 Perspectives on energy, and that is oil prices these days. I'm Jay Fidel, this is Think Tech, and more specifically, this is Perspective on Energy. And we have Guillermo Sabatier, and we have James Stanton to help us understand what is going on in the global oil markets and how the Ukraine has affected the global oil markets and how those markets are going to affect us. So get your pens and pencils out, and your credit card too, by the way, because this is going to affect you and your credit card. So welcome to the show, Guillermo and James, it's nice to see you here, appreciate your coming on. Guillermo, why don't you take it from here and help us understand? Thank you, Jay, for that warm intro, and it's great to be back. I missed a week, a couple of weeks ago, so it's good to be back. And then today we have James Stanton, of course, the Director of Advisory Service at HSI, and thank you for joining us today as well. So we really appreciate your input and also your help us answer a few questions as far as what we're looking at. So facing what we've got going on these last several weeks, as I'm sure everybody's well aware, we got quite the global crisis with the invasion of Ukraine and all of the issues that spun out of that, right? And one of the things that we're looking at is now it's Russia being a big oil producer and most of the world ended up being dependent on that supply of oil. Now that we're not buying, most of us aren't buying oil from Russia anymore, it's certainly changed the spot price on the market for oil and petroleum products. So how does that impact utilities that are smaller islands like Hawaii or the Virgin Islands or the Caribbean or other islands in the Pacific that mostly rely on diesel for their generation? I mean, they make great strides towards the process of becoming independent and also having 100% renewables. Most of them are not quite there yet, right? So one of the things we wanna talk about today was just how that particular challenge is facing the ratepayers in Hawaii. And one of the most things you might see and you may not have seen the effect just yet on your energy bills because it's been less than a month, right? This all happened. So as the most utilities have that pass through fuel charge and you may see that as well in your electric utility bills once you get them. So we're here to discuss what we're looking at as far as the next couple of weeks, the next couple of months, really. Hopefully the situation get back on the patrol. Maybe we'll find some other sources of petroleum or production steps up. But in reality, while Hawaii is still highly dependent on imported petroleum products for their electric portfolio they're gonna be subject to these fluctuations. Now, one thing I was gonna refer to Jim on that is we have something similar happen. There are parallels to the mainland. The one thing was Hawaii. I mean, it was a ERCOT, which is Texas. And they themselves are a smaller interconnection compared to the other two. And they had a fuel supply issue. They had a freeze issue. Nancy, if Jim can tell us a little bit more about that, if you could, please. Sure, Guillermo, happy to weigh in. And that's a good point you made about the energy prices and the spot prices here in Texas that we have thousands of producing oil and gas wells here in the state. And our prices are just the same as other folks because it's all based on that index price on the spot market. So just having thousands of oil wells nearby is no guarantee that you're gonna be insulated on these fluctuations. So that's one thing, and you're right. In February of last year we had a cold wave come through Texas which was really unusual and caused some freezing problems, especially for fossil fuel generators, coal generators, gas generators. And it also froze up some of the gas lines supplying those generators. So it was sort of a double whammy. And it was a big wake-up call and we even had a couple of hundred people die in the state from cold exposure and thousands and thousands of homes with the pipes burst, froze and burst. And so now the steps are being taken at the Public Utility Commission here in Texas and even on a wider scale with NERC, the North American Electric Liability Council to put in place some measures, not only to take steps to preserve the integrity of generation in extreme weather but also to come up with some more firm fuel type products and options that generators can take. So that's two things that are going on right now. Thank you, Jim. And there's several options, right? Some that are in effect right now. For example, HECO has a performance-based regulation that just came into effect late last year and it's definitely a great thing. It aligns more with the mainland practices are when it comes to its favorite performance really, when it comes to the how the utility performs, right? It's more under a cost-based billing. It'll be more like a performance-based billing. So a little bit of profit sharing and that's great for the customers, the utility and all around the progress towards that renewable goal. But even then that may not soften the immediate blow when it comes to its past through fuel charges, right? Especially with the majority of the diesel. So in the near term, some of the things that the items may be looking at really is from what I can see is perhaps expanding the storage options, whether it's existing