“Hawaii’s Solar Wars”: Variable Pricing as a Solution Offered by Herman K. Trabish
“Hawaii’s solar wars” is an issue that has emerged recently due to the installation of rooftop solar photovoltaic systems by some Hawaiian households and the resulting economic conflict between the owners of these systems and the rest of the population. This paper explores the article by Herman K. Trabish (2015b), Is variable pricing the way out of Hawaii’s solar wars? which addresses this problem and offers a possible solution to it. The suggested answer is to “restructure rates so that everybody pays and gets paid the right price for the electricity they buy and sell” (Trabish 2015b). We will analyze the offered solution of introducing variable pricing, and see which of the proposed rating schemes is the most reasonable one.
Over the past years, there has been a growth in the number of households in Hawaii that utilize rooftop solar photovoltaic systems to produce electricity (Smith & Cook 2015). Today, more than 12% of households have rooftop solar installations (Trabish 2015b). However, such a large quantity of solar systems has led to enormous economic complications that were not expected in the past (Gies 2015).
The less wealthy population of Hawaii still has to buy energy from Hawaiian Electric Companies (HECO). Because the grid maintenance remains costly, as well as to the currently existing net energy metering system (NEM), according to which solar systems owners can sell the power they produce to the grid and are not required to support the grid, all the other residents are forced to pay enormous prices for electricity to preserve the grid. These prices grow as the number of solar installations increases, which means that the less wealthy citizens might soon start subsidizing the richer ones who have (or will have) installed solar photovoltaic systems (Lyte 2015).
The whole situation has received the name of “Hawaii’s solar wars”. These problems need to be solved because the electricity becomes virtually unaffordable for a large part of the local population (the changes in the residential energy prices are shown in Fig. 1).
This graph demonstrates the change in the average price that the dwellers of Oahu paid for electricity (“Elec. Price (Residential)”). The “Adjusted ECAF” curve shows the generation component. The “Gap” curve shows the difference between the other two curves, representing all fixed or non-fuel expenses.
The article by Trabish (2015b), is based on a study conducted by members of the University of Hawaii Economic Research Organization (UHERO) (Coffman et al. 2015), explores the ways that might help to solve the problem. Trabish (2015b) summarizes and discusses the UHERO’s offer, which is to restructure the rates by introducing an option of buying or selling as much electricity as required to any companies or households at the marginal cost of electricity production (i.e. the cost required for producing an additional unit of electricity).
At the same time, the study states that the grid maintenance costs, if they exceed such rates, should be distributed among the maximum possible number of consumers both to preserve the grid and for the sake of fairness; an introduction of a fixed fee is offered. The incentives to create more renewable electricity sources should be provided in ways other than the existing NEM (Trabish 2015b; Coffman et al. 2015, p. 13).
There is a problem, however, a “big but” related to the implementation of variable marginal-cost pricing. Trabish (2015b) points out that the marginal cost of electricity production varies every day and every hour. Therefore, such pricing requires equipment that would measure the marginal cost, and such equipment is expensive. Besides, it might be hard to define what exactly the marginal cost is comprised of. It is reasonable, therefore, to introduce a flat-rate tariff (charging a fixed fee however much electricity is used), based on the “average marginal cost for the overall power system”, or a time-of-use (TOU) tariff, which is a variant of a flat-rate tariff that takes into account the time (peak, shoulder, off-peak) when the energy is used (Trabish 2015b).
These solutions on their own, however, might be disadvantageous to rooftop solar photovoltaic systems owners, making it less attractive to install these systems. Indeed, Trabish (2015b) points out that the marginal cost of production of electric energy by employing solar photovoltaic systems during a sunny day is very low; therefore, owners of these installations will not be able to get much money for selling the energy, at the same time still having to pay quite much for the electricity they buy when their systems cannot produce power, as well as to pay the grid maintenance costs. On the other hand, the rest of the population, those who do not own solar systems (i.e. the majority), will not have to pay such enormous money for the grid preservation due to the distribution; the cost of electricity will be lower for them.
As we can see, the flat-rate tariff will bring benefits to the part of the population who do not own solar systems; however, it might have an adverse effect in the long term. Being disadvantageous to solar systems owners, it might discourage other people who might potentially install such systems from doing so. This would interfere with the ambitious goal that Hawaii has, which is to transfer to renewable sources of energy completely by 2045 (Trabish 2015b).
On the other hand, this problem can be avoided by introducing other means of encouragement to install these systems. Besides, the marginal-cost pricing implemented via TOU tariffs might stimulate the owners of solar installations to buy energy storage devices, which would enable them to sell electricity during hours when it is more expensive (or, at least, not to be forced to buy it during such hours).
Indeed, Trabish (2015b) stresses that “a residential solar plus storage system’s expense would not necessarily be prohibitive, even in the absence of solar incentives”. Moreover, this would also solve the problem for the potential owners of solar installations; the installations would be more costly, but not unprofitable. It also should be added that solar photovoltaic systems tend to become cheaper with time (Trabish 2015a), which would provide an additional stimulus to install them.
As we can see, the problems related to the installation of rooftop solar photovoltaic systems are dire indeed, for the resulting economic issues lead to electricity being extremely costly to a large part of Hawaii’s residents, unaffordable to some of them. Trabish (2015b), analyzing the study by Coffman et al. (2015), offers a solution, the gist of which is to restructure the electricity rates, introducing variable pricing of the energy. It appears that the scheme of flat-rate TOU tariffs would be best for lifting the burden from the poor, at the same time not making rooftop solar systems unprofitable and allowing for their further installation; however, some additional incentives to install them should also be useful.
Reference List
Coffman, M, Fripp, M, Roberts, MJ & Tarui, N 2015, Efficient design of net metering agreements in Hawaii and beyond. Web.
Gies, E 2015, Will new obstacles dim Hawaii’s solar power surge?. Web.
Lyte, B 2015, In Hawaii, rooftop solar panels threaten ‘utility death spiral’. Web.
Smith, R & Cook, L 2015, Hawaii wrestles with vagaries of solar power. Web.
Trabish, HK 2015a, How to get to a solar-based future, according to MIT: a new study argues for long-term R&D, reforms to solar valuation schemes. Web.
Trabish, HK 2015b, Is variable pricing the way out of Hawaii’s solar wars? Economists, utilities, and solar advocates all like electricity rates that reward customers. Web.