Alternative Fuels, Repowering, and Energy Transition Study
Background
Hawaiʻi is a national and global leader in energy transition policy and was the first in the nation to establish a legally binding commitment to produce all its electricity from renewable resources. Hawaiʻi has long been a leader in rooftop solar deployment. However, despite years of progress on renewable energy, Hawaiʻi has the highest electricity costs, and O’ahu has the highest greenhouse emissions intensity in the country. Hawaiʻi is also grappling with aging power plants that can cause disruptive power outages, or rolling blackouts, which occur when generation is inadequate to meet demand.
Hawai‘i’s renewable energy transition faces significant challenges, particularly for Hawaiian Electric, the state’s largest utility. On August 8, 2023, a Category 4 hurricane caused strong winds that downed power lines, sparking wildfires on Maui and Hawaiʻi Island. The fires, intensified by gale-force winds, destroyed Lahaina and claimed 102 lives.
Consequently, the subsequent downrating of Hawaiian Electric’s credit rating has increased the cost of debt financing for the utility and independent power producers, challenging the financing of future renewable energy projects and necessary capital expenditures to continue moving the energy transition forward.
Under the status quo, there are currently plans to upgrade a substantial portion of the thermal capacity on O‘ahu, which will help address reliability issues. However, the proposed use of biofuels in these new and refurbished plants is expected to impose substantial costs on ratepayers. In recognition of this, Hawaiian Electric has reserved the option to continue using liquid fossil fuels at these plants.
The planned thermal capacity projects are critical to ensure grid reliability; however, HSEO asserts that, as proposed, the Stage 3 thermal projects and likely the IGP RFP thermal projects, will result in one of two outcomes:
- Higher electricity prices if biofuels are available and their costs are approved by the Hawai‘i Public Utilities Commission (PUC), or
- Continued reliance on liquid oil-based fossil fuels, such as low sulfur fuel oil or ultra-low sulfur diesel.
Hawai‘i’s 100% Renewable Portfolio Standards (RPS) and decarbonization policies remain central to its energy transition. However, the post-wildfire landscape highlights the urgent need for new strategies to ensure affordable energy, attract capital, and build a resilient, decarbonized energy system. In response, Governor Josh Green, M.D., tasked the Hawai‘i State Energy Office (HSEO) with developing a comprehensive energy strategy to reduce electricity costs and carbon emissions by accelerating the replacement of residual fuel oil in electricity generation and fostering investments in grid infrastructure and power generation.
Objectives
Key priority objectives identified early were:
- Costs: Compared to the status quo, the plan must stabilize costs and energy savings in the near and long term.
- Emissions: The plan must demonstrate substantial lifecycle greenhouse gas emissions savings.
- Capital: The plan must attract the appropriate private sector investment to ensure capital investments are made to improve overall system reliability.
This analysis informs the associated fuels and power options for an updated state energy strategy by independently studying the viable mix of low-carbon fuels and repowering options for balancing costs and RPS targets.
The continued development of solar, wind, battery storage, and other renewable generating sources must occur in tandem with a fuel transition to ensure Hawai’i has a diverse energy portfolio – strengthening grid reliability, stabilizing costs, and increasing affordability.
The study’s results do not undermine the existing RPS law.
Evaluation Approach and Criteria
For the analysis, all alternative fuels were on the table. The fuels considered included methane/liquid natural gas (LNG), hydrogen, biomethane, biodiesel, e-methane, hydrogen, e-ammonia, e-diesel, and e-methanol. HSEO and third-party consultants developed an evaluation matrix that served as a decision-making framework to compare alternative fuels based on:
- Technological maturity and commercial viability
- Scalability
- Technical Readiness Level
- Fuel Availability
- Transportation Logistics
- Cost-effectiveness
- Lifecycle carbon intensity
Fuels that were not technologically mature, scalable, or immediately cost-effective were not considered for detailed analysis.
Results and Findings
The results of HSEO’s evaluation of fuels and power plant upgrades based on the criteria of technological maturity, commercial viability, cost-effectiveness, and lifecycle carbon intensity are summarized below:
- Land availability and other factors indicate that local energy supply is insufficient to meet both current and forecasted demand. Accordingly, some energy imports will persist for both the electric and transportation sectors even after Hawaiʻi satisfies the 100% RPS.
- The current Hawaiian Electric grid and development plans have high carbon emissions primarily due to substantial reliance on LSFO as well as powerplant inefficiency.
- Planned thermal capacity projects are critical to ensure grid reliability and will provide some improved powerplant efficiency; however, HSEO asserts that, as proposed, the Stage 3 thermal projects and likely the IGP RFP thermal projects, will result in one of two outcomes: either (1) higher electricity prices if biofuels are available and the PUC approves their costs, or (2) the continued reliance on liquid oil-based fossil fuels, such as Low Sulfur Fuel Oil or ultra-low sulfur diesel.
- Power plants could be converted, and a new power plant could be built to run on natural gas supplied by a Floating Storage Regassification Unit (FSRU) and associated gas infrastructure.
