Picture: Kaheawa Wind Farm on Maui
It seems that every time I turned around in the last three weeks I’ve been hearing about Hawaii. First, I was in Maui for a week, and I read in the paper that Shell is proposing a second wind farm for the island… and the first was not yet complete. (One thing that puzzled me was that the proposed wind farm was shown on the map to be on a part of the island with the least wind… what’s up with that?)
When both farms are operational, Maui will be getting about 20% of its electricity from wind. It will be an interesting experiment in terms of how much wind a system can handle… 20% is the most often quoted number, but Maui will definitely put that to the test, since it is a small, closed system… the Danes also get about 20% of their electricity from wind, but when they have excess electricity on windy nights with low deman, they can sell the excess to Germany. In Maui, excess electricity has nowhere to go.Still, while there are costs to adding a variable resource like wind to the electric grid, these costs have been overblown. They do not take into account the risks associated with alternative generation such as nuclear (which has to be shut down completely for refueling every few months) and gas (which is subject to extremely volatile energy prices.) Keep in mind that the electric grid is designed to deal with a loads which are just as variable as wind resource, if not more so, and while different wind farms are producing electricity at different times, electric demand tends to all happen at once, due to air conditioning or heating loads. In fact, since wind in some locations is very predictable as to when it blows, the variable nature of wind can actually help with this problem. Last February, we had blackouts here in Denver during a severe cold snap, which was attributed to a shortfall in natural gas generation capacity due to a massive increase in demand by households for gas for heating (a good example of the risks of powering electricity generation with gas.)It turns out that in the windy areas along the northern Colorado border with Wyoming, the wind tends to blow strongest at night… exactly when we were having blackouts due to lack of generation capacity in Denver.
Wind’s variability may end up being an asset, instead of the liability it is made out to be. Maui will be an interesting test case for that.
[Side note: I've noticed that a lot of people are finding this article by typing "Will Maui wind farm pay for itself" in search engines. So I thought I'd answer that question. Yes. This project is projected to cost $300 million. It's a 40MW faceplate capacity. Given a typical 30% capacity factor, and sells its electricity for 10 cents per kWh, it will generate over $300 million in revenues in three years. On Maui, 94% of non-wind electricity generated from fuel oil, and I can't find a reference for the cost per kWh of generation from imported fuel oil but we can safely assume that it's more than the cost of generation from coal or natuaral gas on the continent, which ranges from 2 to 6 cents per kWh, hence my assumption of 10 cents per kWh price. However, at the extremely conservative price of 5 cents per kWh, the farm will still pay for itself in 6 years.]
My wife and I also took some time off from snorkeling to tour the Alexander & Baldwin Sugar Museum, which got me thinking about ethanol. Ethanol from corn, as it is normally made in the
US is not a very economic proposition without subsidies (of which there are many) and the energy balance is not great, either. However, Brazil has been quite sucessful at producing ethanol from sugar, and it takes less energy to produce ethanol from sugar than from corn. In fact, Brazilian ethanol producers are so sucessful that the US feels the need to impose a tariff of $.54 a gallon.
According to the President of the Hawaiian Solar Energy
Association, whom I bumped into at Solar 2006, there is currently a pilot plant for making ethanol from molasses, which sounds like a great idea to me, because molasses is practically a waste product of sugar refining… it’s shipped to California and fed to cattle.
The final recent appearance of Hawaii in my lfe came at a Rocky Mountain Institute event in Snowmass, last week, when I got to talk to a couple of RMI’s staff about the work they are doing there. They’re working with Governor Lingle, as well as the utilities and the regulators there to completely redesign the rules by which the energy game is played.
Typically, the largest barriers to the adoption of energy efficiency and renewable energy are perverse incentives in the way that utilities are compensated. Ratepayers typically pay the electricity prices based on how much the utility pays for its fuel. Hence, there is no incentive for the utility to manage fuel price risk, because someone else picks up the tab when prices rise; the utility is typically gauranteed a fixed return on investment, no matter how bad those investment decisions were in the first place… just so long as they can get the Public Utility Commission to sign off on the investment at the time.
Another perverse incentive for utilities is that typically they make more money if the customer buys more electricity, so it is very difficult to design a system in which the utility encourages its customers to use energy more efficiently, or generate electricity on site. At the Intermountain CHP Summit, I heard of a couple cases when a utility heard that a customer was looking into generating their own electricity, and the utility preemptively decided to lower their rates for that customer, making the proposed project uneconomic.
According to RMI staffers, they’re helping design a new regulatory regime for Hawaii, with input all the interested parties, which removes these perverse incentives. The rate structure will be changed so that the utilities will actually be rewarded for helping their customers become more efficient users of electricity, etc.
I like what’s happening in Hawaii. Because they are acting now to deal with rising energy prices and working on a system which will help them control their CO2 emissions, the utilities there will likely be much better equipped than most US electric utilities to deal with the regulation of CO2 emissions, when that finally happens.
Investors looking for the steady income stream of an electric utility, who are also concerned about the impact of future CO2 regulation should consider HE (Hawaiian Electric Industries.)