HELCO dumps Hu Honua

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Hawaii Electric Light Co. plans to kick one of its renewable energy partners to the curb.

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Hawaii Electric Light Co. plans to kick one of its renewable energy partners to the curb.

The utility said this week it likely will terminate next month a power purchase agreement with the foundering Hu Honua Bioenergy LLC plant in Pepeekeo, after the company failed to meet key deadlines in its effort to provide Hawaii Island with up to 10 percent of its energy needs in renewable power, totaling 21.5 megawatts.

HELCO announced its intentions in a Tuesday filing with the state Public Utilities Commission in response to a Jan. 28 order by the PUC to provide an update on the status of the agreement. Hu Honua’s renovations of the former coal-fired plant that once powered the Hilo Coast Processing Co. have dragged on for years, after a number of project delays and financial challenges.

In its January order, the PUC noted that “the project appears to have been significantly delayed with no apparent (commercial operation date) in the near future,” having missed its Jan. 22 deadline to begin operation.

HELCO confirmed those concerns on Tuesday and announced that “absent compelling changes in circumstances, the company intends to terminate the (power purchase agreement) effective March 1, 2016.”

According to HELCO’s update, “it is undisputed that (Hu Honua) failed to meet” a July 22 deadline by which the plant’s boiler was to pass a hydrostatic test, meant to test its ability to handle high pressure. Later, the plant also failed to meet the Jan. 22 deadline by which it was to have begun commercial operations, HELCO said, adding that Hu Honua “has no ability to cure this default or achieve commercial operations in the near future.”

Hu Honua has asserted that it requires $125 million to complete construction of the plant, according to HELCO, and submitted a letter from a potential financing partner saying that it would commit those funds provided HELCO extend the hydrostatic test deadline to April 30, 2017, and the commercial operation deadline to Aug. 30, 2017.

On Jan. 14, a Hu Honua representative reportedly offered “a significant reduction” in the pricing of future power purchases if HELCO did not pull out, but a day later the utility issued a notice of its intention to terminate the agreement.

According to HELCO, a financial statement provided by Hu Honua “indicated that the project would incur further financial losses if it was to proceed to completion than if it were to be abandoned at this point in time,” the Tuesday filing reads. “This information provides no confidence to (HELCO) that (Hu Honua) is being forthright in its disclosures to (HELCO) and/or that (Hu Honua) has a sound business plan in place that is in the best interest of customers and makes sense financially for (Hu Honua’s) investors.”

In a phone interview Thursday afternoon, Hu Honua CEO John Sylvia defended the construction project, blaming the missed milestones on HELCO’s inability to provide updated deadlines after an unforeseen labor dispute with a contractor that put the brakes on construction.

“What’s necessary now is to resolve the milestone dates in the (power purchase agreement),” he said. “It’s hard to send a contractor on site to build a power plant without a new set of dates.”

Sylvia said his company had so far spent about $100 million on the project, nearly completing the design, engineering and procurement phases, with construction currently sitting at about 50 percent complete. Sylvia also said he was surprised to see HELCO’s concerns about the project’s funding.

“I’m aware of the information they’re looking at, and I believe they’re just not understanding the information. Nobody would spend $100 million, then spend another $100 million, just to lose that money,” he said. “I think they are confused and just not understanding the situation.”

The Hu Honua CEO added that his company will file a response to the PUC no later than Feb. 23.

“The situation with the utility in Hawaii now is incredibly tumultuous. There are very different forces in play, so it’s not a surprise that the utility finds itself pursuing actions based upon its perspective,” he said.

In a statement issued Thursday, HELCO President Jay Ignacio argued the utility had gone above and beyond to make the agreement with Hu Honua work.

“We have been working hard to increase and diversify the renewable energy mix on Hawaii Island,” he said. “We supported the Hu Honua project, which would have added 21.5 (megawatts) of base-load renewable energy to our grid. Multiple project delays, failure to meet critical construction milestones including passing a boiler hydro test, and failure to meet contract guarantees caused us great concern about the likelihood this project could be completed.

“Even though we had the right to terminate our contract with Hu Honua last November, we tried to work with them and provided them additional time to meet its contract obligations if they would offer revised contract terms that would benefit our customers, but they have not done so. We have provided them additional time until March 1 to address the concerns we’ve raised.”

HELCO’s announcement this week marked another in a string of recent setbacks for renewable energy projects in the state — all coming as the Hawaiian Electric companies enter the home stretch in their push for the PUC’s approval of their $4.3 billion acquisition by NextEra Energy Inc.

PUC Chairman Randall Iwase issued a statement on Thursday airing his disappointment over the status of Hawaii’s renewable energy projects. In addition to the planned dissolution of the Hu Honua agreement, he pointed to HELCO’s announcement last week that negotiations with Ormat Nevada Inc. to provide geothermal energy had collapsed, HECO’s decisions to terminate power-purchase agreements for three solar projects on Oahu, and HECO’s continuing slow progress to approve rooftop solar for customers across the state.

“The commission currently has open proceedings to review each of these matters and will thoroughly investigate the conduct of the HECO companies,” he wrote. “However, as chair, I must share my concern that, collectively, these events send the wrong message to third party developers that desire to compete for clean energy business opportunities in Hawaii, and appear to represent a step backwards from the state’s clean energy goals.”

Iwase added that recent events raise “serious questions about the HECO companies’ actions.”

In the case of Hu Honua, termination of the power purchase agreement would come after a yearslong effort to get the plant off the ground.

HELCO first filed an application for PUC approval of its power purchase agreement with Hu Honua in August 2012. The plant was to generate electricity from burning of biomass — approximately 260,000 tons a year, comprised primarily of eucalyptus trees planted along the North Hilo and Hamakua coasts. The 20-year agreement with HELCO sought to provide 21.5 megawatts to the utility’s customers, enough to power 14,000 homes. It was to supplant energy generated by oil-fired power plants, displacing approximately 250,000 barrels of oil every year.

Site preparation work began about a year before the initial PUC application was filed, shortly after the project received its air permit from the state Department of Health’s Clean Air Branch in September 2011. Since then, renovations at the site have moved in fits and starts, beset by one delay after another.

Hu Honua’s original contractor, Hawaii Dredging Construction Co., stopped work in 2014 in what Sylvia referred to as a “labor dispute.” Hawaiian Dredging later claimed Hu Honua owed the company $35 million in unpaid bills. The companies later reached a settlement, with Hu Honua bringing in Performance Mechanical Inc. to complete the job.

In January 2015, Sylvia said in an interview with the Tribune-Herald that site work and equipment deliveries were progressing well, and he anticipated a completion date around April 2016.

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Then in April 2015, the company announced layoffs at the site, citing “market developments” that forced “temporary labor force reductions,” as well as an adjustment of the construction schedule and operational plans.

Email Colin M. Stewart at cstewart@hawaiitribune-herald.com.

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