Renewable

Energy Sources

HECO-NRDC Policy Progress Report - February 2010

This report is presented in accordance with Section 8 of the HECO-NRDC Policy, which calls for a public report summarizing progress and issues encountered in the efforts to implement the policy.  This is the second progress report to be presented since the policy was instituted.

In August 2007, Hawaiian Electric Company ("HECO" or "Hawaiian Electric") and the Natural Resources Defense Council ("NRDC") jointly published the "Environmental Policy for the Hawaiian Electric Company’s Procurement of Biodiesel from Palm Oil and Locally Grown Feedstocks" ("HECO-NRDC Policy"). This policy was developed to guide Hawaiian Electric and its subsidiaries in obtaining biodiesel from sustainable sources only.
 
The NRDC is one of the nation’s leading environmental advocacy groups with a membership that combines the grassroots power of 1.2 million members and the expertise of more than 350 scientists, experts and professionals. 

Hawaiian Electric and the NRDC jointly researched and discussed the issues to draft the HECO-NRDC Policy.  The policy was reviewed by a panel of academic specialists with expertise in biofuels, agriculture, and energy policy.  Following the academic review, a public review draft was made available and public meetings were held in Honolulu, Hilo, Kona and Kahului.  The HECO-NRDC Policy was revised based on the comments received during the public meetings, and the final version was released in August 2007. 

Hawaiian Electric’s partnership with the NRDC is instrumental in seeking to reduce the environmental impact of burning petroleum diesel to generate electricity in Hawaii.  Increased use of biofuels, ideally locally grown, is part of a broader strategy to move on the path to increased energy self-reliance and sustainability.
 
Hawaiian Electric is aware of concerns about unsustainable palm oil cultivation practices and their negative social and environmental impacts.  Voluntary certification has emerged as an option for those who want to choose sustainable palm oil.  For the longer term, Hawaiian Electric supports the production of feedstocks that are grown in Hawaii.  The HECO-NRDC Policy was developed to ensure that imported palm oil -- and eventually locally-grown and other sustainable feedstocks -- used to create biodiesel for Hawaiian Electric and its subsidiaries come from sustainable sources only.

There are eight (8) components to the HECO-NRDC Policy:
1) Local Feedstock Support Mechanisms
2) Sourcing Requirements for Palm Oil
3) Additional Baseline Environmental Criteria for all Feedstock
4) Chain of Custody Tracking for Feedstock and Oils
5) Greenhouse Gas Emissions Accounting and Reporting
6) Establishment of a Biofuels Public Trust Fund
7) Public Review and Notification
8) Public Progress Reporting and Contingencies

Hawaiian Electric and the NRDC recognize that the Policy represents a first step toward sustainability of biofuels.  New issues and problems, or opportunities, may arise that require further discussion to resolve.  Both Hawaiian Electric and the NRDC are committed to working collaboratively to resolve any issues that arise in the application of the HECO-NRDC Policy.  Hawaiian Electric will be reviewing the policy periodically, and will inform and work with the NRDC to resolve any issues, as needed, associated with either the content or application of the HECO-NRDC Policy. 

This report covers the following subjects:
• RSPO Membership
• Biodiesel Supply Contracts for Hawaiian Electric Campbell Industrial Park CT-1 Unit

• Hawaiian Electric and Maui Electric Biofuel Testing Projects
• Greenhouse Gas ("GHG") Emissions Accounting and Reporting
• Local Agriculture Research & Development

RSPO Membership
(related to HECO-NRDC Policy sections 2 & 4)

The HECO-NRDC Policy requires that all palm oil feedstock sourced under this policy meet or exceed all of the Roundtable on Sustainable Palm Oil ("RSPO") Principles and Criteria. Hawaiian Electric applied for and received RSPO membership on October 26, 2007.  Hawaiian Electric is currently an "ordinary" RSPO member and continues to participate in annual RSPO conferences.

The principal objective of the RSPO is to promote the growth and use of sustainable palm oil through cooperation within the supply chain and open dialogue among its stakeholders.  This is done through the development, implementation and verification of credible global standards and the engagement of stakeholders along the supply chain. The RSPO also provides criteria, certification and enforcement mechanisms to ensure the integrity of the certified sustainable product.  The RSPO reviews and approves independent auditing firms that do the field work to inspect and certify the specific plantation.  The RSPO was formally established under Article 60 of the Swiss Civil Code on April 8, 2004 in Zurich.  As of February 18, 2010, there are twelve (12) RSPO certification bodies.  There are also currently eleven (11) companies that have RSPO certified palm oil and thirty (30) companies/mills that have RSPO supply chain certification.

Biodiesel Supply Contracts for Campbell Industrial Park CT-1 Unit
(related to HECO-NRDC Policy sections. 2, 3, 4)

On October 18, 2007, Hawaiian Electric Company, Inc. filed an application with the Hawaii Public Utilities Commission ("PUC") for approval of a Biodiesel Supply Contract between Hawaiian Electric and Imperium Services, LLC, dated August 13, 2007 to supply Hawaiian Electric’s new Campbell Industrial Park combustion turbine ("CT-1").  Subsequently, the Biodiesel Supply Contract was amended and assigned to Imperium Grays Harbor, LLC ("Imperium").  On August 5, 2009, the PUC denied Hawaiian Electric’s request for approval of the Imperium Biodiesel Supply Contract citing that Hawaiian Electric did not satisfy the burden of proof that the contract was reasonable and in the public interest.

