Tag Archives: Hawaiian Electric

State boosts “Big Wind” EIS contract by 70%

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The state is quietly proposing a 70% increase in a contract with a Los Angeles engineering firm to provide environmental studies in support of the proposed “Big Wind” project of industrial-scale wind farms on Molokai and Lanai, and a deep sea interisland cable to transmit power to Oahu. The move could force the reopening of the public scoping process required by the National Environmental Policy Act, according to an application for exemption from competitive bidding submitted to the State Procurement Office last week.

The increased spending was disclosed in an exemption request filed by the Department of Business, Economic Development, and Tourism on September 28. It is seeking permission to boost the contract value by $2.1 million, to a total of $5.1 million, up from the original $2.9 million contract awarded in June 2010.

The previously selected contractor is AECOM Technical Services, Inc., part of the publicly-traded AECOM Technology Corporation.

The contract calls for preparation of technical studies to support a programatic environmental impact statement for the Big Wind project, including “management and quality assurance plans, Cultural Impacts Assessment, biological studies of species in nearshore waters and wetlands, and strategic support.”

The proposed revision would add “impact analyses at additional areas in Maui County that are suitable for two other renewable energy technologies: solar/photovoltaic and geothermal.” The changes are being proposed in response to more than 250 comments received during the initial scoping process, many of which urged consideration of other renewable energy technologies.

There is no indication in the current exemption request to indicate that strong community opposition by Molokai residents is having any impact on the state’s aggressive pursuit of the wind project.

Action by the chief procurement officer on the exemption request is listed as “pending.”

This is the second revision of the original contract.

An earlier exemption request dated December 30, 2010, and approved in March 2011, described major concessions by the Abercrombie administration to unnamed “industry partners” within its first month. The administration agreed to cover costs associated with the environmental studies that previously had been expected to be the responsibility of private sector firms.

As a result, it sought to shift the focus of the AECOM contract from “project specific” studies to “more strategic support and completion of environmental studies covering a greater geographic area.”

The earlier exemption request explained:

…under the original contract, it was expected that the State’s partners in the Interisland Wind Initiative would complete their own respective environmental studies and provide that information to the State. The State Department of Business, Economic Development and Tourism (“DBEDT”) issued a Request for Proposals (“RFP” or the “solicitation”) that described this strategy. The State’s industry partners in this initiative were given a chance to review the RFP prior to its release. After the RFP was released, proposals submitted and subsequently evaluated, and the original contract was executed, the State’s industry partners in the initiative requested, via the Governor’s office, that DBEDT re-examine its strategy for complying with the EIS laws. AS DBEDT offered the State’s industry partners amble opportunities to review its RFP prior to its release, it was not anticipated that they would request such changes in approach after the contract for the EIS was executed. As a compromise between the State, the Governor’s office and the industry partners, DBEDT is now taking an approach that warranties changes to AECOM’s contract scope. Notably, the State must now complete its own environmental studies that cover a greater geographic area in order to complete the programmatic EIS.

AECOM also signed an agreement earlier this year to provide engineering and construction management services to Aina Koa Pono, the start-up company intending to use a commercially-untested technology to provide 16 million gallons of biodiesel annually to Hawaiian Electric beginning in 2013.

Kenton Eldridge, co-founder of Aina Koa Pono, was a co-founder of Sennet Capital LLC with Richard Lim, now director of DBEDT. Aina Koa Pono’s board of advisors includes Robert Clarke, former Hawaiian Electric CEO, attorney Paul Alston, whose firm represents both Hawaiian Electric and Sennet Capital, and former Congressman Norman Mineta, who has previously served as secretary of the departments of Commerce and Transportation.

Mineta was a director of AECOM from 2007 until his resignation earlier this year.

The Public Utilities Commission last week rejected Hawaiian Electric’s bid to have electricity customers pay an escalating surcharge over the next 20 years to subsidize biofuel purchases from Aina Koa Pono at prices significantly higher than the cost of diesel.

Cost questions surround HECO’s Aina Koa Pono project

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Nancy Cook Lauer’s story on the PUC hearing concerning the Aina Koa Pono biofuel project was yesterday’s most read story in West Hawaii Today.

