 Think Tech Hawaii. Civil engagement lives here. Okay, we're back. We're live. Here we are. Energy 808, The Cutting Edge with Marco Mangelstorf, Mina Merida. We're all together again. Wonderful to have you guys back online. All right, Marco, say hello. And the words of the dearly departed Fred Rogers are paraphrasing him. It's a beautiful day to be back in this neighborhood with two of my favorite energy neighbors, neighbor. You're only saying that because we haven't had extreme weather yet, but it's coming. Mina Merida, you know about extreme weather, don't you? I sure do, and it's one of the reasons I haven't been with you guys for a while and almost didn't make it today, but I'm stepping out of a meeting right now dealing with programs for displaced workers, getting them rehired and employed. Well, let's talk about Kauai for a minute. First, let's talk about how the flood damage repair and restoration is doing. I know you've been working on that diligently every day, so tell us the status. Well, it's coming along, but slowly. So, you know, a portion of Kuhio Highway from right outside Hanalei, an area called Waikoko, all the way to the end of the road, K.A., where Hyena State Park and the Kalalao Trail begins, it's still restricted, and it's a one-way road, a one-way traffic in, one-way traffic out using a convoy system. And so what's happening is a lot of people think it's okay because it's out of sight and out of mind, but I can see the toll of being restricted from the areas having on local residents. You know, a lot of people are agitated. You know, their recovery is slow. We have, you know, probably 30 families still in temporary facilities. Wow. A lot of them. No, we haven't been hearing about that. So what is your take on how long it's going to take to get back to normal? Oh, I'd say more than a year, if not longer. Wow. Because, you know, we're still dealing with about 20 families or more whose homes have been destroyed. And for them, they have to build to new building codes. And so, you know, since this is a tsunami area, not so much a flood area, but a tsunami area, they have to build higher. And for example, this one house I'm familiar with, it's 16 feet off the ground. And, you know, they have to make the conversion from cesspool to septic. Well, you know, this sounds like what happened after Iniki with that. And, you know, it strikes me that Kauai has had more than its share of hard weather. And there's no particular reason for that. It's just the way the dice roll. And Oahu could have the next bad weather. So I worry a lot about that. But focusing back to Kauai for a minute, Mina. You know, we've had a report that came out from KIUC a couple days ago about what it's been doing, even in the face of the flood and all these troubles. And then we had an article in the newspaper essentially re-reporting that report. So how familiar are you with what KIUC has been doing? Because according to the report, they've been doing very well in the last year. Yeah. Well, first of all, I got my dividend check because we're a couple of, you know... That's a good metric. Right? We distribute the profits and stuff. So I think I got my dividend check maybe a week and a half ago. And I think I got about $34 back or so. Oh, that's something. Yeah. And my understanding that they had an annual meeting yesterday where the public was invited to come and discuss the year's progress with the board. And, you know, I think our renewable... Right now, about 44% of our energy comes from renewable sources. And, you know, they've been... I think I saw something where they recently put out another RFP for renewable generation. And not only are they putting more renewables and storage up on the system, but they're also driving the price down. Marco, how much of this has crossed your desk? The report was very detailed and so were the newspaper articles. Well, I just to follow up on what Mina was saying, they had their 16th annual meeting very recently and there are about 200 people or so who attended, which is pretty darn good, I think, especially for an island of that size. After the meeting, they were provided chili and rice. So the folks at KUC know how to do things island style where you don't invite a bunch of people without having some good ono grind. Yeah, chili and rice and dividend checks. How can you go wrong? Exactly. And what they've done in the past is give one bag of rice. Boy, oh boy. I'm not sure if they did that yesterday, but that's usually the tradition. So Marco, what do you get out of that report? What do you get out of their progress? Where do they fit in terms of the whole state? Where do they fit on the landscape? Well, I think it's really a testimony to President and CEO David Bisola and his great staff from Mike Kimani, Brad Rockwell, Beth Tokioka and the whole crew at KIUC that they've been able to do so well. What I mean by so well is they've been on a very proactive mission to effectively replace combo fuels with lower cost renewable energy, principally solar, but they've also got some pumped hydro in the works as well, which is