NewEnergyNews: NEW ENERGY POLICIES FOR HAWAII, A CASE STUDY/

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    Founding Editor Herman K. Trabish

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    Tuesday, May 18, 2010

    NEW ENERGY POLICIES FOR HAWAII, A CASE STUDY

    Clean Energy Policy Analysis: Impact Analysis of Potential Clean Energy Policy Options for the Hawaii Clean Energy Initiative
    S. Busche and E. Doris, and R. Braccio, D. Lippert, P. Finch, D. O'Toole, and J. Fetter, April 2010 (National Renewable Energy Laboratory and Booz Allen Hamilton)

    THE POINT
    The cheapest and most abundant energy sources are not coal and oil but sun and wind. The Old Energies are only able to foist such misrepresentations on an energy-illiterate public because they have held power for a century and a half or more and because they are good at misdirection.

    Governments typically provide support (subsidies and incentives) for the forms of energy on which they rely. The subsidies and incentives are designed to eliminate barriers to the energy supplies vital to economic growth. In the U.S., the coal and oil industries have used more than a century of tax breaks and indirect subsidies to establish a stranglehold on the energy markets of the 21st century. The costs born by local communities and the nation’s taxpayers for the recent coal mine and offshore drilling disasters demonstrate how the fossil fuel industries keep their energy “cheap” by shifting real cost burdens onto the public.

    Only federal subsidies amounting to tens of billions of dollars in loan guarantees and insurance underwriting have allowed the nuclear industry to get as far as it has despite the irresolvable and unaffordable obstacles of high financing costs and the lack of a safe place to dispose of radioactive waste. And because its dangers and costs have prevented it from getting a solid foothold in the marketplace, nuclear advocates are now whining that Washington, D.C., must throw good money after bad.

    The only thing that has prevented the truly abundant and cheap New Energies of sun, wind, flowing waters, deep earth heat and organic residues from competing successfully in the marketplace is the federal government’s thumb on the scales of cost in favor of the Old Energies. That thumb is there because of longstanding vested interests, not science and good sense.

    The state of Hawaii, which is almost entirely dependent on imported Old Energies for its power and transportation, reacted to the skyrocketing price of oil in 2007-08 with a scientific and sensible commitment to transition to a New Energy economy as rapidly as possible. Hawaii’s political leaders passed the Hawai‘i Clean Energy Initiative (HCEI), tasking their state with the goal of obtaining 70% of its power from New Energy sources by 2030.

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    Hawaii's New Energy ambitions immediately ran into the traditional barriers and half-truthful assumptions that keep the state’s energy consumers and producers dependent on the subsidized Old Energies and away from New Energy. Clean Energy Policy Analysis: Impact Analysis of Potential Clean Energy Policy Options for the Hawaii Clean Energy Initiative is the first report on a public-private collaboration to survey and assess and evaluate all the known applied and suggested subsidies and incentives for New Energy (and Energy Efficiency). It is a vital and groundbreaking statistical and logical evaluation of how to most cost-effectively give the New Energies what they need to play on level ground with the long-protected Old Energies. Its conclusions elucidate the most cost-effective ways Hawaii or any local, state or national government can make the transition to New Energy and Energy Efficiency.

    The Golden Gimmick is a perfect example of how federal subsidies have removed barriers for the Old Energies. In 1950, Saudi King Ibn Saud wanted more for the oil ARAMCO (the Arabian-American Oil Company, a U.S.-based international oil cartel made up of Standard Oil of California, Standard Oil of New Jersey, Standard Oil of New York and Texaco, among others), was taking out of his country’s ground.

    With President Harry Truman’s blessing, ARAMCO was granted a foreign tax credit lowering its obligation to the U.S. Treasury (and the U.S. taxpayer) so that it could make a higher payment to Saudi coffers. As a result of this federal subsidy to Big Oil (which remains in place), the U.S. consumer got hooked on and remains hooked on overly cheap transport fuels. It is a dependence that continues to channel money, in ever more appallingly huge quantities, to Middle Eastern countries.

    Hawaii's leaders are determined to break that dependence by giving New Energy and Energy Efficiency what they need to grow and thrive. The Hawaii study was done by 4 HCEI working groups (Electricity, End-Use Efficiency, Fuels, and Transportation) and a U.S. Department of Energy (DOE) Technical Assistance Team (from DOE, the National Renewable Energy Laboratory and Sandia National Laboratory). The working groups were made up of local stakeholders and local and national clean energy experts.

