 Here we are on a given Wednesday, right after Christmas, and we have Lupu Uriisi, E-prink, a think tank in Washington over energy on the hookup here, and we're going to sort of get back to business here again today on a Wednesday. And he was here last week, so I got to see him again. It's wonderful now. It's not the same thing to see him on Zoom, but we like him anyway. Welcome back to your show, Lou. I'm happy to be here, Jack. So today we're going to talk about what happened to oil prices, which is a really good question these days. And of course, inherent to that is, what do oil prices mean to us these days globally and here in Hawaii? So what do you think? So I think that it's quite interesting, because if you were around in the early part of 2018, oil prices were rising, all the investment houses were talking about $100 oil. On the U.S., there was a big expanded production, some improvements in Libya, the Saudis increased production, and OPEC more or less lost control of the market, or the Saudis probably encouraged that, given their relationship with Trump. In any case, we have seen a rather substantial decline in oil prices. I'm going to talk about what that means not only for the world, U.S., but more importantly for Hawaii. So I thought we'd start out first with some quick facts on Hawaii, which is our first kind of slide up here. And you can see here, and I think it's very important because there's a lot of discussion about renewable power, but still you're going to see that oil prices and the very important products produced from them, gasoline and low supply fuel oil or diesel fuel, mean a great deal to the state of Hawaii. But anyway, Hawaii is the first state, by the way, to set a deadline for generating 100% of its electricity from renewable sources. It is actually the lowest residential energy consumer because of your very moderate climate. Solar provided half of Hawaii's renewable generation in 2017. That's half of your, you are still largely generating your power. I think almost 80 to 85% from fuel oil and coal. But why is one of the seven states with a utility scale generation from geothermal? But anyway, the geothermal is offline right now because of the eruption a few months ago. You do have the highest retail power prices in the country, but you don't use a lot of it. So let's go to the next slide here. So you can see the rather remarkable change in prices of crude oil. And the three benchmark prices are shown there. You can see Brent, which is the North Atlantic priced out in off the United Kingdom, more or less. WTI, which is Western Texas Intermediate, basically crude oil has priced in Texas. The OPEC basket and these vary by several dollars, largely due to quality differentials and logistics and transportation. Where does LSO fit on this chart? So basically LSO is you'll find out, and I'm going to show you in the next chart, that both low silver fuel oil and diesel really track very closely. We have some data on that. And gasoline, both of these fuels, however, are more dependent on what we call the feed stock, crude oil, than any other feature. In fact, that might be a time to go to the next picture. OK. And so this next picture shows what do we pay for a gallon of retail regular gasoline? How do we, you know, contribute cost component? And what are the contributing cost components to on highway diesel fuel? Now, when you burn diesel fuel or low sulfur fuel oil in your power plants in Hawaii, you don't pay taxes on that fuel, unless they're generated. You don't pay federal taxes. Perhaps the state of Hawaii collects some taxes. I don't know. But I think it's important to understand that, yes, over time, you can see, if you look at the blue boxes, right? The contribution of the main feed stock has declined. And the reason for that are twofold. In the case of gasoline, taxes are taking a bigger piece. So if you look from twenty eighteen to twenty seventeen, the average federal and state tax was about fifteen percent for gasoline. Now, in twenty seventeen, nineteen percent. Twenty eighteen, you know, prices have come down. This is the data from twenty seventeen and also for diesel fuel, federal and state taxes, which are a bit higher for diesel fuel. And the interesting thing that you look at this distribution in marketing and refining costs, that has that percentage of that has risen. Most of that has to do with fuel standards like effort at all and new specifications, which have risen the cost for those fuels. So but once again, the main component continues to be the feed stock, which is which is cool. Now, this is the kind of important for Hawaii to go to the next chart, right? So if you look at Hawaii, Hawaiian energy consumption by NU sector, right? If you're a Hawaiian consumer, you generally buy fossil fuel energy in two pieces when you fill up your car or in your case, your large yacht, J. And when you fill it up with diesel fuel, you know, that, you know, about half of the energy consumption in Hawaii is in the transportation sector. Yes. I think it's very important. So gasoline