Hawaii used rooftop solar to shore up the grid. New rules threaten that

For a moment there, it looked like Hawaii had found the ideal resolution to the rooftop solar wars raging around the country.

Ever since rooftop solar took off, utilities, installers and regulators have fought over how much to compensate this consumer-led form of energy production. That question got more complicated and interesting as batteries fell in price and rose in sales: Now rooftop solar can send power to the grid not just when it’s sunny but also when electricity comes at a premium. On-demand capacity is far more valuable to the grid than extra noontime solar production, and the clean energy industry has tried to harness that value by bundling homes into so-called virtual power plants.

The problem is that no one really agrees on how to price the services of hundreds or thousands of homes with batteries all acting in concert with digital controls. Pay too much and that could nudge up bills for a utility’s other customers. Pay too little and solar households have no reason to sign up for a program to help the grid. But with the right cost/​benefit trade-off, virtual power plants make the grid cleaner and more cost-effective by leveraging already-existing private infrastructure for the benefit of everyone else.

Hawaii figured out that trade-off, under duress. Facing a potential power shortfall heading into the 2022 shutdown of Oahu’s major coal plant, state regulators approved a program in which utility Hawaiian Electric paid households to add batteries to their rooftop solar systems. If customers agreed to send electricity to the grid every night for two hours when the sun was down and the island needed power, they would earn thousands of dollars upfront and additional payments for monthly performance. It was a rare case of an incumbent utility and the rooftop solar industry working together to solve grid problems with customer-produced clean energy.

Battery Bonus became a wild success. As of December 2023, enrollments had passed the target of 40 megawatts. So far, participants are lowering Oahu’s grid demand daily by 15 to 17 megawatts during the hours of 6 to 8:30 p.m., said Lani Shinsato, Hawaiian Electric’s co-director for customer energy resources. But that number will swell in size and importance when all the customers who signed up get their systems installed and operating.

It’s hard to overstate what an accomplishment this is: In less than two years, Hawaii’s energy industry assembled the nation’s most powerful network of solar-equipped homes, sending power to the broader grid on command daily. These programs normally take years just to get approved, then more years to pilot at a negligible scale, and few have ever gotten to the point of providing meaningful service to the grid.

Which makes last month’s decision by Hawaii’s Public Utilities Commission all the more surprising. Instead of making Battery Bonus permanent, the regulators approved a successor program that strips away much of what made participation so enticing for customers.

Battery Bonus stopped accepting new applicants at the end of December. Going forward, anyone interested in signing up to earn a little money helping their fellow Hawaii electricity customers will have to do so through the new program, called Bring Your Own Device or BYOD.

Everyone seems to agree that BYOD is meant to boost distributed energy in Hawaii and help the islands eliminate fossil-fueled power, which still supplied nearly 70% of Hawaiian Electric’s generation in 2022.

“Thanks to solid customer response, Battery Bonus was able to meet its goal of adding critical energy storage to Oahu’s grid,” Shinsato told Canary Media. ​“As we move forward with BYOD, customers can continue to receive incentives for providing grid services while playing a key role in Hawaii’s clean energy transition.”

But the new rules add complexity while drastically lowering compensation for the same services that Battery Bonus delivers. Solar industry leaders are calling it a disaster for Hawaii’s solar industry, and on December 14 they asked the Public Utilities Commission to reconsider its decision. That request has drawn rebukes from the Consumer Advocate and the utility, which consider the matter settled, but the solar camp is still hoping for a change.

“This is a huge policy error — it’s reversing years of progress that we’ve been making,” said Rocky Mould, executive director of the Hawaii Solar Energy Association. ​“It’s turning Hawaii back into a cautionary tale.”

The ​“back into” refers to Hawaii’s lurching history of solar compensation, which could be likened to the stages of Goldilocks and her porridge.

Hawaii, with its abundant sunlight and the highest electricity rates in the country, was one of the first states to adopt net metering, which initially paid customers the full retail rate for solar power they exported to the grid. That was some hot porridge, and the utility soon got alarmed at just how much residential solar power was racing onto the island grids. It convinced regulators to cancel net metering in 2015 and replace it with rules that basically eliminated incentives for households to export solar to the grid — that was cold porridge, and it crashed the state’s solar market for several years.

Fast-forward to 2022: The regulators, led at the time by now-retired distributed energy expert Jay Griffin, fast-tracked approval for Battery Bonus to replace some of the evening capacity that would be lost when the coal plant retired. All the major stakeholders considered the Battery Bonus program to offer fair compensation for the services these solar households provided to the collective electricity grid: That porridge was just right. Now, solar advocates fear the permanent replacement for Battery Bonus will throw a load of ice into that perfect porridge.

