Hawaii Oil Dependence to Boost America’s Highest Power Bills

(Bloomberg) -- Paradise is about to get pricier.

Hawaii, which already struggles with the nation’s highest electric bills, could see them jump by as much as 20 percent in just two years thanks, oddly enough, to new regulations on fuel use in oceangoing ships.

The state depends on mostly low-sulfur fuel oil for about 70 percent of its power. In 2020, though, demand for that fuel is expected to surge, pushing up prices. The reason: New maritime rules that require ships worldwide to lower the amount of sulfur in their fuel. Meanwhile, Hawaii’s shift to 100 percent renewables isn’t slated to happen until 2045.

“The average person has no clue,” said Shasha Fesharaki, the Honolulu-based executive vice-chairman at FGE, an energy industry consultant. “The rates are going to have to go up."

Individually, Hawaiians paid 32.4 cents per kilowatt hour for electricity in August, more than 40% more than the amount paid by residents in number two Alaska, according to U.S. Energy Department data. That could easily rise by 20 percent, Fesharaki said.

Brendan Roberts and Kela Cosgrave are the owners of Big Island Booch, opened in 2013. They manufacture and sell organic kombucha, a fermented, slightly alcoholic sweet tea, at their plant in Hilo. Advised of the impending price jump, Roberts was more resigned than angry.

Electric costs already account for as much as 40 percent of their plant’s overhead, Roberts said. A 20 percent increase would mean about $1,000 a month in added cost at a time when the company is already being squeezed by Trump administration-imposed tariffs on Chinese packaging, he said.

“We’ve already had to find creative ways to get more machinery, and more efficient machinery, to cut costs out of the back end,” Roberts said. If the electric bill rises significantly, he said they’ll probably have no choice but to boost their own prices.

Last year, the state generated about a fifth of its power from renewables, a level that included a geothermal plant that was knocked out by lava earlier this by the Big Island’s Kīlauea Volcano, according to U.S. Energy Information Administration.

Wind turbines near Oahu’s North Shore generate about 3 percent of the island’s power, with one facility even utilizing the massive waves that draw surfers to produce electricity. And the state already produces more per capita solar power than any other, with a 35 percent state tax credit combined with a 30 percent federal credit for homeowners who install solar panels.

“We may still have to have fossil fuels here, but we’re investing in projects that will pull carbon out of the atmosphere,” Scott Glenn, director of the Office of Environmental Quality Control, said in a phone interview.

Still, major renewables projects can take years to plan, pay for and build. And in the meantime, the hotel lights that brighten the white-sand of Waikiki beach need to keep glowing, drawing the tourists that fuel Hawaii’s top industry.

At one point. the state was examining plans to use liquefied natural gas, which can be brought in by ship and would provide cheaper and cleaner electricity than oil. But Governor David Ige dismissed that alternative in 2015, saying the cost of installing the infrastructure needed to use LNG as a transitional fuel didn’t make sense.

Now Hawaii’s utilities are being forced to adjust their plans to handle the new rules.

Hawaiian Electric Industries Inc., the state’s largest utility, expects its fuel costs to rise on the island with the most people, Oahu, where the bright lights of Honolulu are located. Oahu uses only low-sulfur fuel, according to Shannon Tangonan, a company spokeswoman. Other islands -- such as Maui and Lanai -- use both low and high sulfur fuel, potentially balancing off the shifting costs.

One solution being pursued is to accelerate as much as possible the schedule for renewables, she wrote. The company is in contract talks with developers of seven solar-plus-storage projects on three islands, Tangonan said. Eventually, those projects could produce about 260 megawatts of energy on Oahu, Maui and Hawaii islands, she said, which would be enough to power 78,000 homes.

The utility is also getting a nudge from another direction. On Oct. 25, ValueAct Capital Management, a San Francisco-based hedge fund, said it had bought more than $50 million of shares in the utility, and would be pushing it to further speed up the shift into renewables.

In announcing the move, ValueAct cited a study by the Rhodium Group that said Hawaii could get more than 80 percent of its power from renewable sources by 2030 if oil prices continue to rise and the cost of renewables drops. That would generate about $6.5 billion in electric system cost savings between 2020 and 2045, the study authors said.

Hawaiian Electric can provide a "smart, open network to allow for plug-and-play third party energy developers as well as rooftop solar and storage plus electric vehicles,” ValueAct Chief Executive Officer Jeff Ubben said in an interview.

The utility’s shares have risen 8.1 percent in the past three months and were up 0.5 percent Tuesday to $37.20 as of 11:04 a.m. in New York.

While that’s being developed, however, islanders need to ready themselves to shoulder higher prices, at least initially. “If their electricity bill goes up $30 a month, that can affect a lot of people,” FGE’s Fesharaki said. “They’re going to get hit hard.”

--With assistance from Mark Chediak and Ed Hammond.

To contact the reporter on this story: Robert Tuttle in Calgary at rtuttle@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Reg Gale, Carlos Caminada

©2018 Bloomberg L.P.