Big Isle biomass plant is down but not out

Honua Ola Bioenergy spent more than six years and over $400 million building a biomass plant on the Big Island that is now 99% completed.

But the company may never see any payback for its efforts.

A state Public Utilities Commission ruling on July 9 that struck down an amended power purchase agreement between Honua and Hawaii Electric Light Co. effectively put an end to the project in Pepeekeo. But there still could be a chance to resurrect the project if Honua files a motion for reconsideration with the PUC by today’s deadline and ultimately prevails with the PUC or at the judicial level.

Honua also could still advance its plan against other renewable energy projects in a competitive bidding process and submit it to the PUC for review.

There’s a lot on the line for the company formerly known as Hu Honua Bioenergy, which already has spent millions of dollars converting the old Hilo Coast Processing Co. facility into a biomass plant that would burn trees to generate electricity. Besides the lost investment that a shutdown of the plant would create, ending the project is expected to result in the layoffs of 64 current Honua employees and contractors, and the loss of an additional 145 ancillary positions. The plant was anticipated to be completed and ready to begin this year.

The initial agreement between HELCO, now known as Hawaiian Electric, and Honua called for the utility to buy power that would be produced by burning eucalyptus trees growing along the Hamakua Coast as well as other timber. The plant was expected to produce 21.5 megawatts of power and reduce the amount of imported oil used on the Big Island by 250,000 barrels a year, a savings of about $20 million, according to Honua. HELCO ratepayers also would see decreased price volatility against fluctuating oil prices and would see lower costs than from fossil fuel, Honua said. Hawaii has made it a goal to achieve 100% clean energy by 2045.

The PUC’s ruling, in which it denied a request from HELCO to waive competitive bidding, reversed two previous decisions — in 2013 and 2017 — when the PUC agreed to bidding waivers and approved the power purchase agreement between HELCO and Honua. The only reason the matter came before the PUC again was because its 2017 approval of the agreement between HELCO and Honua was challenged by the nonprofit environmental organization Life of the Land, which argued the PUC violated state law when it approved the power purchase agreement. In May 2019 the state Supreme Court agreed and rejected the deal between HELCO and Honua, writing in its order that when the PUC approved the power purchase agreement, it failed to “explicitly consider” the state’s goal of reducing greenhouse gases, which is required under state law.

The Supreme Court ruling instructed the PUC to hold an evidentiary hearing regarding greenhouse gas emissions and allow Life of the Land to be part of the proceedings. When the PUC’s latest decision came down, Honua said it had been waiting for more than a year — while continuing construction — to demonstrate at the hearing that its plant operations would result in a significant reduction of greenhouse gases and bring numerous other benefits to Hawaii island.

Honua President and CEO Warren Lee was appalled by the PUC’s ruling and said the PUC should have only addressed the greenhouse gas matter and not revisited the waiver issue.

“Their order is essentially pulling the plug on this (project),” Lee said Thursday in a phone interview. “We disagree with the PUC decision because it improperly revoked a waiver that had already been approved two times that allowed the project to move forward and upon which Hu Honua relied upon to spend hundreds of millions of dollars.”

He didn’t want to tip his hand on whether the company would file a motion for reconsideration but acknowledged that the 10-day deadline for doing so was today.

PUC Chairman James Griffin, one of three PUC commissioners, said by phone Friday he could not elaborate on the case.

“Given that there’s still a period for further legal actions and motions, there’s no comment,” he said.

PUC chief counsel Caroline Ishida said the agency was within its right to deny the waiver. She said the Supreme Court’s decision vacated the entire prior PUC decision, including the waiver matter. In other words, it rendered that decision void in its entirety, and sent it back to the PUC for further proceedings, she said.

“When the PUC reopened the proceeding in June 2019, consideration of the request for a waiver was Issue #1, and briefings were filed by all parties on this issue,” she said Friday by email. “Competitive bidding is required for new renewable energy projects, and a waiver from competitive bidding is considered the exception, not the rule.”

Since the time that the case went to the state Supreme Court, there are now two phases of solar projects either underway or planned for Hawaii island that went through competitive bidding. In Phase 1, two solar plus storage projects were selected for Hawaii island and, in March 2019, the PUC approved the subsequent power purchase agreements that HELCO filed with the PUC for those projects. Phase 2 is currently underway and HELCO has selected two additional solar plus storage projects. Negotiation of the power purchase agreements between HELCO and the winning bidders are ongoing, and if they are able to reach a final agreement, those agreements will be filed with the PUC for review.

