{"id":24862,"date":"2017-11-15T18:39:11","date_gmt":"2017-11-15T23:39:11","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/hawaiian-electrics-supply-chain-transition-to-100-renewables\/"},"modified":"2017-11-15T18:39:11","modified_gmt":"2017-11-15T23:39:11","slug":"hawaiian-electrics-supply-chain-transition-to-100-renewables","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/hawaiian-electrics-supply-chain-transition-to-100-renewables\/","title":{"rendered":"Hawaiian Electric&#8217;s Supply-Chain Transition to 100% Renewables"},"content":{"rendered":"<p>&nbsp;<\/p>\n<p>The United States is focused on transitioning to a clean energy future, and this transition is affecting businesses in numerous ways. The State of Hawaii has set an especially lofty goal of achieving 100% clean energy by 2045\u00a0<a href=\"#_ftn1\" name=\"_ftnref1\">[1]<\/a>. Whether one believes that this goal is completely attainable within this timeframe or not, the majority of the burden to strive towards 100% clean energy will fall on Hawaiian Electric Industries (\u201cHEI\u201d), the utility that has powered Hawaii, Maui and Oahu for the last 125 years. Achieving the 100% clean energy goal is not only required by law, it is also incredibly important to HEI\u2019s customers, the people of Hawaii, who deeply believe in protecting the environment.<\/p>\n<p>In 2016, HEI generated 26% of the total energy provided to customers from renewable sources\u00a0<a href=\"#_ftn2\" name=\"_ftnref2\">[2]<\/a>. In order to increase that proportion to 100% over the next three decades, HEI will need to modify its entire electricity supply chain, including power generation, transmission, and distribution. However, HEI will face several constraints; first, HEI will need to work within the Hawaiian Public Utility Commission\u2019s (\u201cPUC\u201d) regulatory framework, which requires HEI to receive PUC approval for all capital expenditures before they can add those amounts to \u201crate base\u201d to recover their costs and earn an allowed return on equity. Further, HEI will need to generate energy from clean sources in a cost-efficient manner, without dramatically increasing the rates charged to customers.<\/p>\n<p>In the short term, HEI is focused on several initiatives that aim to bring additional renewable energy online while continuing to deliver customer value at a reasonable cost. Each of these projects will significantly impact HEI\u2019s supply chain and the way that the Company delivers energy to its customers. These initiatives, as outlined in the 2016 Power Supply Improvement Plan (PSIP), include\u00a0<a href=\"#_ftn3\" name=\"_ftnref3\">[3]<\/a>:<\/p>\n<ul>\n<li>Supporting the growth of private rooftop solar projects<\/li>\n<li>Expanding the use of energy storage systems (e.g., batteries)<\/li>\n<li>Modernizing the grid to integrate an estimated 165,000 private solar systems by 2030<\/li>\n<li>Community-based renewable energy programs<\/li>\n<li>Demand Response Programs (shift use of electricity to times when more renewable energy is available)<\/li>\n<\/ul>\n<p>HEI is also considering several long-term projects to help Hawaii transition to 100% renewables. For example, HEI is considering the use of liquefied natural gas as a potential lower-cost bridge fuel. In addition, HEI continues to evaluate the economic feasibility of building an inter-island cable between Lanai and Molokai. This cable could potentially be a key component to achieving 100% renewables in Hawaii as some islands have the capacity to develop renewable energy projects that could exceed their own needs, which would result in a surplus of renewable energy that could be sent to other islands via an underwater cable\u00a0<a href=\"#_ftn4\" name=\"_ftnref4\">[4]<\/a>.