biomass plant at their existing Port Allen energy facility.

“The idea there is we have an existing steam turbine, electrical infrastructure and an old steam boiler that burns oil,” he said. “We could put in a biomass boiler to tie into the existing generator. That’s a fallback plan. If all these projects come together, we could have 50 percent of our energy from biomass.”

KIUC member Ken Taylor asked where the Port Allen biomass would come from. Bissell said he did not know yet.

Hydro legacy

“Hydro is a legacy project that will provide environmentally safe power for generations,” Bissell said, adding that KIUC and energy developer Free Flow Power are discussing diverting water off a stream. “We’re not going to be doing any dams on any projects that we’re working on.”

Agriculture will have “first dibs on any project that we do. Our position is the last dibs on the water are hydroelectric.”

KIUC’s goal for hydropower is between 20 and 40 MW. The co-op currently receives 9 MW of hydropower from eight existing, small-scale hydroelectric plants.

FERC: hydro strategy and apology

On behalf of KIUC, Free Flow has submitted preliminary permit applications with the Federal Energy Regulatory Commission for six additional small-scale hydroelectric plants.

“We like the FERC process because it has a lot of steps that you have to go through, a lot of studies, requirements and outreach,” Bissell said. “We are committed to doing even more than what they require.”

But it is more than that. The preliminary permit allows the developer exclusive rights to explore and study the energy production feasibility of a given resource for a period of three years.

Bissell said the co-op was concerned that any private energy developer could potentially tie up energy resources on the island for years and never produce a project, which is why KIUC quickly contracted Free Flow to quietly file preliminary permit applications with FERC.

Projects’ details outlined in the FERC applications are based on old studies and reports, Bissell said, and do not necessarily reflect their plans going forward. The true plans will be determined later, following extensive studies and community and stakeholder outreach.

“FERC preliminary permits protect the KIUC investment before we go spend potentially millions of dollars looking at projects,” Bissell said. “Doing all the studies and all the outreach when somebody else could step right in, file a permit and knock us out of the way for three years wouldn’t be prudent.

“I hear people on the island saying they’re for hydro but against the FERC process,” he said. “I came to the conclusion that is not being for hydro. It’s for being for an unrealistic process.” He said he would never recommend a project to the board without FERC protection.

“My thought is if you’re for hydro, endorse the effort we’re doing,” he said. “Recognize that the outreach is going to be done, recognize that we’re committed to the outreach and get on the team of trying to make renewable energy happen.”

He conceded that filing a preliminary permit on Wailua River that showed a 35-foot dam was a mistake.

“We got a lot of opposition and a lot of concern, reasonable concern from the community,” he said. “For those of you that filed an opposition, I apologize on behalf of KIUC. That’s something we shouldn’t have done. We should have done some more homework, some more preliminary work and came up with a more realistic design before that came out to the community. But there was this sense of urgency to get the permit application filed.”

Free Flow Power

Although Free Flow filed the permit applications and intends to bid on the projects when they go to bid, the projects will ultimately be owned by KIUC, Bissell said.

Jason Hines, Free Flow vice president of project development, said there has been a fair amount of misunderstanding around the FERC process.

“A FERC preliminary permit is permission to do feasibility studies and take a good close look at the project,” Hines said. “The preliminary permit does not give permission to construct the project or do any ground disturbance or anything else. Once the preliminary permit is issued, a two-to five-year process begins to evolve what the design of the project might be.”

To date Free Flow “has not stepped in to do serious engineering,” Bissell said.

Water rights

Hines said the FERC preliminary permit “does not allow for going into the land where the project is. That’s something you need landowner permission for.” However, Bissell said that as a utility, KIUC already has the right of eminent domain.

“We’re hearing it said that KIUC is using the FERC process to steal water, steal it from the Hawaiians and others with legitimate interests,” Bissell said.

“I can tell you that’s absolutely, positively not true. It’s a matter of law. FERC has no jurisdiction over water rights. To get water out of these projects, we have to work with the state process, state agencies and state water commission.” 

Hawai‘i’s State Water Code says the waters of the state are held for the benefit of the citizens of the state, and that the people of the state have a right to have the waters protected for their use.

The water code calls for a liberal interpretation for maximum benefit for certain uses, such as agriculture, power development, and commercial and industrial uses.

However, adequate provisions are to be made for the protection of traditional and customary Hawaiian rights, the protection and procreation of fish and wildlife, the maintenance of proper ecological balance and scenic beauty, and the preservation and enhancement of waters of the State for municipal uses, public recreation, public water supply, agriculture and navigation.

The Federal Power Act requires a project license applicant submitting to the FERC process provide satisfactory evidence that the applicant has complied with the requirements of the laws of the state.

William Tam, a Honolulu lawyer who wrote the state water code as deputy attorney general assigned to the water commission, told U.S. Water News in 2002 that Hawai‘i has some of America’s most stringent public-trust water laws, but they are badly understood and essentially ignored. He blames it partly on official mismanagement and conflicts of interest.

Unlike in the western United States, where water rights were claimed mostly on a first-come, first-served basis, the article says, Hawai‘i follows the New England practice of sharing available water among all users.

In a landmark decision in 2000, Hawai‘i Supreme Court upheld the water commission’s power to protect streams, domestic use and traditional rights.

‘Free’ rice

Anne Barnes, KIUC’s spokeswoman, said 150 people attended the Waimea meeting on Monday and 160 attended the Lihu‘e meeting on Tuesday.

At Wednesday’s meeting in Kilauea, large crowds lingered around a table stacked with KIUC-funded giveaways like rice, reusable shopping bags and energy saving light bulbs. When the meeting got under way, about 60 remained for the presentation.

It was more than goodie giveaways and pupus that drew the large crowds, as some KIUC employees suspected.

Chatting amongst themselves before the meeting, members expressed frustrations that Kaua‘i electricity rates are some of the highest in the country and continue to rise with global fuel inflation.

At the end of the meeting, a member of the audience asked Bissell, “What can we do to help move this faster?”

He replied, “Challenge negative assertions, attend meetings and don’t listen to blogs.” He added that KIUC now has its own Facebook page “for those who want to admit they like us.”

The next step

Bissell said the utility would wait until all of the FERC permits are approved to begin its project marketing and community outreach efforts.

 To date, FERC has approved two of the six preliminary permit applications: the 3.5 MW Hanalei River Hydroelectric Project and the 6.6 MW Wailua River Hydroelectric Project (aka Wailua Water Power Project).

Preliminary permits are still pending for the 2 MW Wailua Reservoir Water Power Project, the 1.5 MW Kekaha Waimea Water Power Project, the 7.7 MW Kitano Water Power Project and the 6.6 MW Makaweli River Hydroelectric Project.