is important. It's very important to price a gasoline for a while. But a good, a good, the remaining part of energy consumption is in residential, commercial, industrial sectors, and that is largely, not entirely, but largely electricity and power consumption. They say that we that we send six billion dollars out of state every year to pay for fossil fuel. That's what they've been saying. So when you tally it all up between cars and a generation of power, that's what you get. And it's not so bad. You figure the GMP, the state gross domestic product is about seventy seven billion, I think, so on the state budget is something between, I think, eleven or twelve or something like that. That's the government budget. You see how much how much money is involved in fossil fuels. Yeah. Yeah. Now, the interesting thing is if you go around the United States, if you go to the next state, I mean, taxes are a big piece of the gasoline bill. And I think the interesting thing here, take a look at state gasoline, the next chart, which shows a state gasoline tax as a percent as of February twenty seventeen cents per gallon. And, you know, things are pretty expensive in Hawaii. But the interesting thing I thought about this chart is the state of Hawaii does not have relatively high taxes on gasoline. In fact, you are one of the lower ones. Let me compare it to Pennsylvania or the state of Washington, even, and of course, California is up there. So the state of Hawaii has pretty, you know, it's gasoline tax is pretty low. And that may reflect the fact that a lot of people in Hawaii must travel a considerable distance these days as a real estate cost to do their job. And it's politically an important issue, I presume, for the state. Oh, yes, it is for sure. Then we look. So then I want to look a little bit more at net Hawaii, net electricity generation by source through September twenty eighteen, and this data is from the Energy Information Agency of the U.S. Department of Energy. So it's very credible data. And we've talked on many times. I can't believe how many times we've talked about renewable power and how it works and what it means and how important it is. But the bottom line is, right, you are getting over six hundred thousand megawatt hours from petroleum fire power, right? You're getting over a hundred from coal fire and then about a hundred from non hydroelectric renewables. So we got a long way to go to replace replace petroleum with renewables. So you're not at 100 percent yet. So I think it's important to keep this in perspective. So what happens to fuel prices is really important in the power sector. Transportation sector. We sort of shown that, but also in the power sector. You are not free of this burden, so to speak. And another state which has experimented extensively with renewables is the state of California. And I want to show you some data from there on the next chart. If you look at electricity prices in California and compare them to the rest of the United States in California, it does have access to low cost power, but they have chosen not to use it. They have access to lots of natural gas. They could import that. They can import power from other states. They can generate their own. But it's very important to see that sometimes a renewal just because something is inexhaustible doesn't mean it's inexpensive. And you can see in California that electricity prices since 2011 have risen about five times faster than the rest of the United States. Why this is large? This is largely driven to it's a very expensive and an extensive commitment to renewable power. Renewable power looks good on paper, but as I will show you in the second half of the program, it does come with some costs for which the proponents don't always reveal what those costs are early on in the process. Let me ask you, when you say there are special costs for renewables, you including the cost of building the infrastructure for renewables because that'll have a useful life, you know, of longer than, say, one year. So we can look at levelized costs. So I want to show you a chart with levelized costs, which is the right. You're absolutely correct. That's the way to do that. And we also want to look at the cost of the addressing intermentancy. When we look at those two costs, so yeah, it's possible you could argue that with built into the California higher cost numbers are quote investments, which are not paying off yet. But largely the way a power is funded is with a long term levelized cost estimate to consumers. So I don't think you're going to get a big bump in productivity improvements in California. And we'll talk a little bit about uncertainty on prices. You know, I actually do think a renewable port, a portfolio of power, which includes a lot of renewables, depending on your endowment makes sense from price diversification. I think it's an entirely foolish idea to go to 100 percent. Well, let's go to California. California is, you know, interested in renewables. It's got this chart showing that it's paying more than the rest of the country, which