SB1342

SECTION 1. The legislature finds that the climate crisis is the overriding challenge of the twenty-first century, presenting significant threats to the environment, public health, and economic stability of the State of Hawaii.

Hawaii first established a binding renewable portfolio standard twenty years ago. The renewable portfolio standard is a policy that recognizes the need to avoid oil price volatility and the climate impacts of our electricity needs by prioritizing the development of renewable energy resources. The Hawaii natural energy institute submits a report every five years on the effectiveness and achievability of the renewable portfolio standard. The most recent report released in December 2023 found that the utilities will likely meet their 2030 renewable portfolio standard targets.

As the renewable portfolio standard continues to transform the State's electricity system, it requires modifications to address emerging trends. In 2015, Hawaii set the nation's first one hundred per cent renewable portfolio standard, in recognition of the importance of action to combat the climate crisis. In 2022, the State amended the renewable portfolio standard to be based on net electricity generation rather than sales to better account for the climate impacts of grid operations.

Biofuels could provide a significant contribution to the State's clean energy goals, and market certainty could incentivize biofuels refined locally using local feedstock to achieve very low carbon footprints. By contrast, the current renewable portfolio standard could allow biofuels with a very high carbon footprint to satisfy clean energy requirements, which would be at odds with one foundation of the renewable portfolio standard. For example, the World Wildlife Fund estimates that eighty per cent of deforestation in the Amazon region is caused by cattle ranching, which supplies beef tallow to make biofuel that currently qualifies as "renewable" under the renewable portfolio standard.

Recent energy system studies by the Hawaii natural energy institute, the Hawaiian Electric Company, and the Hawaii state energy office all show the need for a diverse generation portfolio to complement cost-effective solar and wind development. Investments in this complementary generation capacity should incentivize the use of low- or no-carbon fuels, and the renewable portfolio standard should address the procurement of this decarbonized capacity.

Capacity markets set prices for investment in generation capacity to match supply and demand well into the future based on rigorous studies. In a typical capacity market, generators bid on the right to build a power plant in an auction established by state or federal law. Capacity markets can be used in wholesale electricity markets to pay generators to be available to produce electricity at peak demand several years into the future. Capacity markets are an important tool for limiting high carbon dioxide emitters from participating and for incentivizing natural gas power plants to switch to hydrogen. These markets provide for diverse clean generation portfolios needed to meet demand in an economical way.

Grid operators in New York, New England, the Midwest, and Mid-Atlantic all have capacity markets to ensure adequate reliable capacity. Grid operators in New York, New England, and the Midwest have been updating their capacity markets to take into account the increasing quantities of renewable energy resources being added to the grid. In addition, many European countries have seen success with capacity markets through a central annual auction and a fixed amount of capacity demanded by central authority. For European countries, capacity can be met by power plants, storage facilities, or through demand response. The grid operator in the Mid-Atlantic, known as PJM, allows capacity to be met by new and existing generators, demand response, and energy efficiency and transmission updates.

Capacity market pricing can vary greatly across regions and seasons. The grid operator in the Midwest, known as MISO, has established capacity prices that vary by season that address significant changes in electricity demand over the course of a year. In the Midwest, seasonal clearing prices for the summer, fall, winter, and spring were $30/megawatts-day, $15/megawatts-day, $0.75/megawatts-day, and $34.10/megawatts-day. In the Mid-Atlantic, PJM, the largest power grid operator in the U.S., assigns values based on the type and costs of generators, with prices for the 2026 market ranging from $52 for a combustion turbine, $64 for steam oil and gas, $70 for solar photovoltaic, $113 for combined cycle, and $147 for onshore wind.

The renewable portfolio standard should increase the incentive for capacity that commits to using low- or no-carbon fuels, based on a lifecycle greenhouse gas assessment of the plant and the fuel. One key benchmark has been set by the U.S. Department of Energy Clean Hydrogen Production Standard Guidance, which establishes a target of four kilograms of carbon dioxide equivalent per kilogram of hydrogen for life cycle (defined here as "well-to-gate") greenhouse emissions associated with hydrogen production.