- LNG emerged as the near-term fuel with the potential to cost-effectively reduce the State’s greenhouse gas emissions during the transition to economywide decarbonization in 2045, but more analysis is needed to quantify a range of potential benefits and to identify how those benefits can be maximized to residents at the appropriate level of infrastructure buildout.
- Policy guardrails will be necessary to ensure that lower carbon fuels, such as LNG, will enable economywide decarbonization by 2045, not distract from it. There is a narrow but beneficial, path for the inclusion of LNG in the energy portfolio. Its build-out should not allow for backsliding on the RPS.
Costs
Lifecycle cost estimates indicate LNG would result in cost savings for customers through 2045 under various alternative scenarios.
Lifecycle Greenhouse Gas Emissions
The import of LNG, as an alternative to LSFO, could result in as much as 38% to 44% reduction in lifecycle carbon intensity when used in more efficient power plants. Natural gas can be used as a replacement for residual oil until it is phased out completely by 2045, as local production of biodiesel is accelerated and technology advances for the import of green ammonia and hydrogen.
Future Pathways
The viable pathway replaces LSFO as the primary firm energy source; it must occur in tandem with renewable energy buildout. Increased energy demand in the forecasted portfolio assumes substantial electrification of transportation.
While HSEO’s findings suggest that using LNG on O‘ahu could lead to cost and carbon savings, they also highlight that the analysis depends on certain key assumptions and carries associated risks. These risks include:
- Acceptance by Regulators
- Acceptance by the Utility
- Environmental Review Completion
- Completion of all Permits
- Aggressive Project Timelines
Next Steps
- Public outreach and incorporating community feedback: community and stakeholder engagement is critical for identifying concerns.
- Integrating utility stakeholders such as Hawaiian Electric, Hawai’i Gas, and Par Hawai’i into the energy transition strategy.
- Further development of engineering through full Front-End Engineering Design (FEED).
Final Report and Supporting Documents
Frequently Asked Questions
The Alternative Fuel, Repowering, and Energy Transition Study builds on more than ten years of related studies, providing engineering and economic analyses, and evaluation of permitting requirements. It is one part of a broader effort to develop an energy transition strategy to support national security, safeguard energy infrastructure, increase energy affordability, and accelerate renewable energy adoption.
The study included the following main tasks:
- Evaluating technology and functionality
- Conducting economic analysis
- Reviewing regulatory and policy frameworks
The study’s focus was on assessing residual and diesel fuel alternatives. The fuels that were considered include methane/liquid natural gas (LNG), hydrogen, biomethane, biodiesel, e-methane, hydrogen, e-ammonia, e-diesel, and e-methanol. Solar, wind, and other renewable sources are a critical component of HSEO’s work. Their buildout continues to be a priority; however, they were not considered in detail in this study.
The study is not a proposed plan the actions discussed will require further analysis, pursuit by the electric utility, and appropriate regulatory approval. If pursued, it is likely many of the actions and concepts of the reports would be adjusted to meet the needs of the utility.
Public engagement will play a key role in any future project planning moving forward. Although community and stakeholder feedback was not solicited for this study, the study provides valuable data, background, and context to guide and inform future feedback. Future action will rely on input, collaboration, and support from residents, businesses, and community organizations. HSEO encourages anyone to submit comments and questions on HSEO’s Feedback Survey below.
Opportunities for public engagement may include:
- Community Meetings and Workshops – HSEO and others would host in-person and virtual meetings to gather input, share updates, and address concerns about the program’s goals and impacts.
- Public Comment Periods – Residents will have opportunities to provide feedback on policies, proposed projects, and key components of the decarbonization strategy during both formal and informal public comment periods.
- Stakeholder Collaboration – HSEO will work with community groups, businesses, and other stakeholders to ensure the program meets the needs of Hawaiʻi’s diverse communities.
- Equity-Focused Engagement – Special efforts will ensure that underserved and vulnerable communities have a voice in the process and equitable access to program benefits.
The subsequent downrating of Hawaiian Electric’s credit rating after the Maui Wildfire has increased the cost of debt financing for the utility and independent power producers, challenging the financing of future renewable energy projects and necessary capital expenditures to continue moving the energy transition forward. The credit and capital crunch exacerbate the utility’s increasingly low reserve capacity, raising the question of how these assets will be renewed in the near future.
Post-Maui Wildfires, a capital infusion into Hawaiian Electric over $1 billion of debt and equity is urgently needed to restore market confidence in renewable energy power purchase agreements and other critical investments discussed in this study. Ideally, equity investments would be from entities that are completely aligned with Hawai‘i’s energy transition and decarbonization policy objectives. Suitable candidates among public utilities would include those in the United States and among strong U.S. allies with stated objectives to be fully decarbonized and fossil-free by 2050.
Additionally, the current plan involves fuel-switching to biofuels (biodiesel or renewable diesel) with higher costs and yet-to-be-determined lifecycle carbon savings. While the planned thermal capacity projects are critical to ensure grid reliability; HSEO asserts that, as proposed, the Stage 3 thermal projects and likely the IGP RFP thermal projects, will result in one of two outcomes: either (1) higher electricity prices if biofuels are available and their costs are approved by the Hawai‘i Public Utilities Commission (PUC), or (2) the continued reliance on liquid oil-based fossil fuels, such as Low Sulfur Fuel Oil or ultra-low sulfur diesel.