is, I guess, more less on renewables, more on fossil fuel going forward. What can Hawaii learn from the chart you showed us about the comparison of California prices and national prices? I think the thing they can learn, and we're going to talk about that a bit in the second half of the show. But I think the fundamental thing they can learn is you should have great caution when you look at numbers with point estimates and have some understanding of the variability around those estimates that are out there because you're dealing with new technologies often. You're dealing in which people, engineers and people of even goodwill do not have a lot of experience in really understanding what the true costs are or how they'll actually perform. We have this problem of nuclear power, of course, right? Nuclear power looks terrific, but we cannot contain its cost often. And could argue that's a regulatory issue. You can argue it's an engineering issue. The loss of bad management can go on and on. But in fact, this stuff sort of happened. Well, I can hardly wait for the second half of the show, Lou. This makes me want to take a break all the more quickly. So let's take a break now. That's Lou Pugliariso, you drink. We take a short break, we're going to come back and we're going to find out what all this means to Hawaii. We'll be right back. Aloha, I am Howard Wigg. I am the proud host of Cold Green for Think Tech Hawaii. I appear every other Monday at three and I have really, really exciting guests on the exciting topic of energy efficiency. Hope to see you there. When I was growing up, I was among the one in six American kids who struggle with hunger and hungry mornings make tired days. Grumpy days. That kind of days. But with the power of breakfast, the kids in your neighborhood can think big and be more. When we're not hungry for breakfast, we're hungry for more. More ideas. More dreams. More fun. When kids aren't hungry for breakfast, they can be hungry for more. Go to hungarees.org and lend your time or your voice to make breakfast happen for kids in your neighborhood. Hi, I'm Ethan Allen, host on Think Tech Hawaii of Pacific Partnerships in Education. Every other Tuesday afternoon at 3 p.m., I hope you'll join us as we explore the value, the accomplishments and the challenges of education here in the Pacific Islands. We're going to find out from Lou Puyarisi what it really means. And we're going to focus on exactly what this says about our 2045 100% renewables goal. OK, ready, Lou? Yeah. OK, so let's let's take a look at what the cost of a levelized cost of new generating technologies in 2018, using what we call $2011 for megawatt hours. Just a way to adjust from question. So let's put this next chart up. This chart is an interesting chart because it's done by the Super Energy Research and we know them. They're very good, but it's really driven off a very extensive data from the U.S. Department of Energy. The... And I'll tell you a couple of things I was surprised by this. But anyway, what we're trying to do, what they're trying to do with this chart is look at two kinds of technologies. Dispatchable technologies. Let me see if I can get this up here. And non-dispatchable technologies. And you can see here that when you try to look at... You're going to try to look at all four aspects of investment. Transmission investment, variable overhead, and, you know, maintenance costs, levelized capital costs, and fixed operations and maintenance, you know. So... And then you look at non-dispatchable technologies and you ask yourself, OK, what... You know, what... How do these compare based on the data we know today? I'm not saying some of these technologies can't get more efficient over time. And I think it's very interesting to look at the comparison of the dispatchable technologies and the non-dispatchable technologies. Most renewable fuel is non-dispatchable, right? Right. It is non-dispatchable because it is... It's intermittent and it's unpredictable. You know, I think solar is not really unpredictable. It's pretty predictable when the sun goes down in Hawaii. But I think what's interesting about this is you can take a look at, for example, conventional coal, advanced coal. And I think the main competitor here on the mainland with renewables is conventional combined cycle and advanced combined cycle. And when we say combined cycle, these are natural gas-fired power plants which have the capacity to ramp up and ramp down relatively quickly. And they can operate at a high level of efficiency running natural gas. Now, hidden in this data, hidden in this data is a series of assumptions on fuel costs, right? Natural gas is relatively cheap in the United States. Everything would argue it's going to remain cheap. We just... our reserves are so massive. And when you compare dispatchable to non-dispatchable technology and you include... And I think there's pretty good news in this for some of the renewable folks. And that is the transmission investment does not seem to be that high. But the transmission investment is relatively