Distributed solar is the State's largest source of renewable energy. Maximizing distributed solar will be critical to meet the clean energy needs of Oahu, and can help avoid competition for land use across the State. Further, distributed solar provides energy security and resilience to residents across the State. Recognizing the unique and foundational role of distributed solar will strengthen the renewable portfolio standard and align the successful transformation of the electricity sector with resilience, equity, and food security goals. Similar to the market certainty for local biofuels and other low-carbon fuels, the renewable portfolio standard should remove caps on investment in distributed solar related to outdated policies, support equitable access to distributed solar for low- and moderate-income households, and enable these resources to provide dispatchable renewable energy in a modern grid.

The renewable portfolio standard can be improved to better mitigate oil price volatility, which still provides nearly seventy per cent of the State's electricity, and avoid high-carbon renewable energy. This Act will improve the effectiveness of the renewable portfolio standard law, which stipulates the central role of Hawaii's electric utility companies in complying with the State's renewable energy and climate goals.

SECTION 2. Section 269-27.2, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) The rate payable by the public utility to the producer for the nonfossil fuel generated electricity supplied to the public utility shall be as agreed between the public utility and the supplier [and as approved by the public utilities commission; provided that in the event the public utility and the supplier fail to reach an agreement for a rate, the rate shall be as prescribed by the public utilities commission according to the powers and procedures provided in this chapter.] in a manner similar to qualifying cogeneration facilities under public utilities commission chapter 6-74, Hawaii Administrative Rules, related to the Federal Public Utility Regulatory Policies Act and consistent with capacity incentives established under section 269-92(b)(2); provided that the public utility shall have the opportunity to review and comment on the rate.

The commission's determination of the just and reasonable rate shall be accomplished by establishing a methodology that removes or significantly reduces any linkage between the price of fossil fuels and the rate for the nonfossil fuel generated electricity to potentially enable utility customers to share in the benefits of fuel cost savings resulting from the use of nonfossil fuel generated electricity. As the commission deems appropriate, the just and reasonable rate for nonfossil fuel generated electricity supplied to the public utility by the producer may include mechanisms for reasonable and appropriate incremental adjustments, such as adjustments linked to consumer price indices for inflation or other acceptable adjustment mechanisms."

SECTION 3. Section 269-91, Hawaii Revised Statutes, is amended to read as follows:

"§269-91 [[]Definitions.[]] For the purposes of this [[]part[]]:

"Anticipated reserve margin" means the percentage by which expected generating capacity exceeds an electric utility's peak demand, excluding the amount of capacity offset by demand-response systems that are expected to be available during a peak demand hour.

"Biofuels" means [~~liquid or gaseous~~] fuels with lifecycle greenhouse gas emissions below one hundred kilograms of carbon dioxide equivalent per million British thermal units of power generated, produced from organic sources such as biomass crops, agricultural residues and oil crops, such as palm oil, canola oil, soybean oil, waste cooking oil, grease, and food wastes, [~~animal residues and wastes,~~] and sewage and landfill wastes.

"Capacity factor" means the electrical energy produced, or anticipated to be produced, by a generator compared to the total electrical energy that would be produced at the generator's continuous full power operation during each hour of the year.

"Cost-effective" means the ability to produce or purchase electric energy or firm capacity, or both, from renewable energy resources at or below avoided costs or as the commission otherwise determines to be just and reasonable consistent with the methodology set by the public utilities commission in accordance with section 269-27.2.

"Decarbonized electrical energy" means electrical energy generated using fuels with lifecycle greenhouse gas emissions below four kilograms carbon dioxide equivalent per million British thermal units due to the avoidance or removal of climate pollutants during the production of the fuel.

"Electric utility company" means a public utility as defined under section 269-1, for the production, conveyance, transmission, delivery, or furnishing of power.

"Emission factor" means the weight of greenhouse gases released per British thermal unit.

"Lifecycle greenhouse gas emission intensity" means the total emissions expressed in carbon dioxide equivalent per unit of energy generated as determined by a lifecycle emissions assessment.

"Local renewable biofuels" means fuels with lifecycle greenhouse gas emissions below one hundred kilograms carbon dioxide equivalent per million British thermal units of electricity generated and refined within the State and produced from organic sources in the State such as biomass crops, agricultural residues, and oil crops, such as palm oil, canola oil, soybean oil, waste cooking oil, grease, and food wastes, animal residues and wastes, and sewage and landfill waste.

