All Energy Decisions Have Costs

Perhaps nowhere else is the old adage that if something “is too good to be true, it probably is” more true than in the energy sector. With highly interconnected systems, complicated cost accounting methods, and heavy, long-term capital investments, adjusting one lever in the energy sector almost always produces an unintended consequence somewhere else.

Consider the recent news from Hawaiian Electric Company, which recently announced that its customers installed a record amount of solar power last year. That is welcome news in a political climate demanding more renewable energy, right? Well, not so fast.

Customers who installed nearly 30 megawatts in nameplate capacity from solar panels have saved about $7.4 million in electricity costs. While that is good for them, the millions of dollars in lost revenue to their regulated utility would have been used to pay for a number of fixed costs such as billing, meter reading, and transmission. To make up for the shortfall, Hawaiian Electric Company is forced to raise its rates between half-a-cent and 1.7 cents per kilowatt/hour. That’s about $10 per month per customer on the high end.

You see, no electricity customer lives on an island, even if do live in Hawaii. Even customers with solar panels remain connected to the grid, taking advantage of services and infrastructure for which they don’t fully pay. That’s because Hawaiian Electric Company collects funds for these fixed costs through its power rates, which those with solar panels avoid, at least when the sun is shining. And when the sky is dark, Hawaiian Electric must stand ready to power those homes.

In other words, some in Hawaii who are able to afford expensive solar panel installations are saving money. Those who can’t are picking up the slack, paying more for services and infrastructure that all customers enjoy, but not all customers pay for. Tripling Hawaii’s residential solar capacity sounded good, but it was too good to be true. An economist might refer to the higher rates in Hawaii as an “externality.” For the rest of us, especially those Hawaiian customers paying more for the same services, it’s just a raw deal.

It’s the illusion that customers who install solar panels are ‘leaving the grid,’ when they are firmly tethered to it. The same illusion that more distributed energy is good for consumer choice, when the reality is that allowing ventures such as independent solar power producers, for example, to cherry-pick profitable industrial customers is bad news for all other customers. It’s good politics, but bad economics. Great for headlines, but neglectful of the customer bottom line.

Initiatives like this are being considered in states and cities across the nation. In Georgia, for example, Senate Bill 401 runs the real risk of recreating the faulty experiment of our 50^th state. For the sake of power customers, let’s hope that policy makers consider the outcome in Hawaii and avoid making the same costly mistakes.