    Another (Integration) working group reviewed the group reports and formulated the study’s recommendations and practical scenarios for a 70% New Energy by 2030 Hawaii. The study contains, as much as possible, Hawaii-specific data and conclusions but offers insights to political leaders and policy makers everywhere in pursuit of a similar transition.

    Goals of the HCEI analysis:
    (1) Improve Energy Efficiency (EE) in new and existing buildings;
    (2) Make future residential buildings New Energy-ready and Energy Efficiency-ready so they can be net-zero;
    (3) Build local New Energy (NE) industries;
    (4) Drive NE and EE growth with financial and nonfinancial incentives;
    (5) Drive public institutions to lead-by-example (LBE) adoption;
    (6) Drive state private investment in NE and EE; and
    (7) Revise existing incentives to accomplish these goals.

    Some of the 21 policies analyzed, like the lead-by-example (LBE) policies for End-Use Efficiencies, have impacts and benefits that primarily apply to state agencies. Others, the Extension of the state’s Sunset of Act 221/215, go almost entirely to Hawaii’s high-tech industry. Many of the policies will affect different stakeholders differently. Some require high up front costs and long term benefits; others require less investment and pay off quickly. The conclusions are not recommendations but findings.

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    THE DETAILS
    The policies were analyzed via (1) an assessment of the experience with them in other localities and states; (2) technology deployment models; and (3) the anecdotal accounts of policy implementers, stakeholders, and industry leaders.

    Many New Energy and Energy Efficiency policies are relatively new and there is limited real world experience with them or data on their impacts. Where quantitative impact estimates was not practical, the report offers qualitative analysis and contextual factors to suggest their potential.

    The HCEI working groups analyzed policy options in 4 areas, offered a series possible practices, rules, regulations, etc., that could be instituted to facilitate the desired policies. In most cases, the working groups then presented pros and cons for the proposed practices, rules, regulations, etc. Where possible, costs and benefits are calculated or estimated.

    Area 1, Electricity:

    Policy Option 1: Amended Fossil Fuel Power Plant Restrictions
    Option 1: Ban new fossil fuel-only plants bigger than 2 megawatts (MW). Option 2: Ban all new fossil fuel plant construction without a co-firing agreement with a biofuel provider. Option 3: Allow new fossil fuel plant construction only if the associated utility has already obtained the necessary and required amount of NE and the addition would not move the utility’s portion of NE back below the requirement. Option 4: New fossil fuel plant construction permitted only when replacing older, more inefficient units and the new capacity doesn’t reduce the utility’s portion of NE.

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    Policy Option 2: Food and Energy Security Fund
    This would increase the environmental response, energy and food security tax of 5 cents on every barrel of oil sold in Hawaii for electricity generation to between $1.05 per barrel and $1.70 per barrel.

    5% of the revenues would go to an Environmental Response Fund to deal with oil spills and problems associated with waste oil. 52% would go to an Energy Security Special Fund to help public and private institutions meet the HCEI goals. 10% would go to an Energy Systems Development Special Fund to drive research, development and deployment of NE and EE. 33% would go to an Agriculture Development and Food Security Special Fund to increase agricultural production or processing that cuts imports.

    Policy Option 3: Extension of the Sunset of Act 221/215 (High-Tech Industry Tax Benefits) for Clean Energy Projects
    221 creates a Private Investment Fund and 215 creates a tax credit for the high-tech sector. The private investment fund provides equity investments, direct loans and loan guarantees including $36 million worth in tax credits and rules for how they can be used. The high tech tax provides a 10% nonrefundable income tax credit (maximum $2 million per year per investor over 5 years) to drive investment in the high-tech sector and has various cap provisions and a definition of what a high tech investment is.

    Policy Option 4: Transmission Line Need and Prudence
    This introduces Renewable Energy Zones in Hawaii and creates the streamlining of the build out of new transmission dedicated to carrying New Energy.

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    Policy Option 5: Rate Design
    This allows Hawaii utilities to design rates in which (1) electricity charges vary by time of day, day of week, and season, (2) rates are higher during peak periods, and (3) the rates and time periods are set in advance. This is called Time of Use (TOU) rate design and encourages electricity users to move away from peak demand periods, making energy consumption in the state more efficient. TOU pricing also encourages the best use of plug-in vehicle charging.

    New rate designs would also incorporate dynamic pricing, a type of uncertain pricing that further drives consumption away from peak use periods. Both TOU and dynamic pricing require advanced meters, a major move toward smart grids and the many EE opportunities they offer.