not producing power but allows, let's say, excess solar power produced during the day, use that energy to pump water up elevation and then have it come downhill at night, let's say, when the demand is higher. So I think they've been a superb job doing that. And they closed, like me said, 2017 with 44% of its mix coming from renewable sources. And I wouldn't be surprised within the next handful of years that that figure goes up to somewhere in the 60 to 70% range. So they are soon to overtake, if they have not having overtaken already, Helco because of the loss of Putin's geothermal venture. So I think the combination of lower cost renewables and bringing in these fixed contracts, power purchase agreements that somewhere in the 11 and sub 11 cents a kilowatt hour range, including battery storage, which makes solar power more firm power, being able to provide power during longer periods of the day, if not 24 hours a day is a great marker for that co-op on Kauai to make fantastic progress in terms of bringing on board lower cost renewables, offsetting combustion generation and over time, stabilizing the cost of electricity for its members. I'm also noted in the press release of the meeting of last week that they're not doing any rate increase filing in the near future. And I think that's again a testament to Dave and the crew there. I mean, it's a stretch and a challenge to be able to say, well, we have a plan to bring the cost of electricity down over time because there are fixed costs in terms of providing electricity beyond just generation. But even to get to the point where they can plan out the likelihood or possibility of stabilizing pricing over time so that it stays stable, I think, is quite a feat in and of itself. And I think they're making great progress towards that end. What's the interaction between the Tesla facility they built a year or two ago with batteries and solar and all that and the new one that I'm not sure what the status is with AEH, which I remember reading part of that report said that the AEH project was bigger than Tesla. I'm not sure what that means exactly how big Tesla is. But where do those two fit together? How do they work together? They're both big. They're both being done by a company called AES. I believe AES, Distributed Energy, if they're out of Virginia, if I'm not mistaken, maybe Mina can check me on that. But the first project at 20 megawatts of, hold on here, I'm just looking at it, well below the cost of oil and then in late 2017 they were awarded a lease by Department of Defense for a 14 megawatt solar plus battery storage at the Pacific Missile Range Facility of Barking Sands and that's just a little bit less in terms of 10.85 cents per kilowatt. That was effectively retired combustion generation as this new cheaper renewable generation is brought online. Yeah, that's great. You know, some of this must be, you know, some of this we have to give credit to the county of Kauai, don't you think, Mina? No. Why do you say that? No, you know, I give credit to the leadership at KIUC and the board setting the goals and objectives and then the management team at KIUC staying focused in moving forward and I have to emphasize in a cost-effective way. There are a couple of things that I wanted to mention. First of all, you know, clarify that the pump storage is a project that's being planned right now that it's not anything that's online right now. The second thing is what has been really impressive is, you know, you're dealing with a utility that really understands their system and is willing to take some risk because they really understand their system. And so what's happening is the duration of renewables on the system, maximum penetration of renewables on the system, that duration is more frequent now. I know there are many times that they've hit over 90% renewable during the day and that's happening more frequently at longer durations and that's again because they have batteries situated and doing the right things to make the system more stable. Marco, what can we learn from what's going on in Kauai? I have one more thing that I want to mention. The other thing that is very impressive is the financial soundness as we move forward. I think one of the things that KIUC points out is when the co-op first started, they were 100% in debt, they had no equity. And I believe I can't remember the exact number but I think it's over 20%. Marco, do you remember what that figure is? In terms of how much equity that they have developed after profit 15 years ago? Yes. 16 years ago. Let me see if they have said that 100% in other words, weighted average cost of debt has dropped from more than 4% in 2002 to 2.67% today. They ended up with the year-end margin for 2017 at 3.2 million, which as you know was recently returned to members in the form of patronage capital retirements. IE checks in the mail to 33,000 or so members. Do they retain cash? Do they retain equity? Yes. There's a sentence in the press release where it mentioned that they had zero equity and I know it's over 20% now but I thought it was higher. So my