In Hawaii, rooftop solar panels threaten ‘utility death spiral’

HONOLULU — Growing up in the years after the attack on Pearl Harbor, George Kong and his family had a designated day each month when they would switch off the power, eat canned foods and play card games by candlelight.

“We would shut everything down and pretend like we’re under siege,” said Kong, who is native Hawaiian. “Just to see if we could do it. It was something fun.”

On a sweltering Sunday in July, Kong, now 68, said he might bring back the dark days of his childhood — this time out of necessity.

Hawaii’s electricity prices are higher than anywhere else in the nation. The burdensome cost of power, paired with the island state’s plentiful sunshine, has led to an unparalleled adoption of residential rooftop solar energy. On the island of Oahu, where 80 percent of the state’s population lives, more than 12 percent of Hawaiian Electric Co. (HECO) customers have rooftop solar systems — about 20 times the solar penetration rate of any mainland utility. As homes increasingly morph into mini power plants, some residents are winding down their HECO bills to net zero.

The problem is this: When solar customers provide their own power, they don’t pay for the fixed costs the utility has outside of electricity generation. As more and more people switch to solar, an ever-shrinking pool of utility customers still connected to the grid are left to cover these operating and maintenance expenses. This causes bills to spike for traditional customers, which incentivizes even more people to switch to solar, raising bills for nonsolar customers even more. Every new rooftop solar installation added to the grid contributes to this cost shift.

Oahu’s solar energy boom is unleashing what’s known in the industry as the utility death spiral. The prediction is that it will overwhelmingly hurt the most vulnerable people — namely those without control over their roof space, such as renters and apartment and condominium owners, as well as low- and moderate-income homeowners who can’t afford the high up-front cost of a rooftop solar installation.

“It could be that all of the people living in apartments are going to be subsidizing the millionaires with their huge estates covered in rooftop solar,” said Michael Roberts, an economics professor who studies electricity pricing at the University of Hawaii at Manoa. “I don’t think we’re quite at that point yet, but we need to change or that’s where we’re headed.”

In 2014, HECO’s nonsolar customers picked up the tab for an extra $53 million in operating and maintenance costs because so many people switched to solar. It is estimated that they will pay an additional $80 million in 2015.

As the island grapples with the task of making a biased energy pricing system more equitable, mainland utilities with large and growing solar energy bases in states like California, Arizona, New Jersey and Colorado are looking at Oahu and watching their future unfold.

In the basement of the faded 1934 cottage where he was raised, Kong thumbed through a filing cabinet in search of his utility bill records. Vintage Hawaiian slack key guitar music buzzed on an old radio. A small electric fan circulated warm air in the room.

A retired Pearl Harbor security guard, Kong inherited his childhood home. But he lives next door in a newer, five-bedroom house that he shares with his wife, two daughters, son-in-law, grandson and the occasional foreign exchange student. The house stands on a corner lot in Honolulu’s Kaimuki section, once an ostrich farm owned by the Kingdom of Hawaii’s royal doctor. Bordering the iconic Diamond Head volcano, it is one of the city’s oldest neighborhoods.

He pulled from his files his HECO bill from February. In time with the music, he tapped a finger next to the figure for the total due: $336. That’s a 53 percent increase from his bill for the same month two years earlier.

“I think about shutting the power down, putting the two refrigerators on a generator and using flashlight and candles,” Kong said. “If it wasn’t for the refrigerators, I’d shut the power off now when we go to sleep.”

Last summer Kong and his family shopped for a rooftop solar system to curb their climbing energy expenses. They couldn’t afford the estimated $25,000 it would cost, so they continue to pull their power from the grid.

For those who can afford a rooftop solar installation, the rewards are handsome: A state income tax credit of 35 percent of solar installation costs on top of a 30 percent federal income tax credit. A pricing model that allows you to sell your surplus energy to the grid for credit at the same retail rate the utility charges for the energy it generates. Immunity from fees for the utility’s fixed costs. And the feel-good awareness that you’re reducing your carbon footprint.

The average payback period for a rooftop solar system on Oahu is five years because of generous financial incentives, plentiful sunshine and the high cost of electricity.

To prevent a scenario in which the wealthiest Oahu residents benefit from low-cost solar energy at the expense of everyone else, Roberts said the utility needs to reform its pricing model.

That might mean cutting the value of the credit solar owners earn for the electricity their systems send to the grid or pricing energy at different rates at different times of day to coincide with the availability of sunlight. It almost certainly means reducing the substantial government subsidies for solar installations, which Roberts said were needed to jump-start the industry but are now contributing to the widening of the solar energy income gap.

“If we want to have a brave new world with 100 percent renewable energies, we can’t use these old models,” he said.

HECO has proposed a new pricing structure that would devalue the electricity it buys from new owners of solar rooftop installations by about half. In addition to reducing the burden on nonsolar customers who are paying more than their fair share of fixed costs, the change is intended to prevent rooftop solar from crowding out other modes of clean energy growth.

As Hawaii chases an ambitious goal of powering itself from 100 percent renewable energy sources by 2045, Jim Alberts, HECO’s senior vice president of customer service, said the utility will need to figure out how to foster sustainability while achieving fairness in energy pricing. Revolutionizing the utility’s 100-year-old business model, he said, is key.

“We want this to be fair to everybody, which means we need to have the right pricing and we need to have diversity — a good balance of rooftop PV [photovoltaic], utility scale PV, wind, biomass, biofuels,” he said. “I don’t think we have a lot of good role models to look at. People talk about Germany, but they are part of a highly sophisticated intercountry and intracountry transmission grid. We’re in the middle of the ocean. If something fails, we can’t just go on the spot market and ask our neighbor to temporarily provide us with electricity. We are pushing forward farther than anyone else, and we have greater risk because of our isolation.”

In May, after falling behind on his HECO payments, Kong started prepaying his monthly bill. Frequent phone calls from HECO help him monitor how much power he has left as his daily household electricity usage chips away at his credit, which, depending on his monthly budget, is usually about $150.

To keep his household energy usage under what his payments allow, Kong uses the lights sparingly and boycotts the air conditioning. At weekly family meetings he encourages the rest of his household to do the same.

"We can’t afford solar,” he said, “so what can we do?”