“If you don’t set the compensation right, you’re not going to get enrollment in these programs,” Mould said. ​“It’s creating a program that nobody’s going to sign up for.”

And that would mean wasting a proven resource for keeping the lights on right now, one that also would help Hawaii meet its legally binding goal of getting fossil fuels out of the electricity mix by 2045.

New rules reduce payments, add uncertainty

The solar wars have certain hallowed rituals: Utilities cry out about an unfair ​“cost shift” to the lower-income customers they purport to care so much about, and solar advocates prophesize apocalyptic visions if their preferred incentives get reduced. But the details of Hawaii’s BYOD ruling raise several red flags for would-be participants.

The solar industry is particularly concerned about complexity, because the program needs to be something that can be readily explained to potential customers over the proverbial kitchen table.

“This BYOD program is techno-complicated to the point of being unintelligible to anyone except someone well versed in this techno-speak,” said long-time Hawaii solar professional Marco Mangelsdorf, head of local installation firm ProVision Solar in Hilo. ​“It’s going to be an ongoing nightmare answering the phone at solar companies from customers who’ve gone with [the] Smart DER [solar export rate] and have ZERO clue how to interpret their bills.”

Earthjustice attorney Isaac Moriwake, who co-wrote the request to reconsider the rule, shares the concern about too much complexity.

“I think the PUC lost sight of the overall vision and maybe overthought themselves in terms of adding more and more technicalities, more and more complications to the program that end up killing the whole thing,” he said.

To understand what the critics are talking about, here’s as brief a walk-through of the incentive structure as I’ve been able to muster after a week of studying the decision. Bear with me.

Let’s say your neighbor in windswept, sun-drenched Kailua raves about joining Battery Bonus: She bought a 5-kilowatt battery, got $4,250 in cash upfront from the utility, and gets paid to supply clean energy to the community every night without even having to think about it. Sounds enticing.

So you check out what you could earn to provide the same services with the same battery but under the new BYOD rules. The first thing you notice is that you won’t be getting thousands of dollars upfront. You’ll get $500 ($100 per kilowatt of capacity). If you buy two batteries to double the desperately needed evening capacity you send to the grid, you still get $500 upfront (twice that for low- and moderate-income households). That won’t go far in paying down the cost of the battery, but maybe the performance payments will help.

If you sign up for the basic duties, dispatching for two hours every night just like Battery Bonus, you now earn $5 per kilowatt per month. That single battery pulls in $25 per month, a modest help in lowering your hefty electricity bill. You also get paid for whatever kilowatt-hours the utility asks you to export to the grid, according to this breakdown of times:

That means you’re making some money by filling up your battery with sunshine, then sharing it to the grid to make sure there’s enough for your neighbors to keep their lights on.

There’s just one more detail to keep in mind: To participate in this whole grid-services thing, the regulators require that you switch your retail electricity rates to this hip new time-based rate mechanism (the regulators call it ARD TOU, but Hawaiian Electric advertises it as ​“Shift and Save”). It was finalized in 2022, but it hasn’t been widely adopted yet because first it needs to go through a one-year trial phase to make sure it doesn’t have any unintended consequences for customers once they get charged different amounts for electricity at different times. By signing up to help the grid with your battery, you’re now volunteering yourself to become part of that test group.

Moriwake considers this a ​“rate-shock-level deterrent.” Basically, the unknown risks of jumping into an untested new rate structure will likely dissuade people who might otherwise want to sign up for BYOD.

But let’s say you are not deterred, that you even appreciate the technocratic merit of pricing electricity a bit closer to its real-time costs. The time-based retail rates that most residential customers will pay for their electricity under this new structure are as follows:

You may notice that the retail rates are higher than the export rates for the same period of time. Hence, when the utility asks you to do the right thing and help the island grid in its peak demand hours, you’ll ship out a kilowatt-hour to the network and earn 33 cents. But that same kilowatt-hour is worth 52 cents if you kept it and consumed it yourself, offsetting the need to buy grid power at that higher rate.

Every time you do what’s asked of you, you’re selling at a loss. That’s a big difference from Battery Bonus, which guaranteed the retail rate for any exports required by the program, to ensure customers weren’t disadvantaged for doing the thing they were asked to do.

“Customers need to get at least the retail rate when they dispatch into these programs, or else there’s an underlying perverse economic incentive not to participate,” Mould said.

All told, you’ll start your BYOD career with a modest gain of $500. Then you’ll earn up to $25 a month, while losing money every time you send electricity to the evening grid instead of consuming it yourself. If you export enough kilowatt-hours each day, the losses could outweigh the monthly credit, and then you’re cutting into your $500 bonus. After a few years, you could be losing money by answering the call of service.

