Why HECO Drew Such Low Solar-Plus-Storage Prices

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Hawaiian Electric Companies (HECO) is seeking approval for seven utility scale solar-plus-storage projects that could set a new benchmark for low-cost renewable power in the island state.

The low prices reflect the high cost of generating electricity in Hawaii and of the state’s ambitious 100 percent renewable portfolio standard.

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The prices in the power purchase agreements (PPA) range from $0.08/kWh to $0.12/kWh and are the “largest and lowest cost portfolio of new renewable energy resources to be assembled in Hawaii,” according to HECO.

Additionally, six of the seven projects represent the lowest prices to date for renewable electricity in the state, coming in at $0.10/kWh and lower.

HECO said the low prices reflect the “contractual flexibility” that enables it to dispatch energy from each facility to meet the needs of the grid. HECO’s current cost of fossil fuel generation is about $0.15/kWh. Previous solar-plus-storage project prices in Hawaii came in at $0.139/kWh in 2016 and $0.11/kWh in 2017.

42% drop in prices

The new prices are “nuts,” said Daniel Finn-Foley,  senior energy storage analyst at Wood Mackenzie Power & Renewables. The lowest prices in the new batch of contracts are 42 percent lower than comparable projects just three years ago, he said.

In addition to falling battery costs and economies of scale, one of the keys to the low prices is a PPA structure that includes a monthly lump sum payment based on net energy potential and facility availability, said Ravi Manghani, director, energy storage, at Wood Mackenzie Power & Renewables, said. Only one of the seven projects receives an energy payment, he added. That structure reduces curtailment risk for the developers and gives the utility the ability to dispatch the facilities in a manner more closely resembling a conventional power plant. It is a structure that could become more mainstream for solar-plus-storage PPAs going forward.

It is unclear why one of the projects, at $0.12/kWh, was more costly than the others, but it probably has to do with size, Finn-Foley said. The project — the Paeahu Solar project on Maui, being developed by Innergex — is the smallest of the seven with 15 MW of solar capacity and 60 MWh of storage.

“The important thing here is the context of what is being replaced,” said Tim Grejtak, analyst at Lux Research.

HECO’s Seven Proposed Projects

In Hawaii, solar-plus-storage is being leveraged against generation fired by imported petroleum, not against low-cost natural gas as in the continental United States. In the continental United States, utilities have access to – and developers compete with – a variety of generation resources, including coal-fired generation and low cost gas-fired generation, and that puts downward pressure on prices.

“It is a question of what are you replacing,” Grejtak said.

In a late 2017 solicitation, Xcel Energy received a median price for solar-plus-storage projects of $0.036/kWh with even lower prices for wind-plus-storage projects. The previous low price was set in response to a solicitation issued by Tucson Electric Power that resulted in a $0.045/kWh contract for a 100-MW solar array with 120 MWh of energy storage that is being built by NextEra Energy.

Ratio in solar-plus-storage projects

Another factor in the price gap between the continental and the Hawaiian low-cost solar-plus-storage projects is the ratio of solar-to-storage capacity. The Xcel projects probably have a 2-to-1 ratio, but in the Hawaiian projects, the solar and storage components are more evenly matched, Finn-Foley said.

With 30 MW/120 MWh of storage, the batteries in the Tucson Electric project would be able to discharge for about an hour. The Hawaiian projects are all more equally matched with larger –and therefore, more expensive – batteries that would allow about four hours of dispatch.

In aggregate, the Hawaiian projects – three on Oahu, two on Maui and two on the island of Hawaii – will have about 262 MW of solar power capacity and 1,048 MWh of storage capacity and will be able to extend solar generation about four hours into the evening when electricity use peaks.

The developers in Hawaii are going for a higher ratio because they have a higher benchmark to meet, Finn-Foley said. In 2015, Hawaii set a 100 percent by 2045 target for its renewable portfolio standard, the most ambitious in the nation. California also has a 100 percent standard, but it allows some leeway because it is for clean energy, not renewable energy. In Hawaii, developers also have more leeway because they have a higher price-to-beat target because of Hawaii’s reliance on imported fuel and each island is its own grid.

Most of the islands are well ahead of schedule on meeting those targets, Finn-Foley said. In its 2017-2018 Sustainability Report HECO said the island of Hawaii had 57 percent renewable generation, Maui 34 percent and Oahu 21 percent.

Join us for in-depth discussion about solar-plus-storage at Microgrid 2019: Shaping the New Electric Grid, May 14-16 in San Diego. Save $350 by registering before January 31. 

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