batteries, some of them are lithium-based or some other potential chemistry. In the next show, actually the guest is gonna be the senior VP of energy storage solution, no energy storage systems, I'm sorry, Hugh McDermott. And he'll be talking about that particular option, but in reality, these energy storage is indeed a really effective compliment to the variability of wind and solar, right? But even then that's not enough to make it to that 100% renewable goal. And so you still have the compliment that was something else and that geothermal seems to be a really, really promising resource in Hawaii. Of course that isn't without its controversy, right? The Puna facility had shut down back in 2018. It's back on as of June, 2021, producing 40 megawatts. They can produce a whole lot more. But then again, that will be more than what the island consumes, right? So and there will be a single source supplier challenge there will of course be doing other facilities and the rest of the islands and it may be interconnecting them. So along with that, a submarine transmission cable or a series of cables would certainly be the answer. But of course that also isn't without its controversy. So that in itself, now there are definite benefits, right? To being interconnected. And the whole reason, for example, the mainland has the eastern interconnection, the western has the western interconnection and even ERCOT on its own has its own interconnection that connects to either one through these small DC ties that are rather limited. But even then they're able to rely on each other for some mutual aid whenever there's an issue. So the way the islands are now, they're basically just these micro grids compared to what we see here that are highly susceptible to disturbances, right? And not to mention the fact that they're also, they have to rely on this expensive generation to be able to handle the dispatch and the swings. Now, given that, right? It's, and I wanna ask Jay and his particular question. So Jay, what is the appetite for these submarine transmission cables to interconnect the islands? I remember there was a project years ago that died. There was a project again when next there our energy tried to acquire HECO. And that was one of the things they had on the table. And that also kind of like there was a lot of obstacles with that and understandably so. So will it be the appetite now for something like that? Not much appetite. No. This is, you know, this was a controversy. I don't know if it works this way politically, socially, industrial and mainly. Culturally too, Laura. Thanks. You know what happens is you have a big controversy. Activists come in, you know, there'll be lawsuits and a lot of media coverage and then if the activists win and the project is stopped, which is what happened here, it becomes radioactive. And for the future, nobody can get up to it. No, nobody can sidle up to it. Nobody can support it because it's been radioactive. And it takes years, decades, a half-life, if you will, to get that project going again and sometimes never. So I think I would put undersea cable, which, you know, we supported it and a lot of people who appeared on our ThinkTech shows supported this project, but there was opposition to the extent that stopped it. And I don't think it's going to start again in the near term. I mean, there's definitely work to do there, right? And really it's a lot of, from what I've seen, it could strongly be a perception issue. And that's never an easy thing. I mean, there are other examples where it's successful like the Transbay cable in San Francisco or California. There's another one that connects, for example, the UK to France, I mean, many, many cables in our way as for the things. So that, you know, and there's a lot of communications cables that interconnect all the islands already, right? So it's really the perception of laying yet another set of cables between the islands that definitely gets people around though. But, you know, there's always the upside, right? Where it works, it'll, you'll have greater reliability. You'll be able to meet your renewable goals a lot sooner. And then of course, it's the ultimate benchmark of having prices per kilowatt hour significantly reduced, right? And that's definitely a difficult thing to balance, right, I think. And looking at that challenge, it's, I still think as a challenge that the atoms would benefit them greatly to reexamine and look at it again at some point with, with. Well, I agree with you absolutely because it is obviously an efficient solution. And it would create a statewide grid. It would mean sustainability and resilience for the system. It would save us in times of, you know, natural disaster or otherwise. And so we really ought to look at it again. Yeah, and along with that, it's the same level of controversy, right? When you look at, for example, geothermal such as Puna or even in the other islands, right? It's really difficult to get those projects at a, at a capitalized cost scale that makes it worthwhile, right? If you build it too small, it's almost not worth it, right? Building it too big, then you just can't, you can't put those megawatts. You got nowhere to put all those megawatts, right? So it's finding that that sweet spot at the size of the facility that'll definitely make it worthwhile. And aside from the economic aspects of it, it's just something that, of