Coming PUC Decision Could Make Ka`u Solar Projects Uneconomical

An outdated and overpriced tariff scheme. An entrepreneur who exploited loopholes in a law intended to benefit small farms. And a residential community that is seething over the prospect of more than two dozen photovoltaic arrays, intended to generate more than six megawatts, scattered across a rugged landscape that ranges from near desert conditions to dense `ohi`a forest.

These are just a few of the elements that have combined to create a controversy over a renewable energy project in the remote subdivision of Hawaiian Ocean View Ranchos (HOVR) in the Ka`u district of the Big Island.

The solar projects were approved years ago as part of the so-called Feed-in Tariff (FIT) program. The intention was to give owners of small, “shovel-ready” renewable energy projects, including those on certain agricultural lands, a way to sell power to Hawaiian Electric utilities without having to engage in lengthy negotiations over terms of a power purchase agreement.

Beset by a host of problems, the FIT program has stalled out, for the most part. As of last year, just over 20 megawatts of FIT renewable energy had been installed, out of the 80 MW allowed statewide. No new FIT applications have been filed in years.

In the Ranchos subdivision, though, the problems associated with FIT projects proposed by one company are reaching a climax.

Although the projects were approved with effectively no opportunity for the public to weigh in on the matter, there’s one last hurdle that needs to be overcome before the solar panels – 30,000 of them, more or less – can go up. The PUC must approve the request of the Big Island utility, Hawaiian Electric Light Co. (HELCO), to install an overhead 69 kV transmission line to carry the electricity they generate to a new substation in HOVR. The utility formally made the request last August in PUC Docket 2015-0229. A decision is pending.

If the commission decides that an overhead line should not be built, HELCO would then be left with no choice but to put it underground – at a cost that could, residents are hoping, be a deal-killer for the whole project.

‘Inconsistent with the Public Interest’

The idea of building multiple small-scale solar arrays on state-designated agricultural lands, all qualifying for the special treatment afforded to FIT projects, may not have originated with Patrick Shudak, but he certainly ran with it. He bought or leased dozens of properties on O`ahu, Maui, and Hawai`i island, and proceeded to obtain building permits (as required by the FIT program) allowing his companies – Solar Hub and a number of subsidiaries – to erect the solar arrays.

Nowhere were the sites more concentrated than in the Ranchos subdivision. There, Solar Hub subsidiary Ohana Solar went on a buying spree, putting 20 three-acre lots in escrow and then placing them in the active FIT queue for mid-size projects. (Only 19 lots were eventually purchased, 18 in Ranchos and one in a nearby subdivision, Kula Kai. One owner apparently grew weary of waiting for Shudak to close and sold the land to another party.) Immediately to the east of the Ranchos subdivision, Solar Hub placed eight larger parcels of 21 acres each in the FIT queue.

FIT Tier 2 projects – the kind that Shudak proposed – were intended to be small-scale, with a capacity no greater than 250 kilowatts. To encourage participation in the program, developers on Hawai`i island were assured a payment of 23.8 cents per kilowatt hour, far above any negotiated rate for large-scale power purchase agreements. (Current PPAs call for around 14 cents per kwH.)

Shudak obtained loans for his purchases from SPI Solar, a subsidiary of SPI Energy. That parent company is based in Shanghai but last year moved its corporate headquarters to the Cayman Islands. In 2012, SPI acquired all of Shudak’s projects and it is now working with HELCO to develop the required substation and power lines they require.

HELCO has claimed that the substation “will serve the entire Ocean View community,” resulting in “better reliability and power quality.” However, the anticipated load far exceeds the needs of the local area. According to HELCO, the projects will produce more than 700 percent of Ocean View’s demand.

In addition, as many of the Ranchos residents have noted in their comments on the PUC docket, they have not experienced any problem with HELCO’s service at current levels – no flickers, outages, or other issues with reliability or quality.

In its statement of position (SOP) filed with the PUC, the Division of Consumer Advocacy raised many of the same points. “The FIT process was deemed necessary at the time to encourage renewable energy project development, but the need for FIT projects, at compensation rates that are no longer reasonable, may not be consistent with the public interest at this time,” it stated in its filing of June 29.

The projects and associated infrastructure, the SOP continued, “could adversely affect the existing and future residents who live and/or will live next to or near the proposed FIT projects and associated infrastructure.” Also, with 26 of the 27 projects “owned or controlled by the same entity/entities, these projects may have been an attempt to circumvent the competitive bidding process since the combined capacity of the 26 FIT projects in question exceeds the competitive bidding threshold for the island of Hawai`i.” (For projects over 5 megawatts capacity, the utilities are supposed to engage in a process of competitive bidding to keep power costs low.)

