 This is Think Tech Hawaii, Community Matters here. Welcome back to Think Tech. I'm Jay Fidel. Here it is on a given Wednesday, and we always have energy in America on Wednesday. And we have Jeff Kissel from E-princk to talk about, gee, some very sophisticated issues you need to know about. It's not only that we study energy in Hawaii, but we should study energy globally and see how that affects Hawaii. Welcome to the show, Jeff Kissel. Thanks, Jay. It's very nice to be with you again. It's the same here. So let's talk about two things today, and the first would be the change in standards effective 2020 in LSFO, low sulfur fuel oil. There's one thing, and later on we'll talk about the tariff that President Trump just imposed on solar panels, both interesting, both affecting the U.S. energy markets, and both affecting Hawaii, right? So let's talk about the LSFO. What's happening? Well, this is a really interesting topic, because right now, international shipping is at an all-time high in terms of the amount of cargo being moved, the number of ships on the high seas, and of course, those ships run on oil. Unfortunately, they haven't figured out a way to get renewables into those ships. More importantly, today those run on high sulfur fuel oil, the International Maritime Organization, which is a group of ship owners, which is comprised of a group of ship owners and regulatory officials, look at all kinds of things relating to safety and fuel efficiency and sulfur content for the fuel. And the fuel itself today can range up to 3.5% sulfur when the ships are out on the open seas. And we're closer to the shores of certain North American and European nations. They have to bring lower sulfur fuel. But by and large, today, they're burning 3.5% sulfur fuel. Now, the sulfur fuel, the more sulfur in the fuel... That's 10 to 1.5% of 1%. And that changes the whole dynamic of fuel for Hawaii's power industry. Unfortunately, we have not weaned ourselves away from fuel oil for power generation. Even though we've added renewables to the mix, we're actually burning more fuel in Hawaii for power generation today than we did 10 years ago because the demand for energy is high. Unfortunately, that means higher prices for oil. So that's a real conundrum that we're going to have to deal with in 2020. And it could push rates back up to the levels that we saw them at when oil was approaching $150 and $200 a barrel. Even though oil itself is still around $60 a barrel. Well, is the low sulfur fuel oil a matter of the natural characteristics of the oil, or is it a matter of refining and processing crude oil into LSFO? Indonesia used to be a source for low sulfur fuel oil because the oil, the crude oil that they exported, naturally had fewer, lower sulfur content than most other crude oils. Unfortunately, Indonesia is no longer an exporter of crude oil. The crude oil we get from places like Venezuela, it used to be lower in the sulfur, has diminished for various reasons. So you actually have to run it through the refinery and scrub the sulfur out of it. But that isn't the real problem. The problem is when these ships... We're going to take a short break until we can reconnect with Jeff Kissell. This is energy in America. We'll take a short break, we'll be right back after we can reconnect. Sorry. This is Think Tech Hawaii, raising public awareness. Okay, we're reconnected with Jeff Kissell. Here we are in energy in America and we're talking about LSFO and how the standards are going to change in 2020 and give Hawaii a headache, I think. So isn't it possible, Jeff, for somebody at one end or the other end of the transit of this oil to make high sulfur fuel oil into low sulfur fuel oil by some kind of chemical refinement process? The refineries are capable of doing it. The point is the demand is going to go up from roughly half a million barrels a year, half a million barrels per day per year, to over three million barrels per day, per year. And that means Hawaii is going to have to compete with every ship on the high seas to buy its fuel. And that means higher fuel prices for Hawaii's power generated plants. Well, there's really no way around it. And that means markedly higher fuel prices. Close to the $200 barrel mark that we saw during the height of the fuel spike almost 10 years ago. What are we paying now? $50 and change? Right now, crude oil prices are around $60 a barrel. Fuel oil prices are around $75 to $85 per barrel. So that's more than double. So we're in for a big shock up. Yeah, more than double of what it costs now. That passes right through to the people who use electricity in terms of a fuel surcharge. But utilities quite rightfully have to pass along, otherwise they can't afford to make the electricity. What about buying futures? I mean, if I were a utility company, I knew this was going to happen in 2020. I would buy futures. Would that help ameliorate the problem? Well, many companies are. But regrettably, the Hawaii market is tied to the Hawaii refineries. And it's pretty much impossible to hedge that on the futures market. And what is the relationship of this whole change in standards to the Paris Accord and to the global movement to cut greenhouse gases and, I guess, sulfur in general? Is this IMO change a function of an environmental discussion and resolution at the Paris Accord? Well, yes, it's in response to the international treaties to reduce pollution. More importantly, the ships are moving toward a clean fuel renewable standard eventually. This is just one intermediate step on the way. You know, they're experimenting with LNG to move ships. They're