question to Marco was what can the rest of the state learn from what's happening and what is reported by KIUC in this report? It just makes it very clear I believe the imperative and the practicality and the imminent do-ability of being able to move aggressively rapidly down the road, down the path of retiring combustion generation that relies on fossil fuels and replacing it with cost-effective renewable energy that most likely as we move forward will have more and more storage attached to or associated with that renewable energy. So let me ask one other thing about Kauai. I want to mention one more thing. I mean it's not the retirement of units but what I believe the reason why KIUC can move a little bit more quickly is because they have the right kind of combustion engines on their system that are more flexible and quick start that can complement renewables. They have the right complement of combustion engines, both battery to monitor frequency storage as well as the renewable projects online. So it's not one thing or another, it's a combination on how the system is run. Okay we're going to take a short break you guys. Meena Merida, Marco Mangrelstor. They join us by remote from Kauai and Big Island. We'll be right back after the short break to discuss PGV and CBRE. We'll tell you what that means right after we come back. Hi, I'm Bill Sharp, host of Asian Review here on Think Tech Kauai. Join me every Monday afternoon from 5 to 5.30 Hawaii Standard Time for an insightful discussion of Contemporary Asian Affairs. There's so much to discuss and the guests that we have are very very well informed. Just think we have the upcoming negotiation between President Trump and Kim Jong-un. The possibility of Xi Jinping, the leader of China remaining in power forever. We'll see you then. Hi, I'm Pete McGinnis-Mark and every Monday at one o'clock I'm the host of Think Tech Kauai's Research in Manoa. And at that program we bring to you a whole range of new scientific results from the university ranging from everything from exploring the solar system to looking at the earth from space, going underwater, talking about earthquakes and volcanoes and other things which have a direct relevance not only to Hawaii but also to our economy. So please try and join me one o'clock on a Monday afternoon for Think Tech Kauai's Research in Manoa. And see you then. Okay, we're back. We're live. And this is Energy 808. Energy on the cutting edge in Hawaii here with Mina Morita. She joins us by remote from Kauai. She left a meeting to talk to us today and Marco Mangostov joins us by remote from Hilo. And he's with Provision Solar. And we're talking about energy developments in Kauai. Well, we did that already, Kauai. But now we're going to talk about PGV. And that's in the Big Island. So Marco, what is the sad story going on now with PGV? So just the quick background, Jay, is that the Pune geothermal plant has been offline for going on two months. They shut down, I believe, on or around May 3rd when the fissures started popping up out of the ground there in the so-called lower rift zone. And they have been down ever since. The only access to the plant, which has been partially overrun by lava, but most of the plant is intact. In order to get there, they have to chopper people in which they do on a semi-regular basis. So those have been megawatts and megawatt hours of renewable energy that have not been provided to Helco since early May. And I'm going to be a bit provocative and publicly take the stand that it's time for Helco and Hawaiian Electric to seriously consider cancelling the contract that they have with ORMAT, with PGV, which they've had since 1993. Actually, the contract itself, the original one, goes back to 1986 from that mistake in 32 years ago. And I would think, although I don't have a copy of the contract in front of me, I'm trying to get ahold of one, that there are force measure reasons as well as non-performance reasons for Helco to cancel the contract. What's the benefit of cancelling the contract? I mean, why do we need to do that? Two-fold, Jay. Number one is that when you have a contract, it's based on avoided cost, which is what we call the wholesale rate of electricity. The avoided cost of electricity here in this state is based on the cost of imported oil. As oil goes up, avoided cost goes up. And it effectively ends up being a windfall for the power producer because their costs aren't going up as they're getting more money from the utility company based on the price of oil going up. So 25, the first 25 megawatts of roughly 35-plus megawatts from PGV prior to them going offline was being compensated from Helco at the avoided cost rate, and that is not in the benefit of ratepayers. What's in the benefit of ratepayers is to do exactly what KIUC is doing, which is replacing generation that's expensive at avoided cost and replacing it with cheaper renewable at a fixed cost that's going to stay fixed over time. So that's the number one reason that the contract should be canceled, in my opinion. And second is that the contract is allowed to be