Hawaiian Electric is seeking approval pay Aina Koa Pono an unspecified price acknowledged to be well above the current price of petroleum-based diesel, and charge the difference to all HECO and HELCO consumers.

The price is reportedly “competitive with the pricing currently being paid for biodiesel in Hawaii for electrical generation,” and includes price increases over the term of the contract in line with predicted price changes.

The amount of the subsidy will float depending on the price of regular diesel. Hawaiian Electric’s application to the PUC acknowledges that under some market conditions, it might be possible to import biodiesel from out of state at a lower cost than it will be paying AKP. However, HECO argues “cost certainty” over the term of the 20-year contract is worth the possible premium.

Hawaiian Electric has estimated that the AKP biofuel subsidy will initially add about 1/3 cent to each kilowatt hour sold to consumers.

Their assumption is that at some point during this 20 year contract the price of regular diesel “could” rise above the contract price of biodiesel, eliminating the subsidy. At that point, if it is reached, the deal will begin saving consumers money and assure a source of diesel that isn’t dependent on imported oil.

Henry Curtis suggested a method for converting the 1/3 cent per KWH to a more meaningful number, based on a reported 8.8 billion KWH sold by HECO and HELCO last year. The 1/3 penny add-on would amount to something in the neighborhood of $29 million annually, a little less depending on the exact surcharge. That something in the neighborhood of $29 million for the purchase of 16 million gallons of biodiesel per year beginning in 2015, or about $1.80 per gallon.

So the contracted price is likely to projected price of regular diesel over the term of the contract PLUS a subsidy that would begin at about $1.80 per gallon.

According to HECO, the contract price would also include “all applicable taxes and transportation and logistics costs to deliver the Biodiesel to the Receiving Facility at HELCO.”

Here’s what Aina Koa Pono says about their pricing.

The price that HELCO will pay for bio-diesel is currently higher than what it pays for petroleum based diesel. Does this mean that AKP’s process is not efficient enough to be competitive in the market?

No, the price that AKP required for its first plant is affected by the level of return needed by project investors to entice them to provide funding. As AKP develops additional facilities the price will drop considerably as the engineering costs will have already been incurred and the risk to investors lowers.

It sounds like AKP is front-loading its development costs into this subsidized contract, which reduces the risk to investors IF the technology works at the planned commercial scale. So it’s a good deal for investors, but it’s difficult to know if it’s as good a deal for consumers, both because pricing details remain confidential, and because nothing is known about competing bidders.

A few comparison points are available, although hard to interpret.

For example, TekGar apparently holds U.S. rights to the thermo catalytic depolymerization technology to be used by AKP, and is part of AKP’s “team.”

TekGar’s own website brags of its system’s “cost per gallon of diesel produced between $0.52 and $0.58 US$ without government subsidies” using “many sources including municipal garbage, agricultural waste, refinery bi-products, and all types of plastics.”

KiOR, a company using similar technology to produce biofuels, went public this year. In its required Form S-1 stock registration statement accompanying its initial public offering, KiOR stated:

Our proprietary catalyst systems, reactor design and refining processes have achieved yields of renewable fuel products of approximately 67 gallons per bone dry ton of biomass, or BDT, in our demonstration unit that we believe would allow us to produce gasoline and diesel blendstocks today at a per-unit unsubsidized production cost below $1.80 per gallon, if produced in a standard commercial production facility with a feedstock processing capacity of 1,500 BDT per day.

As I said earlier, it’s difficult to interpret these cost estimates or to compare them to the HECO-AKP contract. They do, however, certainly raise additional questions.

The investment site Seeking Alpha took a recent look at KiOR and other competitors in the fledgling biofuel industry, including several companies using technology similar to that of TekGar and Aina Koa Pono.

As of yet, none on this list have truly proven their concepts at scale and with the attendant revenue expansion that would arrive when theory meets practice you could expect greater investor interest from here.Gevo , Amyris, KiOR, Solazyme and Codexis all were able to greet the public markets with relative confidence and most of these companies are trading near or above offering prices. But the pressure is on to get bigger faster and at least demonstrate a path toward profitability before questions of viability set in.

If the PUC had insisted on a more transparent process, it would be easier to understand how all these factors are playing out as HECO moves forward with its expansion into renewables.

Again, I would be interested in readers’ perspectives.