A Major Solar Farm Developer Is Pulling Out Of Maui And Oahu Projects – Honolulu Civil Beat
Inflation and supply chain disruptions have made the utility-scale solar projects too costly, but the developer is hopeful it’s only a delay.
Building a solar farm is becoming dramatically more expensive, prompting a developer to pull out of a pair of renewable energy projects on Maui and Oahu that would have helped stabilize electricity bills while aiding Hawaii’s green energy transition.
The collapse of Longroad Energy’s proposed 370-acre Pulehu Solar project in Kula and 600-acre Mahi Solar project in Kunia exposes the struggle renewable developers are facing to deliver projects on time and on budget amid unusual supply chain problems, soaring shipping freight rates and rising equipment costs.
Some developers in Hawaii have responded to these mounting market pressures by demanding higher prices for the electricity their planned projects would generate.
The Hawaii Public Utilities Commission approved such requests this month for Maui’s Pulehu Solar project and AES’ 80-acre solar project in West Oahu. But in the case of Pulehu Solar, even PUC approval for a requested price increase did not offer the developer enough relief to continue the project.
“The projects just aren’t feasible, even at the amended pricing, and it’s just a very tough situation for everyone involved,” said Wren Wescoatt, director of development at Longroad Energy. “The market has changed more quickly and more dramatically even than anyone has experience with. So I think everybody is really in a bit of uncharted territory.”
The Pulehu Solar project would have helped address a new potential crisis posed by the unexpected shutdown of a Japanese parts supplier that appears to be the sole manufacturer of spare parts required to keep four oil-burning Mitsubishi generators running at Maui’s Maalaea power plant.
Moving renewable energy projects like Pulehu Solar on line quickly is now part of a contingency plan to fortify Maui’s electricity grid in the event that the four Maalaea engines, which the utility had planned to run into the 2030s, must be shut down.
With enough electricity to power the equivalent of some 37,000 homes, Mahi Solar would have been important for Oahu, which relies on a coal-burning plant at Barbers Point to meet about 20% of the island’s electricity demand. The coal plant’s scheduled September shutdown depends on having new projects like Mahi Solar on line to minimize the risk of blackouts when it’s no longer operating.
The projects have been on hold since February, when Hawaiian Electric Co. and Longroad submitted to the PUC a pair of requests to amend power purchase agreements forged in 2020 to accommodate rising costs of equipment like solar panels.
The price for building solar panels increased 57% in 2021, according to a report from consultant Rystad Energy.
The companies also asked for more time to build the projects. The developer sought to delay the Pulehu Solar project completion date of April 2023 by nearly a year.
When the PUC rejected those requests in March, finding them not in the public interest, Longroad formally asked the utility regulator to reconsider.
Meanwhile, solar battery storage pricing continued to rise. With supply chain and inflationary conditions changing so rapidly, even the amended power purchase agreements proposed by the developer were becoming untenable, according to Wescoatt.
On May 4, Longroad canceled its power purchase agreements with the PUC for its Maui and Oahu solar farms. Then, two days later, the PUC approved the developer’s requests to increase the project cost and delay the completion date for Pulehu Solar.
“The projects just aren’t feasible.” — Wren Wescoatt of Longroad Energy
But that didn’t change Longroad’s decision to walk away from the project. Facing volatile market conditions, Wescoatt said Longroad’s best way forward is to step away from the projects now and pursue them again later.
Longroad plans to rebid the Pulehu and Mahi solar projects in December, following HECO’s announcement last week that it’s seeking proposals from developers for another round of Oahu and Maui renewable energy projects that it hopes to get online by 2027.
“It’s a really difficult situation because these are excellent projects that we’ve been working on since 2017,” Wescoatt said. “They are in the advanced stages of development. They have community support, we have most of our permitting, we have all of the engineering done. But the good news is that we’re going to try again. We really look at it more as a delay than a cancellation.”
The PUC has historically been averse to developer requests for price increases. Power purchase agreements are considered binding to protect the integrity and competitiveness of the bidding process. The developer is typically expected to take on the risk of fluctuating market conditions, and it’s unusual for the PUC to agree to modify the original terms.
Even an increase of a cent or two in the price per kilowatt hour can amount to millions of dollars over the span of a 20- or 25-year utility-scale project.
But with inflation at a 40-year high and a supply chain crisis, developers are finding themselves locked into long-term agreements that have become markedly less profitable.
Another factor cited by AES Hawaii in its PUC filings is the federal probe of solar panel producers in Asia that may be illegally sourcing parts from China to avoid U.S. tariffs. The investigation is leading to delays or cancellations of solar system supplies nationwide, forcing AES to find an alternative solar panel supply.
“There’s a lot of stuff going on in the global supply chain right now and none of it is really very good for us to keep moving towards getting off of fossil fuels,” said Jim Kelly, spokesman for HECO, which powers 95% of the state’s 1.4 million residents on Oahu, Maui, Molokai, Lanai and the Big Island.
In the case of Pulehu Solar, the PUC reconsidered the project cost and timeline agreements when the shutdown of the spare parts supplier in Japan began to threaten the ability of Maui’s electric utility to keep a series of 1980s generators firing, according to PUC Chairman James Griffin.
The commission also considered the planned 2024 retirement of the Kahului plant.
The oil-fired generators at Maalaea and Kahului are critical components of Maui’s energy grid as they meet the bulk of the island’s nighttime electricity demand. So developing new renewable energy sources to eventually reduce their role in electricity production is critical to the state’s shift to green energy.
“Provisions such as pricing, project size, location and contract term are given careful attention to ensure that approving the agreement is in the public interest,” Griffin said in an email. “Changes in any of these provisions can alter this delicate balance, and thus, the commission allows for post-approval amendments only under specific circumstances and subjects them to close scrutiny.”
The commission reconsidered the amendment to the Pulehu project on Maui after being informed of new hurdles to continue to maintain older generating units at the Maalaea plant in addition to the planned retirement of the Kahului plant.
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Civil Beat’s coverage of Maui County is supported in part by grants from the Nuestro Futuro Foundation and the Fred Baldwin Memorial Foundation.
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May 15, 2022 at 03:59PM