Hawaii: Going Energy Independent… Out of Necessity

by David Fessler, Investment U Senior Analyst

Wednesday, July 27, 2011

Most of the country is seemingly unsure what to do regarding future sources of energy, especially when it comes to getting off foreign oil. But one state is taking the energy bull by the horns. It has a plan to totally wean itself off fossil fuels.

If you guessed California, you’re wrong. While CA certainly has a green power mindset,  the state I’m talking about has no choice in the matter.

Think warm tropical breezes, grass-skirted hula dancers and black sand beaches…

The Highest Electricity Prices in America

Hawaii, the Aloha State, has the highest electricity prices in America. The average price is $0.36 per kilowatt-hour. Oil-fired generators produce 90 percent of that, with oil imported from the mainland.

It’s not too difficult to imagine what would happen to the island state’s economy with just one Valdez-like accident… Right now, 7.5 percent of Hawaii’s $63 billion GDP is spent on fuel, and 10 percent is spent on food.

The bigger problem for Hawaii is obviously fluctuation in the price of oil. Back in 2008 when oil prices spiked, the local utility got hammered.

Hawaiian Electric Industries (NYSE: HE) produces 95 percent of the 2.4 gigawatts of power used by the islands. In its fiscal year 2011, which just ended, for every $2.40 cents in revenue it took in, it spent $0.90 on fuel oil.


Hawaii’s 10-Year Ku’oko’a Alternative Energy Plan

The Ku’oko’a Plan is out to change all of that. Its goal is to free the Aloha State from all fossil fuel within 10 years. It would rely on Hawaii’s abundance of solar, wind and geothermal resources.

Geothermal alone could provide all of the power needed by the island, and under the Ku’oko’a Plan, it’s the preferred baseload supply to replace the oil-fired generators. However, to date, only 30 megawatts of geothermal have been installed.

Why? Believe it or not, many native Hawaiians are concerned that tapping into the heat from Hawaii’s numerous volcanoes would anger Pele, the goddess of volcanoes… and it’s prevented any widespread implementation of geothermal.

  • The CEO of Ku’oko’a, Roald Marth, says that for most Hawaiians “there’s pain at the pump, and at the plate.”
  • Ted Peck, President of Ku’oko’a, says “the existing utilities want to keep selling high-priced electricity” and aren’t particularly interested in moving towards renewable energy.

Both want the utility to quickly move into renewables and close down the oil-hungry generating stations. Marth and Peck view Hawaii as a “canary in an oil barrel,” beholden to the wild swings in the price of oil.

Besides paying a five-percent dividend, the utility has invested excess capital in real estate, banks and even a tugboat company, none of which have anything to do with power generation. Its management has so far resisted the idea of making sweeping changes to its generation infrastructure.

Hawaiian Geothermal Investment Prospects

If Ku’oko’a succeeds, there will be big money to be made in geothermal projects. Big capital will have to be spent as well, something that Hawaii Electric Industries doesn’t appear to want to do.

The proponents of Ku’oko’a have big plans, not the least of which is acquiring Ormat Technologies, Inc. (NYSE: ORA) the largest builder and operator of geothermal power plants.

It remains to be seen whether the Ku’oko’a Plan will come to pass. Ormat Technologies is one of the best ways to play the geothermal sector, and investors might just receive an upside surprise if the Ku’oko’a Plan becomes a reality.

Good investing,

David Fessler