    Another rate design option considered was block pricing, which shifts rates not according to time as much as according to amounts of energy in use. Time-of-use or dynamic pricing can be used with block rates.

    Policy Option 6: Limiting the Biofuels Contribution to the RPS to 30%
    The idea is to continue the 30% cap on imported biofuels through 2030 as well as extending the 30% limit to any biofuels. This commits the state to higher levels of other New Energies such as solar, wind, wave and geothermal energies.

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    Area 2, End-Use Efficiency:

    Policy Option 1: Public Benefits Fund Increase
    This would change the amount of money allocated to utilities for the implementation of EE from 1% of total revenues to 2% of total revenues. It is estimated the increase would result in an increase in utility costs to Hawaii’s ratepayers of $16 per year but a savings of $29 per year.

    Policy Option 2: Net-Zero Energy Capable Requirement for New Homes
    A net-zero home is one in which it is cheaper to install a photovoltaic (PV) solar system than work for more EE. The resulting utility bill is cut by half. Building homes to be 50% more efficient adds 8-to-12% to the cost but changes the energy consumption profoundly, opening the way for NE.

    There are 3 policy options to drive the growth of net-zero homes: (1) Mandating efficiency requirements that become periodically more stringent; (2) Mandating that all new2 homes built net-zero energy capable by a specific future date, or (3) mandating that homes meet a progressively more demanding Home Energy Rating System (HERS) index rating.

    Policy Option 3: Photovoltaic-Ready Requirements
    New homes built ready for PV systems are inevitably going to have more PV systems. If 5% of all new homes add a 4 killowatt system, there would $26 million reduction in utility bills over 10 years.

    PV-ready houses are (1) sited to maximize solar production, (2) designed with a structurally ready roof, (3) built with attachments on the roof positioned byeyond shade and other obstructions, (4) built with a busbar in the electrical panel for a PV system, (5) built with conduit for solar system wiring, (6) designed with space for PV and solar hot water system space, and (7) built with solar system wiring and piping marked.

    These preparations drive the growth of solar PV by (1) making systems more affordable, and (2) making installation cheaper and more convenient.

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    Policy Option 4: Tax Incentives with Pass-Through Option for Nontaxable Entities for Green Buildings and Energy Efficiency Improvements
    Incentives to build “green” (installing NE and EE) is an obvious choice. Allowing a pass-through option widens the pool of possible financing sources.

    Best incentives include: (1) the ability to complement and coordinate with other policies; (2) proper sizing, large enough to drive investment but not so large it breaks the state or creates a bubble; (3) caps to reduce demand as economies of scale develop; (4) a long enough term to provide market consistency but not so long as to be a crutch; (5) an emphasis on the best technologies; (6) eligibility for nontaxed sectors such as schools, nonprofits, etc.

    Policy Option 5: Density Bonus
    This policy makes allowances in standard land use rules to provide NE and EE developers the opportunity to add more productivity in exchange for meeting best practices and EE standards. It is more effective in places with (1) dense population or land use and (2) EE is more attractive than NE.

    Policy Option 6: Residential Energy Conservation Ordinance (RECO)
    Hawaii’s existing RECO, a law requiring new homes to be built according to energy conservation standards, is likely to save 70-to-300 gigawatt-hours of consumption over 10 years. The RECO’s cost per home can be capped to prevent it from becoming too big s burden.

    The most cost-effective RECO requirements are: (1) window upgrades, (2) water heater upgrades, (3) low-flow shower head and faucet installations, and (4) insulation and other envelope improvements.

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    Policy Option 7: Lead-by-Example (LBE) — Energy Efficient/Green Affordable Housing
    State-funded low cost housing can be made efficient for a 2.4% higher cost but costs are lower over the life of the building because of reduced energy consumption and operations and maintenance costs.

    Benefits of a LBE EE building policy include: (1) reduced energy costs for utility bills, (2) reduced state energy demand, and (3) advancing state developers’ knowledge of green building practices for local developers.

    It addresses the key barriers of (1) high up-front capital costs, (2) the incentive for low-cost construction by awarding contracts to lowest bidders, (3) incorporating an appreciation of lower O&M costs into the design process.

    Policy Option 8: Lead-by-Example (LBE) — 30% More Energy Efficient New and Existing Public Buildings
    This policy could (1) propagate EE education programs, (2) require LEED Silver awards for new construction, (3) cut state fleet vehicle oil consumption and (4) increase the use of environmentally preferable products.