small. Why would it be different? Why would it be the transmission investment be different at all from transmission investment for fossil fuel generation? Well, in many cases for the existing infrastructure, if you have distributed energy, you're going to need more power lines. You're just going to need a different distribution network. I see. And that distribution network can be more expensive. That makes sense. And it's not... But I do think the... What's interesting is the O&M costs and the variable O&M costs, including fuel. You see the non-dispatchable technologies in order to meet the requirements of having this availability through batteries or backup fuels. They must go ahead and spend money on backup fuel. The other interesting thing is their operation and maintenance costs are quite high. And this is... So you often see these bids in which people have a very low... When they're bidding, they're bidding variable costs. Solar, whatever. But you're not seeing the full cost, either because the government's paying for it or it subsidized directly, or the capital cost was taken care of in some other mechanism. And what you're talking about is batteries, other kinds of storage, and the electronics can make it firm. Yeah. Right. But I would say the battery stuff is not in here yet. OK, really, I don't think EIA really thinks we have good data yet on batteries or that. We're at the point where we can cost them out in any reasonable way. So the chart... This is even without... The chart that you were showing a minute ago for the costs on fossil fuel versus renewables. On the renewable side, it does not include the infrastructure, the cost of putting the infrastructure in to make the renewables dispatchable. Or does it? So, no, it does. It does include this. For the non-dispatchable technologies, these, in order for them to be usable in an effective way, they have to have backup. And that's included in some of this. And you can see that in the variable of O&M costs, which are actually not... Can you see that chart again? I'm going to take a look at that chart again. Yeah, so I would say, yes, that is not actually... Those charts really just include the transmission investment fixed O&M and levelized capital. You're right, it's not... We don't have the backup fuel costs in these yet. Well, when I get out of this, taking together with the chart about California renewable, the cost of developing renewables in California is that you have to spend a fair amount of money on developing renewable. We always knew that. But then you also have to build that into a comparative pricing analysis. And I'm not sure we've done that. No, I mean, I do think it's really hard for politicians to be fully open with their community. And because they're trying to get something done and they can't say, well, you know, this is kind of risky, it might be expensive. It's much better to just say, look, this is better than fly spread. You should go for this. I promise you, it's going to be fine. That's the nature of politics, isn't it? You know, politics is short term planning. Energy has to be long term planning. And the time is not necessarily mixed. I do think it would be a lot better to just try to educate the public. I mean, actually, people, you know, the citizens, they're willing to take some risks, but they just don't want to be. They don't want to be holding the bag all the time. This doesn't work out. So how does what does that translate for Hawaii? I mean, how does that come down for us? You should ask that. Let's go to our last chart. So if you look at this, OK, we do have it. Yes, here it is. Yeah, OK. So I think it's very this is a very interesting chart because it shows basically this chart argues that LNG, you see, they had the Oahu, Maui and the Big Island. They showed LNG coming in at about 20 cents, you know, kilowatt hours, sort of a read best estimate. And they showed a huge variation in in fuel oil, right, the cost of fuel oil. But the 24.7 cents, the kilowatt hour for 2014, I did show the data on the right for June of every year from 2014 to 2018. And it's important to understand this number moves around. So that 24.7 cents for June of 2014 was a very high point. You know, low sulfur fuel oil, right? The company, you know, why use it? Basically, you're paying the same price, the same wholesale price, a non-tax price for diesel fuel. And but notice the price in 2017 and 2060, 2050. So the price came down 2080. The average price is around 220. And I believe next year it's going to be less. So, yes, the thing you need to ask yourself. Here on this chart first, if you were to use the LNG, could you get a contract in which the stability of the price? You see, the point estimate appears to be higher than the distributed renewables. But the chart doesn't describe the risk around the renewables, except around the power sources, except in two areas. One is they've got one here with a battery technology of 19 to 24.8 cents. Those are numbers someone pulled out of a different part of their body. They have no idea what those two costs