The Hawaii Public Utilities Commission has approved a new rate system that will set price guarantees for electricity generated from solar, wind and hydroelectric sources, a move intended to encourage project developers and investors.
The new rate mechanism, known as feed-in tariffs, requires Hawaiian Electric Co. to pay above-market prices for renewable energy fed into the electric grid at locked-in rates set by the PUC.
Project developers have said that the move would help them plan large-scale renewable energy projects because they’ll know exactly what price they charge for the electricity they sell to the utility over a 20-year contract.
Currently, HECO negotiates individual purchase power agreements that set varying rates for buying renewable power.
In its 128-page decision filed on Sept. 25, the PUC noted that the new structure would “reduce the state’s fossil fuel dependence and accelerate the acquisition of renewable energy.”
Feed-in tariffs value renewable energy at a higher cost than what utilities pay for power from traditional sources for two reasons: It’s renewable and it provides power at peak times when utilities need it.
The PUC’s decision lays the framework for the new policy but doesn’t set specific rates.
The PUC will set actual rates within the next few months for photovoltaic, concentrated solar power, on-shore wind, and in-line hydropower projects producing up to five megawatts of power (enough to power 1,500 homes), depending on technology and location. HECO will be required to commit to 20-year contracts for the renewable power.
Rates will be based on the project cost and reasonable profit of a typical project, according to the PUC, and rates will be differentiated by technology or resource, size and interconnection costs.
The PUC noted that HECO customers may see an increase in utility rates in the “short-run” once the program is started.
“In the long run, over the 20-year term of a [feed-in tariff] contract, the ratepayer will benefit from the utility’s ability to procure power at a known cost derived from the cost of money in the base year and not derived from or linked to the unstable price of oil,” the decision states.
However, PUC Commissioner Les Kondo submitted a dissenting, saying he was concerned about the potential cost to HECO customers.
“I do not believe that the majority adequately considered the potential ratepayer impact of the [feed-in tariff], which cannot reasonably be determined until the specific rates are approved by the commission,” Kondo wrote. “In my opinion, the amount that ratepayers are asked to bear to support more renewable energy cannot be without limits and should be one of the most important considerations in designing a [feed-in tariff] program that is reasonable, prudent and in the public interest.”
Once started, the program will be reviewed by the PUC after two years, and every three years after that.
Similar tariffs have helped boost renewable-energy development, mostly solar, in Germany and Spain, and are credited with making those nations the world’s two largest solar markets.
In the United States, lawmakers in California, Minnesota, Florida and Michigan are studying similar feed-in tariff models.
In a clean-energy agreement signed in October 2008 by the state and HECO, the utility committed to adopting feed-in tariffs.
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