Ishida said before deciding whether to approve the power purchase agreement in the PUC’s most recent decision, it needed to address the “threshold issue” of whether the project should be permitted to bypass the competitive bidding requirements.

“Each time the PUC reviews a request for a waiver from competitive bidding, the PUC must consider the facts and circumstances at the time of the decision,” she said.

The PUC has a procedure called the competitive bidding framework that was established in 2006 for all new projects being proposed to sell energy through the Hawaiian Electric Companies. In HELCO’s case, it is the single buyer of energy from projects on the Big Island through a power purchase agreement. Many companies compete to sell power to HELCO. Waivers sometimes can be awarded to expedite projects because a competitive bidding process can take several years, or there might be other considerations to the project being proposed.

Ishida said after considering the arguments, the PUC determined that the benefits and costs of the biomass project should be compared against other renewable energy projects in a competitive bidding process.

“The PUC noted the potential benefits of the Hu Honua project but also cited the monthly bill increases for HELCO’s customers and the long-term impacts of a 30-year contract with a cost premium of 2-3 (times) over other renewable energy sources with similar operational characteristics,” she said.

As for the other key issue, the emission of greenhouse gas was a concern of Life of the Land Executive Director Henry Curtis, who challenged the PUC’s 2017 ruling that led to the Supreme Court remanding the case back to the PUC. Greenhouse gases can have far-ranging environmental and health effects, according to the publication National Geographic.

“Because the PUC denied HELCO’s request for a waiver from competitive bidding, consideration of the Project’s greenhouse gas emissions was rendered moot,” Ishida said. “However, out of recognition of the Hawaii Supreme Court’s legal guidance on this issue, the PUC included a discussion on the Hu Honua Project’s estimated greenhouse gas emissions impact, including the greenhouse gas emission reports submitted by HELCO and Hu Honua.”

The PUC first approved a waiver for Honua from competitive bidding in 2008 to increase the amount of firm — or 24/7 guaranteed — renewable energy on HELCO’s system, without increasing the amount of intermittent renewable energy, such as from solar and wind, that are affected by changes in weather conditions. Honua and HELCO signed a power purchase agreement in 2013 and it was approved in December of that year by the PUC. Construction began in 2014 and reached roughly 50% completion by 2015.

But HELCO terminated the agreement in early 2016, claiming certain construction milestones were not met. Hu Honua pursued legal action and a settlement agreement was reached in 2017 when HELCO agreed to rescind its termination and work with Honua to get PUC approval of an amended power purchase agreement that would lower Honua’s pricing and commit Honua to a 30-year PPA term. In July 2017, within three months of the waiver request, the PUC approved the PPA, including a waiver from competitive bidding.

But the third time was not a charm for Honua, which saw the PUC move forward with solar and storage projects on the Big Island during the two-year period when the Honua case was up for appeal.

“The Supreme Court sent the matter back to the PUC for further proceeding and the PUC was required to do two things,” Lee said. “One was to consider the greenhouse impact from the Hu Honua project and the second was to hold an evidentiary hearing that evidence may be presented on the greenhouse impact. The PUC did not make a specific finding in its written decision regarding the greenhouse gas impact.”

Lee said the benefit of the biomass project is that it can reach carbon neutrality, or be carbon negative, while using trees as a form of energy. The company said it would plant and grow new trees that could soak up carbon emissions, or greenhouse gas emissions, from the atmosphere.

“The Hu Honua plan was to basically use the planting of new trees, or the growing of trees, as a carbon sink and the new trees would remove carbon emissions from the atmosphere,” he said. “We consider ourselves like the cornerstone of economic diversification and strength on the Big Island. This all comes down to jobs, economic diversification and sustainability.”

Lee, claiming that the PUC is “changing horses,” said the PUC’s decision sends “a really bad message for investment in the state of Hawaii and relying on government approvals.”

“If a government agency is allowed to just reverse itself after it approved us twice before and leave us stuck with spending over $400 million with no recourse, it sends a really bad message for people who want to do business in the state,” he said.