“Looking back with hindsight, the business opportunities were on the generation side, and the utility was going out for bid with all these big renewable-energy projects. But in retrospect, it seems clear, we weren’t as focused on these fire risks as we should have been.”
– Doug McLeod, former Maui county energy commissioner (quoted in WSJ, below)
Opportunity cost is a central concept in economics. Economics is about the unseen versus the seen. Resources spent in one direction are not spent in another. The same goes for corporations as politically correct, economically incorrect priorities crowd out good. Climate change policy is a premier example.
Government-forced substitution of dilute, intermittent energies for reliable incumbents has not only cost taxpayers and ratepayers. It has also cost the environment–dearly. The recent saga of Hawaiian Electric’s preoccupation with “the energy transition” at the expense of grid safety and reliability is the latest example of this.
As documented in the Wall Street Journal (and highlighted on the editorial page), the Maui tragedy is a cost of climate policy. And it is a reason why climate policy unintendedly promotes CO2 emissions that it otherwise is desperately trying to mitigate, a story for another day.
Here is my (unpublished) letter-to-the-editor at the Wall Street Journal: that goes over some other examples of government bringing out the worst in the business of energy.
The prioritization of “green” energy has brought black results [WSJ Editorial, “Maui’s Fires and the Electric Grid” (August 19-20, 2023) A12]. But the problem of climate and business imprudence is wider.
BP’s “beyond petroleum” focus was a factor behind the 2010 Deepwater Horizon tragedy. And right before its collapse in 2001, solar developer and windpower leader Enron trumpeted how “incorporating environmental and social considerations into the way we manage risk, govern our projects, and develop products and services will help us maintain our competitive advantage.”
Rent-seeking by corporations and political correctness tend to crowd out the economically sound.
Wall Street Journal
Regarding Maui, here are some quotations from “Utility Knew Wildfires Were Threat, but Waited (Wall Street Journal, August 17, 2023, p. 1) by Katherine Blunt, Dan Frosch and Jim Carlton
During the 2019 wildfire season, one of the worst Maui had ever seen, Hawaiian Electric concluded that it needed to do far more to prevent its power lines from emitting sparks…. Nearly four years later, the company has completed little such work…. In filings over the next two years with the Hawaii Public Utilities Commission, which is tasked with approving utility projects and spending, the company made only passing reference to wildfire mitigation.
Former regulators and energy company officials said the utility was focused at that time on procuring renewable energy…. In 2015, lawmakers passed legislation mandating that the state derive 100% of its electricity from renewable sources by 2045, the first such requirement in the U.S. The company dove into reaching the goals….
“You have to look at the scope and scale of the transformation within [Hawaiian Electric] that was occurring throughout the system,” said Mina Morita, who chaired the state utilities commission from 2011 to 2015. “While there was concern for wildfire risk, politically the focus was on electricity generation.” The drive to reach the renewable goals also preoccupied private energy companies working with Hawaiian Electric and state energy officials, said Doug McLeod, a consultant who served for several years as the Maui county energy commissioner. “Looking back with hindsight, the business opportunities were on the generation side, and the utility was going out for bid with all these big renewable-energy projects,” he said. “But in retrospect, it seems clear, we weren’t as focused on these fire risks as we should have been.” …
In June 2022, Hawaiian Electric sought regulatory permission to raise rates to fund a more comprehensive plan to prepare the grid for new climate change-related stresses, including elevated risk of wildfire. It said it planned to spend about $190 million on removing potentially hazardous trees, replacing and upgrading power lines, and other protective measures, many of which have been undertaken by other utilities throughout the West. As in many regulatory proceedings, the proposal has taken months to advance…. Hawaiian Electric said it believed there was an urgent need to complete the upgrades, but that it wouldn’t start on the work until it has state approval to recoup costs from customers—a common occurrence when utilities seek to make large investments….
PG&E, the Northern California utility giant, sought bankruptcy protection in 2019 after its power lines ignited a series of major fires, including the 2018 Camp Fire that killed 84 people and destroyed the town of Paradise Calif. That had been the deadliest wildfire in modern U.S. history until the Maui fire….
Since PG&E’s bankruptcy, Hawaiian Electric has made reference in regulatory filings to the risks of power-line fires, but it waited years to take significant action, documents and interviews show. During that period, the company was undertaking a state-mandated shift to renewable energy….
WSJ Editorial, “Maui’s Fires and the Electric Grid” (August 19-20, 2023) A12
The deadly fires in Maui last week are still being investigated, and there may have been more than one contributor. But one culprit that seems to be emerging is the trade off the local utility had to navigate between power grid safety and the government-mandated green energy transition. Video footage points to fallen power lines as a possible cause of the deadly fires….
If Hawaiian Electric’s lines did ignite the fires, it would echo the problems of PG&E, the California utility that filed for Chapter 11 bankruptcy in 2019 after getting sued for tens of billions of dollars for damages from fires caused by its equipment. The 2018 Camp Fire killed 84 people and razed the town of Paradise.
What both utilities have in common is that they prioritized growing renewable power to meet government mandates over hardening their systems and reducing fire risk. In 2015 Hawaii lawmakers required that 100% of the state’s electricity come from renewable sources by 2045. California and some other states followed with similar mandates.
Hawaii’s mandate was an especially tall order since only about 20% of its power in 2015 came from renewables. The islands lack large amounts of empty land to build solar and wind. They also lack natural-gas power that can ramp up quickly to back them up.
Most of Hawaii’s power was derived from oil and coal. To meet the government mandate, Hawaiian Electric embarked on a rapid renewable build-out, which involved heavily subsidizing rooftop solar and batteries and contracting for large-scale renewables at elevated prices.
Oil can be an expensive fuel source, but decommissioning fossil-fuel plants prematurely wastes sunk capital. Every dollar the utility spent on subsidizing solar and connecting renewables to the grid was one less dollar available for strengthening equipment and removing combustible brush.
Despite rising fire risk from non-native grass, Hawaiian Electric spent less than $245,000 on wildfire projects on the island of Maui between 2019 and 2022. Not until last year did the utility seek state approval to raise rates for wildfire-safety improvements, which it still hasn’t received…. Hawaiian Electric now generates about 40% of power from renewables and at times produces more solar power than the grid can handle.
Grid upgrades required to connect renewables and balance their intermittent flows can divert scarce capital from system improvements needed to withstand physical stress, such as from heavy winds. A fraying electric grid is a nationwide problem. Consultants at Marsh McLennan estimate that more than $700 billion will need to be spent to replace aging transmission lines and maintain grid reliability. Sixty percent of U.S. distribution lines have surpassed their 50-year life expectancy….