The SOP went on to comment on certain irregularities associated with the overall process of approving FIT projects, echoing concerns raised by a number of Ranchos residents, 600 of whom signed a petition opposing the projects in their neighborhood. “At the time when FIT projects were being reviewed for possible approval, the Consumer Advocate placed significant reliance upon the established FIT process, which included the retention of an independent observer (IO) to help protect the public interest,” the SOP stated. “At this time, however, the Consumer Advocate is concerned that the IO failed to properly address relevant issues … [I]n reviewing the proposed Ocean View extension, the commission should take note of these issues related to the FIT projects and take the appropriate actions to protect the public interest.”

Community Involvement

In an effort to allay possible PUC concerns over perceived indifference to the community’s wishes, attorneys for SPI-affiliated companies filed with the commission a table showing the companies’ efforts to address them.

Company representatives met with the community in June and July 2015, the attorneys note. Another meeting was scheduled for September, but “a severe storm causing perilous road conditions prevented project representatives from being able to attend,” they state

In response to concerns that construction of the arrays would destroy stands of `ohi`a trees on some of the lots, they wrote, “the 26 Solar Project Owners are working with the Hawaiian Agricultural Resource Center (HARC) in an effort to fund research to cure the deadly disease that is impacting `ohi`a trees in the area” – an apparent reference to rapid `ohi`a death (ROD) caused by the fungus Ceratocystis fimbriata.

HARC has not been a major player in the full-on effort to investigate ROD, but has been following the work of scientists and researchers on the Big Island who are heavily involved.

Blake Vance, assistant director of HARC, told Environment Hawai`i that although it had been working with SPI on the construction of  two photovoltaic assemblies on HARC property on O`ahu, it had not done anything with SPI in relation to rapid `ohi`a death and had received no funds from the company for that purpose.

Scientists on the Big Island who are heading up research into ROD told Environment Hawai`i that they had never heard of the company or its Ka`u projects, much less had they received any support from SPI.

A Failed Fix

State Rep. Richard Creagan, whose district includes the Ranchos subdivision, introduced in the 2016 regular session of the Legislature a bill that was designed to prevent the development of large-scale solar energy production in residential subdivisions on land in the state Agricultural District.

House Bill 2636 would have amended Chapter 205 of Hawai`i Revised Statutes to require a special permit be issued by Hawai`i County for solar projects on Ag lands whenever the total capacity exceeded 25 kilowatts.

The Department of Agriculture opposed it, stating that the only benefit would be to “non-conforming residential uses” on Ag land. The Office of Planning opposed it as well, favoring instead “a more comprehensive land use reform.”

Ann and Peter Bosted, Ranchos residents who have been among the leaders of the opposition to the SPI projects, testified that the 2011 law allowing solar projects on less productive ag lands – the same law that paved the way for Shudak’s buying spree – had been aimed at “bona fide agricultural land owners and lessors, not a huge international corporation buying three-acre housing lots that happen to be zoned ‘agriculture’ and installing 27 three-acre solar installations among homes.”

Contrary to critics of the bill who objected to its narrow focus, the Bosteds noted that it was not only about the “Ocean View situation.” “The district of Puna, near Hilo, has many huge non-conforming subdivisions, such as Hawaiian Acres, Eden Roc, Fern Forest, Hawaiian Paradise Park, Hawai`i Beaches Estates, Aina Loa Estates, Orchid Land Estates, Leilani Estates, Nanawale Estates, Vacation Lands, Kalapana Black Sands, Kalapana Gardens, and Kalapana Sea View Estates. Any one of these could fall victim to being industrialized,” they wrote.

The bill made it through to the waning days of the Legislature, but then failed to move out of conference.

Land Control

To qualify for a place on the FIT queue, developers had to secure control of the land where their project would be sited for at least 20 years, either through a lease or outright ownership.

In most cases, SPI subsidiaries own the land outright. However, eight of the projects have been proposed for large, 20-plus-acre lots in a paper subdivision called Kona South Estates, immediately to the west of Ranchos. The subdivision has no built roads and no legal access to any of the stub-outs of roads from the Ranchos subdivision.

The lots are owned by the Doolittle Trust, which purchased them in April 2013. Neither the Hawai`i County Department of Finance nor the state Bureau of Conveyance has any record on file of an encumbrance on the Doolittle lots in favor of SPI or its subsidiary South Point FIT, LLC. The deed conveying ownership mentions no qualifications or encumbrances other than the standard ones regarding mineral rights and Native Hawaiian rights.

Enrollment in the FIT program did not require outright ownership, but it did require, in the absence of ownership, a letter of intent from the owner committing to a lease of 20 years, the expected lifetime of the solar array.

Ann Bosted notes that this letter “has to be renewed every three months…. HELCO claims these letters exist,” although it has not disclosed them to Bosted. If the developer were to have complied with those terms, there should be four years’ worth of such letters in HELCO files – for each of the eight lots – from the two owners of record of the properties since 2012.

Environment Hawai`i asked one of the attorneys representing the SPI companies to explain the nature of control that its clients have over the Doolittle lots. No reply had come by press time.

— Patricia Tummons

Volume 27, Number 2 August 2016