course, to get it approved. That's another challenge as well, right? So, in Hawaii, all projects go through the gauntlet. And sometimes it takes so long to get to the end of the gauntlet that they give up many times. They give up parents. Well, it's, it's definitely a challenge, which, I mean, the way it's set up now really is, it's even throwing up a solo or a raise, right? Out there to reduce the cost of what they're paying, ultimately is a matter of, it also has its controversies too, because now you're placing these facilities in potentially sensitive areas. And then you only have a certain geographic response actually that are favorable for that solo or a raise. So then you have that controversy. And then even battery storage itself, right? It's, a lot of it currently is not very cost effective. They have a very limited number of cycles. There is new technology and that whole iron flow chemistry that we'll talk about in the next show. See, it looks to be very promising, very cost effective, highly reliable. And it's a lot far more far safer than the existing options right now. So that may be something that's a saverable and may serve as a good interim solution or something to add to the mix, but it's still not without its challenges, right? These things are the size of shipping containers. And so you begin to throw those next to like a wind farm or a substation or any other generating facility to augment the capability of these places. And before you know it, right? It begins to look like a, like a seaport, you know, with a lot of these. So hopefully my next show, the guess I'm gonna have will be able to clarify and show what it is that they provide, but it may be a good option for the island to look at. But at the same time, you know, it's these things, I mean, they're, we all have these goals of hundreds of renewable by a certain, I think it's 20, 30, 30 or 20, 40 for Hawaii. 20, 40. 20, 40, right? So that is- Actually 20, 45. 20, 45. Really two goals. One is 20, 40, one is 20, 45. So and those, you know, as we come across these challenges and things that we come on the way, I mean, it's the other thing that Hawaii has to deal with, of course, is the issues with weather, right? Jim and I are both very familiar with hurricanes. Me being in Florida and he being in Texas, you know, we see that quite a bit. So that's another aspect, right? That eventually has an impact on your bill as well, right? So getting ready for that. And Florida, for example, a lot of it is natural gas or constant, so all we see is the majority of our portfolio is natural gas. Whereas in Texas, it's got a greater variety of sources, right? But I can just imagine with Hawaii, it being mostly diesel fuel that's imported because it's also no drilling anywhere near Hawaii from what I imagine, right? So that definitely has an impact. So where we are, GMO is in solar and batteries, you know, for single family homes and maybe some condos are coming into, you know, play. And the regulators are allowing that. The utility companies are encouraging that. Kauai is largely solar. Oahu, not so much, but getting there and the big island, yes. And, you know, if you look at the mix in the portfolio, if you will, it's weighted to solar in terms of the renewables and it will probably increase in solar, which makes a geothermal a bit of an issue. Because if you rely on geothermal and then for some reason there's another eruption, who knows what, then you don't have a backup on it. But I think that's where it's going. And I would really be interested in hearing from you guys about, you know, the vision you would have, including an undersea cable for Hawaii. What should we be focusing on? Where should we put our, in what basket should we put our eggs? What should we spend our money in and how can we get there? Oh, I've done a lot of talking. I'm gonna let Jim answer that one first and then we can put it on the spot, but go ahead. No problem. Just from what I've heard and what I've learned when Guillermo asked me to get involved with this, the undersea cable seems to be the, like the engineering slam dunk for a lot of the issues about building generation, capitalizing on capacity, sharing back and forth, increasing reliability. We're kind of an island here where I live in Urquide in Texas. It's a big island with about 75,000 megawatt peak load, but we are not connected to the rest of the mainland except through some DC ties. And those are mainly to help shave peak demand and that we share back and forth with the Eastern and Western interconnections. Barring the slam dunk of the cable, probably the stories that Guillermo talked about and I think he's gonna go into a little bit more next week. That does a lot of things. You can build the generation even above the capacity of your load and store it and schedule the discharge, we have nighttime, daytime, whatever, it gives you a lot of flexibility and at least in our business and we help people integrate their resources into the grid and help them with some regulatory issues. Probably 90% of our business in the past two months, new business has been battery storage, customers getting set up. Just in the county that I live in here in Texas, there are eight projects currently under development. Are these utility projects or community projects or individual projects? Independent power producers and a lot of them are coupled with either an existing