US – regulatory treatment of batteries in the Aloha state
Phil Caffyn
Electricity sector transformation and decarbonisation, strategy, risk, regulatory and transaction advisor. Church and church-sector trustee, treasurer and director.
Introduction
?Most of us are well aware of at least some regulatory unease about electric companies (or lines companies) owning and operating batteries. This article examines a recent regulatory decision in Hawaii around a power purchase agreement with a battery operator.
?A bit about HECO
?The Hawaiian Electric Company (HECO) was established in 1891, and rapidly expanded including by acquiring other electric companies such as the Maui Electric Company. HECO currently supplies about 463,000 customers from a firm generation capacity of about 2,300 MW. Annual generation is about 8,800 GWh, of which about 26% is from renewable sources.
?A key theme for HECO is the retirement of oil-fired and coal-fired generation as part of its journey to 100% renewable energy by 2045. Those retirements are being increasingly scrutinized by the Hawaii Public Utilities Commission (HPUC).
?The proposed Kapolei project
?The Kapolei Energy Storage being developed by Power Plus is located on the island of Oahu, and will provide 185 MW - 565 MWh of batteries to provide demand shifting and frequency response under a power purchase agreement with HECO.
?The HPUC’s decision
?The HPUC recently approved HECO’s power purchase agreement with Power Plus primarily because it would assist grid reliability after the retirement of the 180MW coal-fired West Oahu station in 2022 that currently supplies about 15% of Oahu’s electricity. That approval, however, came with a suite of conditions that included…
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?·????Requiring HECO to forego specified performance incentives for future renewable energy projects.
?·????Given increased support to community-based renewable energy projects.
?·????Removing a specified cohort of fossil-fired generators from the rate base, meaning that costs would be carried by shareholders rather than customers.
?·????Requiring HECO to account specifically for the percentage of stored energy derived from fossil fuels.
?In reaching its conclusion, the HPUC identified the following concerns…
?·????That HECO’s reserve capacity margin would decline as West Oahu is closed and new renewable projects are delayed.
?·????That the Kapolei battery would be charged with fossil-generated electricity (Editors’ note – this overlooks the issue of battery storage allowing more efficient operation of all of HECO’s thermal plant).
?HECO in turn expressed concern that the imposed conditions could actually impede Kapolei’s development.