The new Smart Export solar tariff just ordered by Hawaii’s regulators is so popular that both distributed energy resource (DER) advocates and Hawaiian Electric Co. (HECO) say it was their idea.

They are probably both right because the Hawaii Public Utilities Commission (HPUC) used ideas from nine months of workshop negotiations to shape the final Decision and Order (hereafter, order).

The ruling ends the Technical Track in Hawaii’s groundbreaking DER proceeding (Docket 2014-0192). It is, the parties agree, the logical next step toward Hawaii’s 100% renewables by 2045 goal.

Smart Export is one of two new interim tariffs in the order. It and the Customer Grid Supply-plus (CGS+) tariffs will replace tariffs created in the HPUC’s landmark 2015 decision ending retail rate net energy metering (NEM).

Each tariff has its own advantage and provides different incentives on whether to pair storage with residential solar systems. 

With Smart Export, owners of solar-plus-storage systems will be able to maximize their use of stored solar to offset their nighttime consumption of electricity priced at Hawaii's high retail rate. They will also earn some below-retail compensation for generation sent to the HECO grid outside peak solar generation hours. 

With CGS+, owners of solar-only systems will earn modest compensation for any excess generation they send to the grid, whenever the sun is shining. Solar-plus-storage system owners will be able to choose how much electricity to send to the grid and how much to store to offset the retail rate at night. 

On to the next step

HPUC's order sends policymakers and stakeholders into the docket’s Market Track. In it, they will grapple with even more complicated rate design and DER valuation questions to construct a final NEM successor tariff.

According to the order, the new tariffs “represent the next evolutionary step toward reaching the long-term vision of a robust DER market, offering customers a variety of options to manage electricity use and provide support to the grid.”

HECO Customer Service Sr. VP Jim Alberts called the program outlined in the order a "positive" step. “There is no roadmap for what we are trying to do,” he said. “This program is big enough to grow solar, but there are off-ramps that give us time to adjust to any unintended consequences.”

EarthJustice Attorney Isaac Moriwake represented the Hawaii Solar Energy Association (HSEA) in the proceeding. He told Utility Dive the “meta-theme” of the ruling is using rate design to keep DER-owning customers grid-connected for the benefit of customers and the HECO system.

Threats to the grid, threats to installers

Permits to install solar on Oahu for Q1 through Q3 2017 were 48.2% below the same period in 2016, according to data accumulated by ProVision Solar President Marco Mangelsdorf.

The decline began after the October 2015 HPUC ruling that ended the approximately $0.27/kWh retail rate NEM compensation for solar-generated electricity exported by customers to the grid. NEM was replaced with two interim tariffs, Customer Grid Supply (CGS) and Customer Self Supply (CSS). Only the CGS option compensates solar owners for exported electricity, and only at up to $0.15/kWh.

That 2015 commission action to reduce the incentive to distributed solar was because penetration was nearing 20% on some circuits and the reliability of HECO’s system appeared threatened.  

The commission acted this time because of the threat to Hawaii’s solar installers from the reduced incentives. But solar penetrations still threaten HECO’s grid. Many of the 400+ circuits across Oahu now can take on more distributed solar generation only during peak demand, Mangelsdorf wrote to Utility Dive in September.

He called the 349 permits to install solar-plus-storage systems issued on Oahu from May through September “glimmers of light” for the state’s solar installers.

In its order, the commission recognized “the public interest is not served by a DER market structure that exclusively facilitates the uncontrolled export of electrical energy onto the grid.”

Instead, the commission said, “there is a need to move away from conventional, direct-to-grid solar PV toward more sophisticated DER systems, that can help support, and ideally enhance, grid reliability and lay the foundation for DER to play a more integral role in the operation of the electric utility network.”

To accomplish these things, the commission designed its new Smart Export tariff for customers who install solar-plus-storage. It provides “zero compensation” from 9 a.m. to 4 p.m. and “enhanced compensation” from 4 p.m. to 9 a.m. “to reflect the exported energy's relative time-based value to the grid,” according to the order.

DER can charge storage systems during the day and power customers' homes in the evening. If a Smart Export-enrolled customer chooses to export electricity to the grid during the 4 p.m. to 9 a.m. window, it would be compensated at a below-retail rate of almost $0.15/kWh on Oahu. The program will be capped at 25 MW, or between 3,500 customers and 4,500 customers.

The other new tariff, CGS+, is the “controllable, direct-to-grid DER option,” the order reports. It can be used by solar-only or solar-plus-storage users. It will gradually replace the current CGS tariff and will be capped at 35 MW, or between 5,000 customers and 6,000 customers. Compensation will be almost $0.101/kWh on Oahu.

For compensation under the new tariffs in other parts of Hawaii, see the chart above and the chart below.

Customers on both tariffs will be required to “enable advanced inverter functions” to protect system stability and reliability. CGS+ program participants can export electricity any time if their systems also have the HECO-required advanced metering that allows generation curtailment, should “system-wide technical conditions” necessitate it.

The current CGS tariff, previously scheduled to expire October 21, will remain available until approximately 9 MW of further capacity is filled, the commission decided. Existing customers are grandfathered under their current compensation rate for five years.

Customers grandfathered under the 2015 NEM ruling will remain eligible for the retail rate tariff. But, under this order, they may now add “non-export” capacity if they provide the advanced inverter and metering capabilities the utility needs.

Speaking for HSEA, Moriwake applauded the commission for “charting a path forward to the future of DERs” while protecting NEM and CGS customers.

The CGS+ tariff did not originate with stakeholders but with the commission, he said. The commissioners seem to want an option for customers who still want solar-only systems.