maintained in force. The limbo land that we are in and that Helco's in for the foreseeable future, not just months, but possibly years, because Harry Kim has made clear that he's not going to order any bulldozing to go on in terms of opening roads conceivably to get to the plant until at least six months of no volcanic activity. And Harry Kim has said in his own words that he sees if PGV were to come back, and that's a big if, that it's two to three years out. So in my opinion, it's better sooner rather than later for Helco to pull the plug on PGV, take out this uncertainty about will it come back or won't it come back and move faster and more aggressively towards developing renewable energy sources at a fixed lower cost with storage if needed, and move this island similarly in a rapid direction like KIUC has done. Well, pulling the plug that way, terminating the Payment and Power Purchase Agreement, that would seal the fate of PGV. That would be the end of it, wouldn't it? Yes, it would. And PGV has a $100 million insurance contract if I'm not mistaken, I think, you know, not having privy to their internal documentation, I think they would probably be just fine. And again, this is something that if I were Alan Oshima or Gignacio, I would certainly get my legal people there at Hawaiian Electric to come through this contract and make sure that there's no little to no risk on Hawaiian Electric's part if they were to go ahead and cancel the contract. But I have to believe just in, you know, you're an attorney, Jay and I sure you have some background in contract law that with a contract like a Power Purchase Agreement, there are out that either party can use legitimately if there is non-performance of the contract, terms and conditions. So I've got to believe that those are there. And energy matter, are you saying that we don't need PGV anymore? We don't need geothermal. Let's just get on other ways to generate renewables. Is that what you're saying? No, I'm not anti-geothermal per se, Jay. I just am a pro-rate payer and pro-reality check. And this geothermal power plant had a great run for 25 years and I'm very appreciative of what Mike Calachini and the whole group at PGV have been able to do. But the time has come to an end, the time has come to put an end to PGV definitively so that Helco and the rapiers of the silent can move on in a faster, more aggressive fashion to be able to bring lower-cost, firm, renewable power online. Okay, Mina, I'm sure you have some thoughts about this. What are your thoughts about this? We shouldn't disregard a potential energy source. I definitely do think that contracts need to be renegotiated. But I think it's just premature at this time to think about eliminating what was firm baseload power. I think we better understand the risk posed and I think that this is why we should be promoting a diversity of resources that not one type of resource is going to be the panacea as we move forward. So I say we keep all options open and just better understand the risk that geothermal poses as we pursue a low-carbon future. And I don't want to say renewable future. It's a low-carbon future because we should be using everything in our toolkit to be reducing carbon and not necessarily just promoting renewables. So we have to look at this just the way. Marco, you want to take the last word on it? Yeah, interestingly, Mina, remind me, please, you were PUC chair in 2011, right? Yeah. So 2011, there was an addendum to the contract with PGV that brought on board more geothermal generation at a lower fixed cost, anything above essentially 25 megawatts. And you and Mike Champley and Lorena Kiba were very clear in this DNO where you essentially lamented the fact that the 25 megawatts were stuck, and this is my word, stuck at avoided cost, and that the PUC, which you headed, did not have the authority to change or force format to renegotiate the 25 megawatts. So I just want to play your own words back to you, and I'm not saying you're reposing what I'm saying, but I mean... I'm not, you know, we... Yeah, I mean, I have no problem. My position is still the same to, if possible, renegotiate the contract. And this might be the best opportune position because the circumstances have changed because they can no longer conform to the contracts in hand right now. So, yeah, it might be the best time to relook, you know, all the legal implications in the contract. Yeah, and the business implications as well because ORMAT's going to have to make a hard decision as to whether to try to continue or drop it. Right. What I heard Marco say is, you know, abandon this resource and abandon this facility. And I think that decision is premature. Okay, wow. Good discussion. We never got to our last point, which is community solar, which we'll do next time in two weeks, if you don't mind. But thank you very much, you guys, for coming on. It's like good old days. Me and Marita from Kauai and Marco Manglisdorf from Hilo. Thank you so much. I'm sure there'll be more news. Take care. Thank you. Thank you. Thank you. Thanks, Jay. Thanks, Marco. Thank you. Okay.