experimenting with solar cells and a lot of other fuels. And they're determined to take as much fossil fuel out of dirty fossil fuel out of shipping as they possibly can. You're a prediction about the market. I wonder if this is the kind of thing where you ramp up to a higher price or whether it happens all of a sudden. In other words, should we expect prices to increase as we approach 2020? Or will prices just go skyrocket at 2020 when the new standards come into effect? They will start to increase probably not until 2019. But, you know, that's just around the corner. Yes, it is. And there's almost nothing we can do to stop it, except to redouble our efforts to diversify our fuel supply and move away from oil as quickly as we can. Unfortunately, the second barrel of the shotgun has just been fired by the president. And that is the increased tariffs on solar panels. So just as we were moving toward utility-scale solar in Hawaii, the cost for that is starting to rise as well and likely to rise very, very substantially. Yeah, that's really interesting because on the one hand, the international maritime organization is going to cause a huge increase in fossil fuel. And I was going to ask you the solution. And the solution is obviously to move to renewables at a faster clip. But now we've just been stopped from doing large-scale solar, community solar and utility solar because the cost of solar panels will increase by virtue of Trump's tariff, 20 percent tariff. So when you start doing the numbers, Jeff, what does it look like? 20 percent is just add 20 percent on the top. Is that what I do? How do I look at what it's really serious because the utility is entitled to earn a rate of return on its investment. So what used to cost a utility one million dollars is going to cost them one point two million dollars. And they're entitled to earn about a 12 percent rate of return on that. So you're going to be paying an additional 12 percent on two hundred thousand dollars per million. Forever. And if you look at the compounded impact of that, it's more than doubling the cost of the installed solar plant every three years. Solar today costs about twice what conventional fossil fuel generation costs in Hawaii. So you're going to take that and you're going to add at least one-third more to it. You're approaching a dollar-a-kilowatt hour, whether it's from fossil fuel or from solar. My goodness gracious. We scream and squawk about 30 cents or 40 cents or even 50 cents. Now you're talking about the combination of these two disruptions in our energy system going to cost a dollar-a-kilowatt hour. That's really hard. What kind of effect do you think that will have on the state? Well, the economists can measure it against the gross domestic product in Hawaii. But you're certainly looking at at least a one to two percentage point negative impact on the growth of that GDP. That means fewer jobs, lower paying jobs, lower investment in Hawaii's infrastructure, higher costs to operate transportation. You know that it's going to go through the economy. It's going to be very hard on a lot of people. Yeah, they say that an economy that has energy resources that are cheap, those energy resources that will allow the economy to grow. And of course, it's the other side also. If you don't have energy resources that are plentiful and cheap, that will constrain the economy. I guess that will come into play for Hawaii when we get pinched at both ends this way. It's not a good story. So let me ask you this, Jeff. What do we do facing these two disruptive events? Well, you can't change what's occurred. You can only look forward. And the way to look forward, in my opinion, is we want to look through the slide pack on this. But what you've got to do is diversify the energy sources. Just like you manage your IRA and your retirement savings accounts, you want to diversify. We need diversified energy sources for Hawaii. And they can be clean, should be clean. They may be fossil-based, but they also can be renewable. Hawaii's taken a great step forward with renewables. It needs to invest more in that. But we need to step away from the highest cost of energy, which is oil. And there are some alternatives for that, as we both know. Well, let's talk about alternatives. What comes to mind, for example, for me is if we can't get solar panels, say, from outside the country, I guess that's primarily China. Even Chinese companies here that would be buyers of the Chinese panels, they can't bring them in, except with that 20% tariff. We should consider what? I guess we can't go to Europe either, right? They make panels in Europe. We could consider buying them, but that would also be subject to the 20% tariff, I guess. Of course, the Chinese are making the panels in Europe largely. So it doesn't really matter. They've got a lot of things. One thing we could do easily is change the tariff and allow people to put solar on their rooftop and sell the power back in the grid. Because when I put solar on my rooftop, I don't have to give the utility a rate of return on that solar panel. It may cost me 20% more, but once I pay the 20% once, I don't have to pay it again and again. Yeah. Well, maybe that's the solution. Just pay the price and generate it back. What about the possibility of manufacturing solar panels in this country? We did that for a while, but I think it diminished as the Chinese ascended in their manufacturing. Could we do it again? Will this tariff have the intended effect, the effect intended by the White House, to improving America's manufacturing capability? Everybody says