An important first step

Moriwake called Smart Export the most interesting provision in the order and said DER advocates originated it in proceeding workshops. It will not “revolutionize the market” but it is “an important if rudimentary first step,” he said.

It will lead toward time varying rates because it recognizes the higher value of exported electricity when demand on the grid is higher, Moriwake said.

Stakeholders initially proposed more restrictive time windows for compensation but the commission “went its own route and created the 4 p.m. to 9 a.m. on-peak export window,” he added.

HECO’s Alberts had a different view of the origins of Smart Export, saying the utility proposed it. “To get to Hawaii’s 100% renewables mandate, an interactive price signal-driven system with a two-way flow of energy and information will be necessary and the parties in this proceeding seemed to accept that,” he said.

He agreed with Moriwake, as did Hawaii Department of Consumer Affairs Executive Director Dean Nishina, that the CGS+ program seemed to be a commission-created option for customers who choose not to buy batteries.

Nishina said the programs will offer “headroom” for growth and, more importantly, valuable new data on customer and system impacts.

What will customers choose?

HECO’s Alberts emphasized that the new tariffs are not perfect. “We will gather the data and use it to design the next round of programs,” he said. “Time varying rates and locational pricing will be among the things that we will work on in the Market Track.”

Solar installers tell Alberts more applications will initially be for CGS+ because it resembles the existing CGS program. Smart Export applications will expand as customers understand that the software built into the solar-plus-storage systems maximizes the offsetting of retail rate electricity use with stored solar-generated electricity, he said.

As Smart Export evolves in the upcoming Market Track, there will be more interactive pricing, Alberts said. Eventually, there will be “real-time pricing” with automated and programmable systems guiding customers to best practices in both consumption and export, he added.

Alberts acknowledged that the growth of solar-plus-storage increases the potential for grid defection. “But this order shows that the commission believes defection is not to the advantage of our community,” he said. “It also shows the commission wants price signals and programs to keep solar owners grid-connected.”

He does not expect significant curtailment in the CGS+ program. “The controllability provided by the HECO-required smart hardware anticipates “the next tranche of programs that may need more interactive capability,” he said.

Moriwake and Mangelsdorf have doubts about the viability of the CGS+ tariff because of the curtailment it allows HECO. Utility representatives advocated for controllability and DER advocates resisted that, Moriwake said.

Because the HPUC wanted a solar-only option to insulate solar installers from the still less-than-mature battery market, it allowed HECO limited curtailment, Moriwake added. But to protect against manipulation, the utility is required to file detailed reports “on when, why and how they curtail,” he said.

Buying or leasing solar-plus-storage is as affordable as solar-only was a few years ago, which means customers can choose Smart Export rather than risk curtailment with CGS+, Moriwake said. “We’ll see how the market responds.”

Neither tariff fully compensates DER owners, Moriwake acknowledged. These programs “move us forward” until compensation to DER for a fuller range of services is developed in the Market Track.

He is hopeful but uncertain about implementation. Many times, when the commission has pushed the utility, the utility has dragged its feet, he said. 

A residential installer perspective

Sunrun Public Policy Director Robert Harris said HECO proposed the advanced inverter and smart meter requirements “so they should be prepared to handle them.”

The utility was slow at managing interconnections for the previous interim tariffs, Harris acknowledged. “But the commission will probably be watching this time."

Alberts confirmed that HECO has plans in place to meet commission-set implementation deadlines.

Sunrun endorses the new programs because they offer “market certainty” for new customers as well as “some continuity” for NEM customers and CGS customers, Harris said. “It is a thoughtful compromise in which both solar customers and ratepayers get something.”

Harris agreed the commission’s intent seems to be to avoid “large-scale grid defection” and give customers “incentives to offer services to the grid in a cost-neutral way.”

Sunrun prefers Smart Export because it encourages storage, which will allow customers to deliver “a lot more grid services,” he said. His biggest concerns with CGS+ are the lower compensation rate and that the threat of curtailment could undermine customer confidence. CGS+ may be more popular initially, he agreed, but Smart Export will likely grow “over time.”

Sunrun’s solar-plus-storage product is modeled to meet 80% to 90% of a customer’s annual power need and leases at $0.19/kWh, Harris said. “A customer can install it with no money upfront and lock in a long-term rate well below the $0.27/kWh retail electricity price without the threat of curtailment.”

Hawaii’s future will likely be solar-plus-storage, he added.

But not everyone favors the Smart Export option, at least currently. 

Chris Debone, Hawaii Energy Connection managing partner and former HSEA president, agreed the best use of solar is offsetting the retail cost of electricity. He also agreed that the solar-plus-storage value proposition now is comparable to what the solar-only opportunity was a few years ago and following a similar trajectory.

But “the majority of solar customers will choose CGS+ and also buy batteries,” Debone said. "Though Smart Export allows solar-plus-storage owners to offset peak period retail rate electricity during peak demand, they are not compensated for midday exports."

With CGS+, owners of solar-plus-storage systems can fully charge their batteries and be compensated for export during midday hours without limiting their ability to offset peak period retail rate electricity use, he said. “It is all about the software and sizing the battery.”

Debone does not offer leasing but about a third of his customers now buy batteries along with solar. As the price of batteries falls, the use of storage will grow, he said. But the value proposition of leasing solar-plus-storage is not as cost-effective as an owned system under the CGS+ tariff, he said.

“The economics of buying a solar-plus-storage system work best with the CGS+ midday export compensation but who would pay $0.19/kWh to lease a system and sell to the utility at $0.101/kWh?” he asked.

Debone agreed with the others on one point. “Smart Export is laying the groundwork for getting the true value of the resource at different times of the day,” he said. “It is the first step toward a real-time pricing market.”