Despite being one of the smallest states in the nation, Hawaii is a leader in solar development, with more than $4 billion in total solar investments and over 1.55 GW installed. That leadership is based, in large part, on ambitious renewable energy goals and policies. Hawaii has implemented several policies to support the growth of solar energy, most notably the Renewable Portfolio Standard (RPS). This 2015 legislation (HB 623) made Hawaii the first state to set a 100% RPS, to be fulfilled by 2045. Arguably one of the most influential policies for solar in Hawaii, the RPS requires utility companies to generate a certain percentage of their electricity from renewable sources.
Obstacles cloud the future of solar in Hawaii
Smart and effective state policies and regulations have allowed solar developers to overcome the myriad of challenges to build solar in Hawaii. The challenges include the higher cost of solar equipment, supply chain delays, higher shipping costs, and, most importantly, limited and expensive land for solar installations. For larger-scale projects, the challenges expand further, pushing developers to navigate additional complexities related to land availability and cost, inflation, high construction costs and competitive bidding processes. When the COVID-19 global pandemic hit, supply chain disruptions were exacerbated and solar project development across the United States slowed dramatically, with many projects even grinding to a halt. The Hawaii solar market was one of the hardest hit in the country as a result of pandemic-related challenges, many of which still persist today.
On Hawaii Island, where HECO aims to become a leader in solar and storage deployments as part of the goal to generate 100% renewable energy by 2045, a 16-project procurement representing 460 MW of solar and 2 GWh of storage was announced in the early days of the pandemic. Of this procurement, ENGIE North America was awarded 60 MWAC of solar and 240 MWh of battery storage, which they ended up withdrawing in 2021 citing supply chain issues.
But many big renewable energy projects were delayed, and not just during the pandemic or on Hawaii Island. The Islands of O’ahu and Maui experienced similar issues with developers having difficulty making project economics work. In 2022, one large developer pulled out of two solar projects on O’ahu and Maui, which would have added 40 MWAC of solar on Maui and 120 MWAC on O’ahu. The Boston-based developer, Longroad Energy, cited high costs and general supply chain instability as the factors that jeopardized the feasibility and economics of the project.
Expensive land and higher interest rates are a major challenge
Developers looking for ways to offset the hit to their economics from higher prices, interest rates and delays are looking to land as a source of value rather than just an expense. As supply chain disruptions are easing and federal regulations from the Inflation Reduction Act are expected to provide a boost to the solar industry, one of the largest obstacles remaining in the Hawaiian solar market is the high cost of land. Expensive land requires developers to be creative and seek strategic solutions to maintain, and ultimately, boost project economics.
The truth is that land, particularly land that is a good candidate for hosting solar, will always be limited and expensive in Hawaii. But, on top of the already high cost of land, now solar developers must deal with rising interest rates while the cost of capital has doubled — or even tripled — in the last two years. Higher interest rates mean Hawaii’s already expensive land really begins to harm the economics of solar projects.
It also makes those delays even costlier — and puts projects across the state at risk.
Hawaii needs continued innovation
Solar development has never been easy in Hawaii. Despite the challenges, the state’s leadership in innovative and aggressive clean energy policy has placed it amongst the country’s solar leaders. But policy can only go so far. In this higher interest rate environment, Hawaii needs the private sector to find and utilize new financial solutions that give solar developers access to capital. Solar land loans, which allow developers and landowners to access capital against the full value of their solar lease, not the appraised value of the land, can free up developer capital to be used on critical phases of the solar project.
Alternatively, developers with a purchase option for the land can assign this option and enter into a lease instead, without tying up their project capital in land acquisition costs. By freeing up capital, developers have increased flexibility and can put their dollars towards other aspects of the project that are ITC-eligible, maximizing tax efficiency.
Finally, lease purchases are another option for developers or landowners who want to retain land ownership, but also are interested in a one-time, lump sum payment. These payments allow developers and landowners to invest in their financial future.
The future of Hawaiian solar remains bright
Hawaiian solar developers have always overcome the challenges they have faced in the transition to clean energy, making the state a true leader in the solar industry. The state’s solar growth has been remarkable — and the future remains bright. With innovative policy and trailblazing financial solutions from the private sector, Hawaii can stay on track to reach its 2045 goal of 100% renewable energy and be a shining example to every state in the country.