For Maui County officials, a recent decision on how to finance an effort to put solar panels on the rooftops of 25 government buildings was a no-brainer.

The choice: Either spend tens of millions of taxpayer dollars to purchase the photovoltaic systems or have a third party own the panels and sell the electricity back to the county at half of what it was paying Maui Electric Co.

"If you have a way to save half on your electric bill, how can you turn that down?," said Doug McLeod, Maui County energy commissioner.

If the county had opted to own the system, it would have eventually been able to recover its costs through savings on its electric bill, but that could have taken up to 20 years, McLeod said. Because Maui County has no tax liability, it wouldn’t have been able to take advantage of federal and state tax credits that effectively cut the cost of PV systems by 65 percent for businesses and homeowners in the private sector.

Instead, Maui County entered into a power purchase agreement with a solar contractor that will claim the tax credit and pass along the savings to the county through discounted electricity rates that will average just 18.5 cents over the 20-year life of the contract.

"In theory you can support ownership on the basis that eventually the initial investment will be paid back and the rest is gravy. The problem with this approach is that you will own an obsolete asset by then," McLeod said.

However, not all government agencies see it that way.

Of the 8,385 kilowatts of solar power generating capacity that the state of Hawaii has installed or plans to install, about 20 percent is owned by the state, according to data provided by the state Energy Office.

Officials at agencies that decided to purchase the systems said their decisions were driven by a range of factors from the fact that they received state or federal funding earmarked for an energy project to the difficulty of setting up a PPA.

The University of Hawaii at Manoa accounts for the largest chunk of the state’s PV ownership with on-campus projects totaling 684 kilowatts in various stages of development. The university launched its solar power initiative last week with the dedication of a 31.5 kilowatt PV project on the roof of Sinclair Library that was funded internally.

The school, with the assistance of an outside energy consultant, decided not to pursue PPAs for any of its projects on the Manoa campus, said Dave Hafner, assistant vice chancellor in the Office of Facilities and Grounds. (A 377-kilowatt project at the Hawaii Institute of Marine Biology on Coconut Island will be done under a PPA.)

"For many reasons, PPAs are incredibly difficult to evaluate and then to negotiate with their incumbent legal fees," Hafner said. "Despite the apparent financial advantages that they offer, particularly for nonprofits like state agencies, its not always clear that PPAs are the best procurement strategy.

"Future large-scale systems are expected be financed by means other than PPAs due to the expected expiration of PV tax benefits," Hafner said.

The Hawaii State Public Library System has 283 kilowatts of generating capacity on six of its buildings, all of which it owns.

"Our decision was more budget driven. We had funds appropriated by the Legislature that had to be used for energy efficiency," said Keith Fujio, administrative services officer for the library system.

The current system of allowing state agencies to make their own choices on renewable energy rather than centralizing the decision-making authority appears to be working, said Sen. Mike Gabbard (D, Kalaeloa-Makakilo), chairman of the Senate Energy and Environment Committee.

"One thing to remember is that state facilities are found on each inhabited island and each has its own needs and constraints that may be unique in certain instances," Gabbard said. "Therefore, it’s difficult to fashion a standard state protocol to cover them all. Individual RFPs (requests for proposal) can address the needs and constraints of each individual facility."

The state Department of Transportation has embraced the PPA model to the largest extent of any state agency. The DOT in 2009 had nearly 1,000 kilowatts of generating capacity installed on 10 rooftops at airports around the state in the first phase of an ambitious solar energy project. The department recently signed PPAs for 607 kilowatts of generating capacity on seven other DOT sites around the state. The department is in the process of negotiating an additional 2,690 kilowatts of capacity.

The PPA pricing obtained by the DOT in its latest round of PPA is significantly better than the agreements it signed with Hoku Solar for the 2009 projects. The DOT locked into electricity rates ranging from 32 cents a kilowatt-hour to 38 cents a kilowatt-hour in the 2009 contracts. Although the negotiated rates were lower than utility rates at the time of signing, utility rates did drop significantly later that year, then rose back above the PPA rates in 2011.

Of the seven recently signed PPAs, the lowest rate negotiated by DOT was 13.4 cents per kilowatt-hour for a PV system at the department’s base yard on Maui. Three other PPAs were for less than 20 cents per kilowatt-hour, and the highest was 40.3 cents per kilowatt-hour for a 29-kilowatt system on the roof of the DOT’s base yard on Molokai.

The state community college system also is moving forward aggressively with PPAs, looking to sign deals for 2,200 kilowatts of generating capacity at its campuses on Oahu, Kauai and Maui.

"Basically our thinking was that we would not be able to benefit from the tax credits," said Mike Unebasami, associate vice president for administrative affairs.

"We’re looking forward to getting these PPAs in place and paying less for our electricity."

STATE SOLAR STATISTICS

The state government is Hawaii’s biggest producer of solar-generated electrical power with 1,960 kilowatts of installed capacity and another 6,424 kilowatts in the pipeline.

Source: DBEDT