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    Area 3, Fuels:
    Creating incentives to develop biofuels reduces Hawaii’s dependence on oil, on imported energy and increases benefits to the local economy.

    Policy Option 1: Expansion of the Biofuel Facility Tax Credit
    The 30% tax credit, intelligently limited and capped, will serve to create more of the benefits associated with biofuel expansion.

    There are 3 options for applying the tax credit: (1) An expanded version of present that increases the total limit of production and the size of plants eligible; (2) Making it a single investment tax credit (ITC) for 30%, or (3) making the incentive a production tax credit (PTC) structured to drive growth over a longer period of time. Each of these could be applied in variations that might increase production.

    Policy Option 2: Lease of Public Lands for Renewable Energy
    More land in production means more production.

    Area 4, Transportation:
    Options to personal transport via oil-dependent internal combustion engine (ICE) vehicles would significantly reduce fossil fuel consumption by the state’s residents and its very large tourist population’s use of rental cars.

    Policy Option 1: Deployment of Electric Vehicle Infrastructure
    The state can facilitate the use of Battery Electric Vehicles (BEVs) via (1) state education and outreach programs, (2) streamlining the permitting of BEVs and charge station installation in the next 6 months, (3) setting statewide EV infrastructure standards within 12 months, and (4) implementing secure, standardized 110 volt and 208–240 volt BEV charging infrastructure in every government building within 12 months.

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    Policy Option 2: Electric Vehicle Charging Infrastructure Tax Credit
    The availability of charging stations is thought to be a limiting factor in the expansion of BEV use. Providing a financial incentive in the form of a tax credit over the coming 5 years is expected to increase the building of charging station infrastructure.

    Charging stations are expected to cost $2,000-to-$6,000. The proposed tax credit would begin in 2012 and be $1,000 per year.

    Policy Option 3: Transitioning of Rental Cars to Plug-in Hybrid Electric Vehicles
    Rental cars are 5% of Hawaii’s fleet and 28% of Hawaii’s new car purchases. The high upfront costs of BEV purchases could be offset by rental car companies with (1) State and federal tax credits, (2) higher resale values for the BEVs, and (3) higher prices for BEV rentals. There would also be significantly reduced fuel costs.

    Another hypothetical method of making BEVs more affordable would be to tax all rental vehicles except electric vehicles.

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    Policy Option 4: Income Tax Credits for Plug-in Hybrid Electric Vehicles and Electric Vehicles
    Long term, the success of BEVs will be dependent on consumer uptake. The high upfront costs of BEV purchases can be offset with income tax credits for buyers that brave the market until the cost of the BEVs achieve parity with ICE vehicles. There is likely to be a federal income tax credit available and the state will want to manage its contribution. There are 3 ways to do this: (1) Make state incentive available only for the difference in price between the BEV and a similar ICE model, (2) putting a fuel economy or battery size on qualifying BEVs, or (3) using a sliding-scale incentive with a bigger benefit going to more efficient cars.

    Policy Option 5: Subsidized Electricity for Electric Vehicles
    Subsidies for electricity use by BEV owners could aim either (1) to bring the cost of operating a BEV to full cost parity with ICE vehicles or (2) to make electricity used by BEV owners perhaps 5 times cheaper than other electricity consumer rates and providing special benefits for TOU charging at off-peak periods.

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    QUOTES
    - From the HCEI report conclusion: “The Hawai‘i Clean Energy Initiative has set progressive clean energy goals to transition the state away from its current dependency on imported fossil fuels. Achieving 70% clean energy by 2030 will require a significant, coordinated effort from myriad stakeholders throughout the state to address the technical, market, policy and other barriers to clean energy development and deployment. As a variety of policy options are available for policy makers to implement, it is critical that policy makers are able to weigh the costs and benefits of each option when determining which are appropriate for creating the policy environment desired.”

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    - From the HCEI report conclusion: “Hawai‘i’s efforts to transition to clean energy provide an example for other states and for island nations that hope to pursue similarly progressive renewable energy and energy efficiency targets…While policies must inherently be designed to fit specific local contexts, the lessons learned in the coming years in Hawai‘i will provide insight into policy effectiveness in addressing barriers to clean energy development and driving market transformation. As an increasing number of cities and states begin to adopt similar policies, the database of information on policy impacts will grow. This will allow for more in-depth analysis of the impacts of these types of policies, aiding all state and local policy makers…”

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