<\/p>\n<p>While HEI has dedicated extensive resources to formulating a strategy to get to 100% renewables, their plans do not go far enough. To transition to 100% clean energy by 2045 while protecting the profitability of the company and the interests of the customers, I believe HEI needs a better long-term energy sourcing strategy. In particular, HEI should consider significantly altering their supply chain by insourcing a larger portion of clean energy generation. In 2016, roughly half of the energy that HEI provided to its customers was purchased from independent power producers (\u201cIPPs\u201d) <a href=\"#_ftn5\" name=\"_ftnref5\">[5]<\/a>. If HEI does not alter their strategy, this proportion will likely grow; the Company\u2019s current plan as laid out above focuses on expanding clean energy generation by supporting the growth of private rooftop solar and community solar, and assumes that HEI will enter into long-term power purchase agreements (\u201cPPAs\u201d) with third-party developers who have built renewable projects. In order to provide energy to their customers at the lowest possible cost, HEI should insource a larger share of this generation as they can finance and build clean energy projects in a more cost-effective way than an individual consumer or IPP can. In addition, by insourcing clean energy production they can cut out the margin that an IPP would otherwise charge.<\/p>\n<p>Given the regulatory and financial complexities facing HEI, and in the wake of NextEra\u2019s failed acquisition bid, I wonder whether a different owner or management team may be better equipped to lead this transition to 100% renewables?<\/p>\n<p>(765 words)<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"#_ftnref1\" name=\"_ftn1\">[1]<\/a> Energy.GOV (2017). Renewable Portfolio Standard. [online] Available at: https:\/\/energy.gov\/savings\/renewable-portfolio-standard-4 [Accessed 13 Nov. 2017].<\/p>\n<p><a href=\"#_ftnref2\" name=\"_ftn2\">[2]<\/a> Hawaiian Electric Industries Annual Report. (2016). [online] Available at: http:\/\/www.hei.com\/interactive\/newlookandfeel\/1031123\/HEI2016AR_03212017.pdf [Accessed 10 Nov. 2017].<\/p>\n<p><a href=\"#_ftnref3\" name=\"_ftn3\">[3]<\/a> Hawaiian Electric Industries Annual Report. (2016). [online] Available at: http:\/\/www.hei.com\/interactive\/newlookandfeel\/1031123\/HEI2016AR_03212017.pdf [Accessed 10 Nov. 2017].<\/p>\n<p><a href=\"#_ftnref4\" name=\"_ftn4\">[4]<\/a> Hawaiian Electric Industries Annual Report. (2016). [online] Available at: http:\/\/www.hei.com\/interactive\/newlookandfeel\/1031123\/HEI2016AR_03212017.pdf [Accessed 10 Nov. 2017].<\/p>\n<p><a href=\"#_ftnref5\" name=\"_ftn5\">[5]<\/a> Hawaiian Electric Industries Annual Report. (2016). [online] Available at: http:\/\/www.hei.com\/interactive\/newlookandfeel\/1031123\/HEI2016AR_03212017.pdf [Accessed 10 Nov. 2017].<\/p>\n<p><a href=\"#_ftnref5\" name=\"_ftn5\"><\/a>\u00a0<span style=\"text-decoration: underline\"><strong>Other Sources:<\/strong><\/span><\/p>\n<p>Company Website (2017). Regulators accept Hawaiian Electric Companies&#8217; plan to reach 100% renewable energy. [online] Available at: https:\/\/www.hawaiianelectric.com\/regulators-accept-hawaiian-electric-companies-plan-to-reach-100-renewable-energy [Accessed 14 Nov. 2017].<\/p>\n<p>Maloney, P. (2017). Hawaiian Electric takes first steps to utility-scale commercial energy storage.\u00a0<em>Utility Dive<\/em>. [online] Available at: https:\/\/www.utilitydive.com\/news\/hawaiian-electric-takes-first-steps-to-utility-scale-commercial-energy-stor\/506885\/ [Accessed 11 Nov. 2017].<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>How will Hawaiian Electric Industries, the largest utility in Hawaii, achieve the state&#8217;s goal of 100% renewable generation by 2045 while continuing to deliver reliable and affordable service to its customers? <\/p>\n","protected":false},"author":10259,"featured_media":24863,"comment_status":"open","ping_status":"closed","template":"","categories":[1218],"class_list":["post-24862","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-climate-change","hck-taxonomy-organization-hawaiian-electric-industries","hck-taxonomy-industry-utilities","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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