Recognizing the unacceptable risks of continuing down the current pathway, Governor Josh Green, M.D., tasked the HSEO with developing a new energy strategy to reduce energy costs and carbon emissions in the electricity sector, post-Maui wildfires, while achieving two key objectives:
- Accelerate Hawaiʻi’s energy transition to renewable and carbon-free energy.
- Evaluate options to replace residual fuel oil for power generation and create opportunities for capital investments in grid infrastructure and power generation to ensure and enhance energy system reliability and resilience.
Governor Green made it clear that the new energy transition strategy must ensure that all future investments in Hawaiʻi’s growing integrated electricity system result in a portfolio of fuels, power generation assets, and infrastructure that provide affordable electricity, energy security, resilience, and reliability.
A crucial objective of the analysis is to identify how to lower energy costs when compared to the current plan, and to ensure any changes do not increase bills for residents. The impact of the larger energy strategy on ratepayer costs is a critical component of the analysis. Transitioning to LNG in the short term could lead to potential cost savings by displacing low-sulfur fuel oil, which is currently being used and is more expensive. Cost savings are more substantial if compared against the switch to biofuels. The full impact will be dependent upon any final contracts, regulatory approvals, and market conditions, including fluctuations in global LNG prices and transportation costs. Additionally, long-term cost implications should consider the infrastructure investments required for LNG facilities and the minimization of stranded assets as Hawai‘i moves toward its renewable energy goals. With the assumptions included in the report, including the tight timeline, cost savings are projected.
Moving away from oil to natural gas can reduce household exposure to oil price volatility. Natural gas fuel contracts and the portfolio approaches commonly used in the industry can stabilize prices and reduce short-term fluctuations. Further, LNG tends to be used in the power sector, versus the transportation sector, which is generally more predictable, resulting in less influence from short-term market changes, which the oil market is more sensitive to, thus resulting in price changes driven by demand fluctuations.
Solar energy projects continue to be the lowest-cost option, underpinning the importance of continued investments in renewable energy, and modern thermal power plants will complement low-cost solar on cloudy days.
HSEO carefully evaluated a variety of fuel options. Hawaiian Electric’s proposed plan utilizes biofuels as the primary firm energy source to meet the Renewable Portfolio Standard mandates. HSEO’s primary concern with biofuels is their additional cost to ratepayers. The uncertainty and variability associated with their lifecycle emissions are a particular concern for imported fuels and first-generation biofuels most abundant on the market.
Technologies were evaluated based on Technological maturity and commercial viability (scalability, technical Readiness level, fuel availability, transportation logistics, cost-effectiveness, and lifecycle carbon intensity. Fuels that were not technologically mature, scalable, or immediately cost-effective were not considered for detailed analysis.
Rooftop solar is a critical component of the energy transition. The installation of rooftop solar, particularly for low- and moderate-income customers, as well as the businesses and households impacted by the public safety power shutoff program, is a priority. However, rooftop solar alone is not adequate to meet electricity demand and reliability requirements for several reasons including:
- Intermittent nature of solar and storage needs: While battery storage technology is advancing and rooftop solar installations paired with battery storage are becoming more common, solar is still an intermittent resource. It is only available when the sun is shining. Meeting demand during long periods without sunshine and peak demand hours is challenging and has technical limitations.
- Limited roof space: Estimates indicate that O’ahu has approximately 3,934 MW of rooftop capacity available of installable capacity. However, even if all available roof space was filled, the technical potential does not meet the need on O‘ahu, which is projected to be about 4500 to 6500 MW in 2045 (estimated under aggressive energy efficiency and generous wind adoption assumptions in the 2024 HSEO Decarbonization Report, Chapter 4). Additionally, solar only works some hours of the day, and can be dramatically impacted by two or more consecutive days of cloud cover, even with battery storage.
- Transmission and Distribution Limitations: Rooftop solar systems are decentralized, which can present challenges for the grid in managing voltage fluctuations, ensuring adequate delivery from supply to demand, and maintaining grid stability. Technology is improving (e.g. smart inverters), and HSEO is working with national experts to push these technological boundaries. Hawai’i is a leader and pioneer in addressing this issue, and other electric utilities worldwide look to Hawai’i to learn how to integrate such a large amount of solar energy into the grid. For the time being, however, there are major technology and feasibility limitations that must be considered.
Cost: while rooftop solar can lower costs for individuals who install the solar on their roofs, it is not as cost-effective as utility-scale developments.
The renewable portfolio standard, as established by HRS §269-92, will remain intact. Any fuel switching under this strategy must include safeguards, or policy guard rails, to ensure the use of natural gas will be temporary. The state has a constitutional obligation to ensure a healthful environment that includes reductions in carbon emissions that meet schedules based in science through available technology. HSEO analysis shows that, although O’ahu may need natural gas to seriously reduce its emissions, renewable acceleration targets for Kaua’i, Maui County, and Hawai’i Island are better than gas infrastructure to more quickly move those islands to a low carbon future.
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