are going to be. And you have these LNG costs, which appear to be somewhat higher than the low point in fuel oil, but higher than the high point. And it seems to me that the question that should be asked about all this is is this really a chart we want to use to decide what we're going to do with power in Hawaii or should we try to peel this back a bit and ask ourselves, OK, what kind of risk profile do we face in these different fuel choices, particularly if we're going to go with 100 percent minimum? And I think that that is a much more sophisticated and difficult question to present to the public, which is, you know, if we give up a portfolio approach, a portfolio, which would include maybe some LNG, some some fuel oils and coal and renewables, if we go to 100 percent renewables, are we subjecting ourselves to a higher risk of a price spike? Well, let me throw a factor at you on the very on that very point. You know, if you if you spend the money, build the infrastructure, build the electronics, build all that storage and you have the renewables pumping out, you know, renewable fuel at a at a pretty at a pretty consistent rate, consistent price, you know, you've achieved a certain level of consistency for planning purposes on the renewables, OK? But if you keep on if you keep on using global supplies, and I guess that would include not only petroleum, but also LNG, where where the cost is going to be determined by factors that are completely outside our control, who knows what the global market will bring. It's geopolitical, you know, anything could happen any day on either petroleum or LNG, then that's that's really a certain amount of risk. Right now, it's less than $50. But who knows what would happen in the Middle East, which is we know volatile, always volatile, and for that matter, LNG. Well, LNG is mostly from the US, I guess. But if if LNG were also subject to international risks, then we'd have a fair amount of risk on the fossil fuel side, where we have a containable, predictable risk on the renewable side. Am I right? Well, I would disagree that you have a containable, predictable risk. You're dealing with new technologies. You cannot at all say that you know what the battery costs are. You do not know. You do not know whether you're going to get an unusual failure rate. You have mechanisms, of course, to deal with this risk. You can have long term contracts. You can have you can enter the futures market. There are lots of ways you can deal with price risk, even on world traded commodities. And I guess my my advice would be each one of these comes with a set of risks. And much like investing in the stock market, I would not put all my money into Apple, OK, I would have a diversified portfolio. And I think but it depends, you know, if in fact the commitment to renewable power is a kind of religious imperative. OK, I get it. It's a religious imperative. But if, in fact, you are holding and you are acting like a public utility commission and you are worried about the you have a certain public financial fiduciary interest to your consuming public. Well, I would suggest that someone should take a hard look at the risks of all those alternatives and ask themselves, maybe we need a diversified portfolio. Well, we always talked about that. And as Marina, the previous chair of the Commission, and I remember Josh Strickler gave a talk at which we were we were present, said, you got to avoid having the caterpillar in the salad, which means you can't have a surprise in there. And one surprise, by the way, to go to your point, one surprise is if we if we buy batteries, a lot of those batteries are going to be made offshore. And if we have trouble on tariffs, for example, or geopolitical factors that affect the price of manufacturing them and buying them from countries like China, for example, which manufactures a lot of batteries these days and a lot of electronics that we can use to to control costs. We don't buy the way we don't know what's going to happen on that either. Do we know that? And that's before that's before you talk about the environmental consequences of producing all this lithium and all these batteries and the recycling and disposable of these batteries. That should be part of the equation as well. I'm just I mean, I would say that we're going 100 percent. If somebody came to look, we're going 100 percent with fuel oil. I said, well, I don't think that's a good idea. But if we're going 100 percent with solar and wind, I'd say, well, that's probably not a good idea either. I would say that you know that some conservatism and caution should be the watchword as you proceed with the planning because you also are going to lose opportunities to save a lot of money when the price of oil is low. Yes, you face a risk when the price of oil is high, but you're also losing the benefit of low oil prices, which is actually what has been happening since, if you look at this data, since about 2016. Yeah, very interesting, Lou. Lou Pulirisi, E-princk joins us from Washington. We'll talk again soon. Aloha, Lou.