A spokesperson for the Public Utilities Commission declined to comment, citing the pending motion to reconsider its decision. Shinsato said Hawaiian Electric expects a positive response from customers, but she noted that BYOD is a new program, and that the utility is open to updating it if needed.

“If enrollment is unexpectedly low, as in the past, we can work with the solar industry and Consumer Advocate to develop adjustments to the program as necessary and propose them for review and approval” by the Public Utilities Commission, she said.

Instead of a cooperative grid, ​“fiefdoms”

At best, Hawaii’s new grid-participation program confronts potential participants with multivariate complexity and uncertainty. At worst, it will slowly drain their coffers in exchange for strengthening the island grid.

This could spell trouble for the state’s solar industry, which had a good run selling the Battery Bonus program after the turbulence of the earlier solar regulation overhauls. It’s hard to say with certainty whether this would force a market contraction, or by how much. But Battery Bonus deals were the ​“primary driver” for many of Hawaii’s high-volume solar installers in the past year, Mould said, and the industry had expected the new grid-services programs would drive the market in the coming years.

Instead, confused customers may simply opt for self-supply, meaning they install solar and battery systems sized to meet their own needs and don’t have to mess with the complications of exporting to the broader system. Non-exporting households aren’t forced onto the pilot time-of-use rates, either.

“The whole point of the BYOD construct was to capture the win-win and the efficiencies in letting these resources aggregate and support the grid like they did with Battery Bonus,” Moriwake said. Instead, he argued, the rules create a lose-lose scenario: ​“The only viable path forward is essentially load and grid defection.”

What Moriwake means is that Battery Bonus rewarded participants while securing vitally needed resources for the community as a whole. But the new rules pull back on the rewards, and in doing so, they push solar-battery owners to serve their own needs instead of helping the broader system.

“This order has turned its back on that vision [of a cooperative grid] and is going toward a vision of self-consumption and fiefdoms,” Mould said.

Mould and Moriwake, in separate conversations, spoke with a level of passion that one might not expect for such laborious subjects as export rates and dispatch controls. Beyond the jobs at stake in the solar industry, the decision could jeopardize Hawaii’s ability to reach its clean energy goals, at a precarious moment in the state’s energy evolution.

Hawaii still needs all the clean energy it can get

The Public Utilities Commission’s decision on BYOD allows the utility to pay less money for services from decentralized, solar-charged batteries than it did through Battery Bonus. That decision rests on the assumption that Battery Bonus was a unique response to an emergency event, and that now life has returned to normal in Hawaii.

The Consumer Advocate, charged with protecting the interests of all utility customers in this high-cost state, made this case repeatedly. That office did not respond to questions in time for publication, but it pointed Canary Media to a filing where it argued that the successor program ​“should not impose undue burdens on non-participants, which could exacerbate equity issues.” Compensation should be pegged to marginal costs, not ​“an emergency program to meet a near-term resource shortfall.” Hawaiian Electric echoed this argument.

Battery Bonus was indeed an emergency response to a tricky situation: Oahu’s largest fossil-fueled plant was going to shut down, and nearly all the large-scale clean energy projects Hawaiian Electric was overseeing had fallen behind schedule, if not been abandoned outright by their developers. This placed the island in the dicey situation of moving ahead with its clean energy transition without all the resources it was supposed to have to keep the lights on.

Today, Oahu’s coal plant is indeed gone; a few of Hawaiian Electric’s replacement projects have arrived, but many remain incomplete. The utility relies on an aging fleet of oil-burning power plants to generate electricity, and two of those units failed in a deluge on January 8, forcing the utility to cut power to customers in 30-minute blocks one night. It’s not clear whether the ​“emergency” of bygone times ever really ended.

Oahu needs all the capacity it can get. But it also needs to convert its entire fleet to carbon-free power plants in just over 20 years to meet its legally binding, first-in-the-nation climate goals (some might even argue that the race to decarbonize the electric grid in time to tackle the climate crisis constitutes an emergency). So far, one resource has delivered far and away more clean energy generation than any other: rooftop solar, which more than tripled the level of production from utility-scale solar across Hawaiian Electric’s territory in 2022.

The decision to lower compensation for the BYOD program assumes certain things about Hawaiian Electric’s not-yet-existing large renewable plants, not to mention oil costs for the legacy plants, which have painfully exceeded expectations in recent years.

Maybe those future solar farms will be built when expected for a change, and maybe the price of oil will fall, and these factors will render the home battery fleet less crucial to the reliability of the grid. But what’s knowable now is how quickly Hawaii’s rooftop solar industry can deliver reliable, clean energy when given the right incentives. And now those incentives are going away.