or a solar facility co-located. So like we'd be standalone batteries or they can be co-located with a solar or a wind facility and so to help them manage their dispatch and be more available around the clock and it takes care of that, to a certain degree, takes care of that variability which has always been kind of the issue with renewables whether it's wind or solar. But I mean, it's just, it's going crazy here. Battery storage is, it's not coming, it's here and it's getting bigger every day. Does that mean you don't need to be concerned about interconnection with outside of the immediate grid? Because I remember that in the Texas blackout what a year ago was it? You know, one of the big issues was not being connected and not having the infrastructure to connect to other grids elsewhere on the States, what have you. I certainly agree that we could use an undersea cable but it seems to me that the technology may be going to smaller grids that are not necessarily interconnected but that are more resilient. Your thoughts? No, I think that's true as well. I do think the initial slam dunk would be the cable but with the introduction of the batteries and the higher flexibility you have in dispatch it does make the microgrids more capable, so to speak. So you're not, the risk of being exposed to that variability goes down a lot and it's just defining where that kind of critical point is to say, okay, we feel like we're pretty independent right now given natural disasters and so forth but for the most part, I don't know that it's gonna take that long to get to that point for some smaller type entities, microgrids and so forth if they can get these batteries up and running. And like I said, they're being built like crazy here with what we in our kind ever get to that point. For the most part, blackouts for us are at the distribution level and our result of hurricanes. It has nothing to do with generation. It has nothing to do with transmission. It has to do with trees falling on power lines. Right, a year or two ago when Maria, did I tell you about this Guillermo? When Maria came around to Puerto Rico. Yes, there were these huge solar farms and some of them were built with a certain kind of fastener and others were built with another kind of fastener. And I suppose one of them was built for the more expensive fastener and another was built with a less expensive fastener. And after the storm hit, they noticed that the ones with the better fasteners stood in place. They were not destroyed. The ones with the lesser fasteners were completely wiped out, destroyed, had to be redone. And so to the extent of making a microgrid in Texas or elsewhere, that would stand up against storms and certainly Hawaii is at risk. You really have to use the best, most sustainable, most resilient infrastructure that you can possibly find. Anything short of that, you're exposed. Well, not only that, a lot of those facilities in Puerto Rico, a lot of the distributed energy resources that were on rooftop solar, a lot of those were already built up to code. So they blew off. And in Florida, for example, you want to throw panels up in your roof. It requires a permanent inspection and then it's a license installer and a sort of thing because of the fact that if you're not careful, you're putting a giant sail on your roof that can not only get ripped off but that potentially rip off your roof along with it, right? So because of the hurricanes. So I'm sure Hawaii has the same challenge, right? And given that, right, it's ultimately when it comes to utility scale solar, that's one thing that utility dispatches. But when it comes to distributed energy resources, which is a customer having their own solar and even battery storage at their homes. Now, not only are they, they're very micro, tiny micro or nano grid, if you'll call it, but they also have the ability to be dispatchable for the utilities, which now means that they can work in synergy with the utility to provide power or store power or even be available for the utility during times of shortages, which everybody wins. I mean, the utility avoids having to build the power plants or new transmission lines and the customer has its obvious benefits as well. But then again, that requires a lot of new additional regulation that now will penetrate into the distribution site. And that's quite a bit of what Jim dip those into is the regulatory advisory services, right? And what we're seeing now is FERC is expanding its scope of compliance, you know, further and further into distribution. And we'll see that quite a bit in a few coming years. It's gonna be more apparent, right? That they're subject to these regulations and more. Well, I think we need more energy to need cheaper energy around the country. If we're gonna rebuild our manufacturing base and improve our economy. And so, you know, where utilities used to be, remember the day when utilities were a grandmother stock, utility stock and flip coupons and it earned, you know, a point and a half, you know. Long term investment, right? Yeah, that's not so anymore. It's a very important industry and it's connected at the hip with our economic future. Totally. And it's undergoing a lot of changes, quite a lot of changes. Yeah, to say nothing of all the technological changes. Oh yeah. But the thing with the oil now, that is going to, let's assume, you know, these sanctions stay in