Hawaii ratepayers are on the hook for $2.4 million in infrastructure costs for Oahu’s Kahuku wind farm, even though it’s only produced a fraction of the energy it was expected to and is now shut down due to a fire that devastated its battery storage facility earlier this month.
During the first half of this year, the wind farm only produced about 15 percent of the energy it was contracted to sell to Hawaiian Electric Co., according to state regulators.
Now, all 12 wind turbines have been taken offline and it could be months before they are back up, said First Wind’s CEO Paul Gaynor at last week’s Asia Pacific Clean Energy Summit and Expo in Honolulu. The wind farm went online in March of last year.
But Oahu’s 300,000 ratepayers are still required to pay for the microwave system and switching station.
HECO defended the consumer costs, saying that the grid improvements held additional benefits to customers and the utility and that it can be difficult for developers to get financing for such costs.
It “is reasonable for the utility to manage these upgrades to make sure customers get the maximum value from the work, not just more renewable energy,” HECO spokesman Darren Pai said in an email.
But in 2010, when the contract was approved, one of the three commissioners at the Hawaii Public Utilities Commission raised an alarm about the contract, envisioning just the situation that the plant is in today. At the time, then-commissioner Les Kondo said that shifting $2.4 million in wind farm costs to ratepayers didn’t make any sense.
“HECO is unreasonably and unnecessarily shifting risk to its ratepayers,” he wrote in a dissenting opinion. “Rather than the risk of cost recovery being on Kahuku Power, HECO’s ratepayers will pay for the interconnection facilities through rates whether or not Kahuku Power’s output is equal to the Annual Contract Energy and will continue to pay those costs even if Kahuku Power generates no energy. And, should Kahuku Power’s facilities cease operation, HECO will likely seek to continue recovering its costs for the facilities from ratepayers.”
Kondo also wrote that HECO had repeatedly argued that it needed to shift such costs to improve its credit rating, which had been reduced to a notch above junk.
Before the recent fire, the Kahuku wind farm only produced an average of 36 megawatt-hours a day of energy during the first half of this year, according to Josh Strickler, chief researcher at the PUC.
But the wind farm is supposed to be producing about 250 megawatt-hours a day, according to PUC documents.
In an email to Civil beat, First Wind blamed the poor output on HECO maintenance work, which shut down the wind farm for part of this summer.
“Our project, prior to the fire, was operating very well in 2012,” John Lamontagne, a spokesman for First Wind, wrote in the email. “From June 2 to July 13, the project was offline as HECO was conducting extensive transmission line maintenance near our project.”
But that doesn’t appear to fully explain the reduction in output, according to information from the PUC.
Problems With Wind Farm Started Early
The recent fire at First Wind’s battery storage facility, while the worst, was not the first.
In May 2011, less than two months after the wind farm was up and running, an inverter caught fire, destroying one of 10 modules that are critical components of the energy storage system that smooths out power to HECO’s electric grid, according to a lawsuit filed by Xtreme Power Solutions, a First Wind contractor that manufactured the battery storage system.
Xtreme Power is suing Dynapower Corp. for allegedly selling it faulty parts for the battery storage system.
Xtreme Power “incurred millions of dollars in costs relating to repair or replacement of damaged and destroyed equipment and components, costs of materials necessary for repairs, and cleaning/ repainting expenses, as well as associated costs of labor, consulting, shipping, and travel,” according to court documents.
In May, another fire destroyed a second inverter.
Officials with Dynapower Corp., which designs and manufactures transformers, did not return a call for comment.
It’s not clear if these fires contributed to a reduction in energy output going into 2012. Lamontagne did not respond to a question about whether the fires played a role in the output drop.
The companies are still awaiting results from an investigation into this month’s fire to determine its cause, said Greg Vistica, a spokesperson for Xtreme Power.
“It’s too early to say if this current fire was caused by any of the problems that resulted in the Dynapower suit,” he said.
First Wind Under Pressure
Boston-based First WInd has successfully operated the Kaheawa wind farm on Maui since 2006. The company recently expanded the 20 wind turbines located on a ridge in west Maui to 34 turbines. The company, which has 13 wind projects throughout the country, is also in the midst of building a wind farm on Oahu’s north shore, called Kawailoa Wind.
But unlike the other wind farms, the Kahuku wind farm used cutting-edge battery storage technology designed to not only smooth out power, but also boost the energy output of the facility.
First Wind secured a $117 million loan from the U.S. Department of Energy last year to build the wind farm, under its Section 1705 loan program. That program has come under fire, particularly by Republicans, in connection with the Solyndra controversy. The solar panel manufacturer was given a $527 million loan and then went bankrupt last year leaving taxpayers on the hook to absorb the loss.
In March, the U.S. House Committee on Oversight and Government Reform, led by GOP Rep. Darrell Issa of California, issued a critical report on the program which ended last September after the government had approved 27 projects totaling more than $16 billion in loans.
The bipartisan committee report said that Solyndra’s collapse was “just the tip of the iceberg” and that the U.S. Department of Energy had “turned a blind eye to the risks that have been glaringly apparent since the inception of the program.”
The investigation “uncovered numerous examples of dysfunction, negligence and mismanagement by DOE officials, raising troubling questions about the leadership at DOE and how it has administered its loan guarantee programs,” according to the report.
Of the 27 projects, 23 of them were rated as “junk,” the grade assigned to investments with poor credit ratings. The Kahuku project was rated BB+.
The loan program, part of the President Barack Obama’s stimulus package, was designed to create jobs, but also encourage innovative technologies.
First Wind’s CEO said at the time the loan was finalized in 2010, that commercial lenders and investors hadn’t been willing to fund the new battery technology, according to an Associated Press story.
If the Kahuku wind farm’s problems aren’t sorted out it could mean taxpayers would be on the hook for the energy loan.
And it could prove to be a serious financial blow for First Wind.
The wind developer is only getting paid for the energy that is fed into HECO’s electric grid, according to Pai.
“That’s a huge investment they have sitting up there,” said Strickler, noting the 12 2.5-megawatt wind turbines. “The bank doesn’t stop calling when the wind farm goes down. I’m sure they are pretty stressed.”
Lamontagne said that First Wind has made every payment on its loan to the DOE and will continue to do so. He said to date the company had paid back more than $30 million on the loan.
First Wind’s reduced output could also cause major problems in the future for the wind developer if it continues.
According to the contract, HECO will reduce the amount of energy that it buys from First Wind after four years to the average amount produced during that time. So if First Wind only produces an average 15 percent of its contracted amount after four years, that’s all it will get paid for after four years, even if the wind farm is producing at full capacity at that time.
There is one way out of that clause, according to the contract. First Wind can elect to pay damages during the time period that it’s not producing at least 80 percent of the energy its contracted to sell. Based on figures so far for 2012, the fine could amount to about $700,000 this year.
Lamontagne said that it was was premature to speculate on whether the company would exercise this option, adding that the reduced output this year was a result of events beyond the company’s control.
|Wind Watch relies entirely
on User Funding