no. I'm not the expert, but I understand that if I'm going to have to invest three or four or five hundred million dollars in building a solar panel plant here and distributing it and putting all that investment in place, only to have the next administration change the tariff structure and put me out of business, we'd be very reluctant to make that investment. Yeah, that's true, because if the next administration reverses it, then you're in trouble and you've just made an investment you can earn a return on. So I don't imagine people are going to go out and do that. American capital won't go out and do that. Not with the volatility of this particular administration. Well, what about other sources or renewables? I mean, is this a time for us to reconsider the limitations on geothermal, for example, on a big island? Is it a time for us to look at ocean energy and deep sea water energy? Should we consider other renewables now? Is it worthwhile? We absolutely must, and that's part of diversification. It's geothermal, it could be wind, it could be energy differentials. The other thing that really people don't like to do is to be energy efficient. You know, you and I talked before, you put two people in the front seat of a car, you double the passenger miles per gallon. Well, it seems clear that we should do that. We should look at these other alternative sources. I think we've been, you know, in the last few years, we've been focused on solar. Solar's been our primary direction in renewables. And we haven't spent as much time and effort on wind, we should be. And on these other possibilities, geothermal and deep sea water and the like, ocean energy. So maybe it's time for us to do that. But my question to you, and this is a hard one, Jeff, I'd like to ask you hard questions. How do we get that through politically? How do we impress the legislature or the governor as a case may be with incentivizing these other renewable sources in order to avoid the pinch that we're going to experience between the solar tariff and the LSFO standard? Well, unfortunately, many governments make choices that have long-term consequences for short-term political gain. And in Hawaii, our government did exactly that. They said that we are not going to move to an intermediate fuel-like liquefied natural gas. They said we are not going to permit economic rooftop solar anymore. And we're going to move to total renewables without a plan to do it. And Jay, you know, that's just a formula for disaster. And the disaster now is right around the corner. I think people like you need to advocate for the kinds of sensible alternatives that will allow us to diversify our energy base. That's really where it comes down to. Yeah, problem is we're here in an election year. The problems you describe, disruptive events you describe are happening pretty quick and are going to have an effect pretty quick. But we're in an election year. Nobody wants to take chances in an election year. So it's hard to get the government to spend money on incentives. It's hard to get the government to take bold steps either at the executive level or certainly at the legislative level. So I think we're in a kind of problem. Let me ask you this. We've been having these conversations on and off for a while. You mentioned natural gas, LNG, for example. Is this a good time for Hawaii to consider or reconsider using natural gas imported from the mainland as a way to solve the, what do you call it, energy price crisis that we're looking at? Yes. There are a lot of alternative fuels to oil. There are clean ones and dirty ones. But natural gas, propane, ethane is a fuel that's in use. Even coal has a place as we move toward that renewable economy and move away from these fuels that are really not good for the environment and definitely not good for the economy. Well, you've left me worried, Jeff. We can continue this conversation and find other ways to solve the problem but I suspect that the pincher movement that you've described between the one thing and then the other thing and both things affecting the price going forward is going to happen without real political action and so we'll be walking right into the storm. And by the way, at the same time we should be building resilience on energy. At the same time we should be dealing with climate change and all the things involved, energy is one of those things. So this is a year, despite the fact this election year, this is a year where the legislature should be super active to try to handle these things coming forward. Any thoughts on that? Well, the only thing I can say is trouble comes in threes because in addition to the price spike in oil and the tariff on solar it might be time for a recession in 2020 and the economy might not be in the shape it needs to be to weather that storm. Are you talking about the Hawaii economy, the national economy or the global economy? Well, the national and the global economy. We've been steaming along at such a heavy cliff. It's hard to believe we can continue indefinitely and we can see our way through 2018 pretty easily. 2019 doesn't look bad but 2020 is early on in the year. Well, I wish we had a happier discussion today, Jeff but clearly we're going to have to carry it forward. Next time you're around let's have this discussion and check back and see how things are evolving after all. Energy is at the heart of our economy and our future so we need to keep very close tabs on it and that's why I think that Hawaii has to keep close tabs on you, Jeff Kissel. Thank you for staying in such shape. Thanks very much. Thank you, Jeff. Aloha.