place. Let's assume that Europe just stays in a coalition and they're not gonna buy Russian energy. But of course, oil is fungible. You don't know exactly how the oil is getting into the system. It could be getting in through the spot market in any number of ways and Russia can sell the oil. I don't know where this market is gonna go. Where do you think this market is gonna go in? And what effect is this market gonna have A, on gas prices over the next six months? And B, what effects are gonna have on national policy over renewables? Much. Well, if I may, it's, I think it's gonna, it's going to force the current administration to revisit what their policies are on oil. Hopefully, I think coming out of all this, I mean, there's gonna be a greater balanced approach. Yes, still work towards a renewable goal, but at the same time, it have a balanced approach, right? It's, there's been a lot of blaming, of course, on both sides, right? So, one attacks the industry, the other one attacks, you know, it's a foreign powers. But the truth is, there's a better way to handle this on both sides, right? And it really is a balanced approach. And it may require a little bit more production on our side, right? So the U.S. becomes another net exporter of energy. And, you know, while in the meantime, right, we still, you know, this will stay fresh on our minds, right, this vulnerability of being subject to another country's whims that has an impact on all of our economies and all of our securities, right? So I think this will change things, hopefully in a positive way. That's my naive perspective, I think. I hope not, but it's definitely a place that I think we're going to be headed to. And I'm anxious to see what will happen in November, right? Because that's going to be the midterm elections and that will definitely have an impact on what the result of that will be. So I think before then we'll make some changes because it will be important enough based on that. And I think we'll come out of this in a few months. I think I'll hold on better, I hope. Jim? No, I agree. And as Jay mentioned, that's the interconnectedness of this worldwide market for oil. You can't just point to one place and say, that's the reason. That's where the spot price is. That's where the scarcity is. That's where the transportation pinch is. It's too big and it's too interconnected worldwide for that. So I think it's going to be a global response, whether it's increased production coupled with a decrease in demand. I mean, that's the two sides of the coin. And so looking forward to seeing that happen, hopefully in the next four to five months, seeing, I noticed that here, our gas price went down a dime a gallon from yesterday. So it's starting to go the right way. You never know. Yep. You know, a quick story. My wife and I bought a Tesla Model 3, the cheapest Tesla you can get, right? We bought it back in January because we were like traumatized by the fuel prices back in November. So we bought it in January, began to monitor how much it costs to fuel the power of that thing up. And we did a hypothetical of what we will be costing us today. And it would justify, it's just amazing the savings, right? Just starting to fuel it alone, right? So that makes such a difference. I mean, but at the same time, now the cost of a Tesla has gone up at least 10% they say so. Supplying demand changes everything. Should I buy an electric car, Guillermo? You know, there's a strong indication that I think it might be a good idea at some point. Long trip, long trips. Don't go on long trips. Ranging anxiety, still has to be crazy. Well, we're almost out of time. Let me ask you guys to, you know, tell our viewers your takeaway, what you want to leave with them today about oil prices and utility bills and where they are and what affects them and how people in general around the country will be affected. James, why don't you go first? Okay, thanks, Jay. I think it's encouraging that there are some levers to pull as far as innovation is concerned with the oil consumption, with the way utilities operate, the resources that are available to them are continuing to evolve and become more efficient and more widespread. So I'm optimistic about the future. Like I said, there are just more options to explore now than there were 10 years ago and I think it's going to be an exciting time in the next few years. Absolutely, in so many ways. Guillermo, what would you like to leave with people? I think Jim put it best and what I'll add to that is, I think this may accelerate certain changes while at the same time, refocusing the balanced approach, right, towards the renewable energies goal and, you know, there are places where people may have to take a second look, a more objective look, for example, at the submarine cable or even the geothermal resources in Hawaii, for example. And then there's other things here in Florida, for example, we're far too dependent on natural gas when it comes to generation. So more diversity there is called for. So... Are we in a position, Guillermo, to sell natural gas to Europe to... We have it already. Ah. We already have it. Yeah, we get it. They liquefy partnerships and ship it over. Ah, okay, okay. All right, great discussion. Guillermo Sabache, James Stanton. Guillermo with HSI in Florida and James with HSI in Texas. Thank you very much, gentlemen, for joining us. Thanks for having us. Aloha.