"Renewable electrical energy" means:

(1) Electrical energy generated using renewable energy as the source, and beginning January 1, 2015, includes customer-sited, grid-connected renewable energy generation; and

(2) Electrical energy savings brought about by:

(A) The use of renewable displacement or off-set technologies, including solar water heating, sea-water air-conditioning district cooling systems, solar air-conditioning, and customer-sited, grid-connected renewable energy systems; provided that, beginning January 1, 2015, electrical energy savings shall not include customer-sited, grid-connected renewable-energy systems; or

(B) The use of energy efficiency technologies, including heat pump water heating, ice storage, ratepayer-funded energy efficiency programs, and use of rejected heat from co-generation and combined heat and power systems, excluding fossil-fueled qualifying facilities that sell electricity to electric utility companies and central station power projects.

"Renewable energy" means energy generated or produced using the following sources:

(1) Wind;

(2) The sun;

(3) Falling water;

(4) Biogas, including landfill and sewage-based digester gas;

(5) Geothermal;

(6) Ocean water, currents, and waves, including ocean thermal energy conversion;

(7) Biomass, including biomass crops, agricultural and animal residues and wastes, and municipal solid waste and other solid waste;

(8) Biofuels[;], including local renewable biofuels; and

(9) Hydrogen produced from renewable energy sources.

"Renewable portfolio standard" means the percentage of electrical energy generation that is represented by renewable electrical energy, excluding customer-sited, grid connected generation that does not produce renewable energy."

SECTION 4. Section 269-92, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) The public utilities commission may establish standards for each electric utility company that prescribe the portion of the renewable portfolio standards that shall be met by specific types of renewable energy resources; provided that:

[(1) Before January 1, 2015, at least fifty per cent of the renewable portfolio standard shall be met by electrical energy generated using renewable energy as the source, and after December 31, 2014, the entire renewable portfolio standard shall be met by electrical generation from renewable energy sources;

~~(2)~~ ~~Beginning January 1, 2015, electrical energy savings shall not count toward renewable energy portfolio standards;~~]

(1) By 2045, the public utilities commission shall ensure the electric utility purchases:

(A) No less than 20,000,000 gallons of renewable biofuels per year to produce renewable electrical energy, with additional incentives available for fuel contracts with lower lifecycle greenhouse gas emissions;

(B) The renewable electrical energy produced by no less than 2,000 megawatts of customer-sited, grid connected generation that can be dispatched to the electric utility when needed; and

(C) Demand response services available to residential and commercial customers at a level determined to be appropriate by the public utilities commission;

(2) The public utilities commission shall establish capacity payments to ensure anticipated reserve margins of no less than fifteen per cent will be met by generators that can achieve an annual capacity factor exceeding sixty per cent using renewable electrical energy or decarbonized electrical energy;

(3) Where electrical energy is generated or displaced by a combination of renewable and nonrenewable means, the proportion attributable to the renewable means shall be credited as renewable energy; and

(4) Where fossil and renewable fuels are co-fired in the same generating unit, the unit shall be considered to generate renewable electrical energy (electricity) in direct proportion to the percentage of the total heat input value represented by the heat input value of the renewable fuels."

SECTION 5. Section 269-93, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) An electric utility company and its electric utility affiliates may aggregate their renewable portfolios to achieve the renewable portfolio standard. However, the electric utility shall report progress toward the renewable portfolio standard by island."

SECTION 6. Section 269-101.5, Hawaii Revised Statutes, is repealed.

["~~[§269-101.5] Maximum capacity of eligible customer-generator.~~ The eligible customer-generator shall have a capacity of not more than fifty kilowatts; provided that the public utilities commission may increase the maximum allowable capacity that eligible customer-generators may have to an amount greater than fifty kilowatts by rule or order."]

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act, upon its approval, shall take effect on July 1, 2026.

INTRODUCED BY:	_____________________________
	BY REQUEST

THE SENATE	S.B. NO.	1342
THIRTY-THIRD LEGISLATURE, 2025
STATE OF HAWAII