On August 14, 2009, Hawaiian Electric issued a request for proposals ("RFP") to source a test amount of biodiesel for the CT-1 air emissions test and an RFP for an operational volume of biodiesel for the on-going operation of CT-1.  

On October 2, 2009, Renewable Energy Group Marketing and Logistics, LLC ("REG") was awarded a Biodiesel Test Supply Contract with Hawaiian Electric Company, Inc. to supply approximately 400,000 gallons of biodiesel for CT-1 emissions testing.  The biodiesel was delivered to Hawaiian Electric in November, 2009.  CT-1 emissions testing of biodiesel was successfully completed in December, 2009.  Hawaiian Electric filed a report of the emissions data with the Department of Health on December 31, 2009. 

Hawaiian Electric filed an application with the PUC for approval of the REG Biodiesel Test Supply Contract on October 2, 2009.  As of February, 2010, Hawaiian Electric awaits a decision from the PUC on the Biodiesel Test Supply Contract.  On December 22, 2009, Hawaiian Electric Company, Inc. filed an application with the PUC for approval of a Biodiesel Operational Supply Contract between Hawaiian Electric and REG dated December 21, 2009 to supply CT-1 for a two-year term.  The application for approval of the Biodiesel Operational Supply Contract is in process with the PUC proceedings expected to complete by April 26, 2010 at which time the Docket should be ready for decision making by the PUC.  

Both the test and operational contracts with REG provide a biodiesel supply refined from domestic waste animal fat and yellow grease feedstock.  The HECO-NRDC Policy addresses purpose-grown agricultural crops for biodiesel feedstock, and therefore waste animal fat and yellow grease fall outside the scope of the Policy.  NRDC has stated, however, that “…while we have not carried out a specific analysis of the supplier in question, conversion of yellow grease (a post-consumer waste product) and waste animal fat feedstock (a pre-consumer waste product) to biodiesel generally represents a positive environmental approach for manufacture of biodiesel as they are both waste products from existing commercial or industrial operations".   

Hawaiian Electric & Maui Electric Biodiesel/Biofuel Testing Projects

Hawaiian Electric and its subsidiary Maui Electric Company are preparing to perform biodiesel combustion testing in selected existing units.  The fuel procurement contracts for these tests incorporate the HECO-NRDC Policy requirements for sourcing and chain of custody.

Hawaiian Electric Biofuel Project

Hawaiian Electric is undertaking a Biofuel Co-Firing Test Project at Kahe Unit #3 ("K3 Project").  This is a full scale co-firing project to test palm oil derived biofuel(s) blended with low sulfur fuel oil ("LSFO") to evaluate the effects of firing biofuels in steam generators. The primary objective is to determine the maximum amount of biofuel that can be fired without implementing major equipment modifications, violating environmental compliance requirements, de-rating of generating capability, or compromising the ability to operate on LSFO.  Hawaiian Electric issued an RFP for Kahe #3 Biofuel Supply Contract on November 11, 2008.  Seven proposals were received, Sime Darby was selected as the vendor, and a contract was entered into on June 3, 2009.  On July 13, 2009, Hawaiian Electric filed an application with the PUC for approval of the Kahe #3 Biofuel Supply Contract between Hawaiian Electric, Inc. and Sime Darby to supply Hawaiian Electric with approximately 1.5 million gallons ofbiofuel for the K3 Project.  The biofuel to be supplied by Sime Darby will be refined from segregated crude palm oil feedstock and will be in full accordance with the HECO-NRDC Policy.  As of February, 2010, Hawaiian Electric awaits a decision from the PUC on the Kahe #3 Biofuel Supply Contract.

Maui Electric Biodiesel Project

In order to fully evaluate biodiesel’s potential as a primary fuel in utility scale diesel engines, Maui Electric is undertaking a demonstration project (the "MECO Project") of 100% palm-oil-derived biodiesel with the objective of determining the longer term effects biodiesel will have on air emissions, heat rate, material compatibility, associated ancillary equipment, as well as operation and maintenance costs.  The overall goal of the project is to assess a potential future fuel conversion from petroleum diesel to biodiesel.  Maui Electric issued an RFP for a MECO Biodiesel Supply Contract on July 24, 2008.  Three proposals were received, Sime Darby Biodiesel Sdn Bhd ("Sime Darby") was selected as the vendor and a contract was entered into on June 26, 2009. On July 24, 2009, Maui Electric filed an application with the PUC for approval of a Biodiesel Supply Contract between Maui Electric and Sime Darby dated June 26, 2009 ("MECO Biodiesel Supply Contract") to supply Maui Electric with approximately one million gallons of biodiesel for the MECO Project.  The biodiesel to be supplied by Sime Darby will be refined from segregated crude palm oil feedstock and will be in full accordance with the HECO-NRDC Policy.  As of February, 2010, Maui Electric awaits a decision from the PUC on the MECO Biodiesel Supply Contract.

Greenhouse Gas ("GHG") Emissions and Reporting
(related to HECO-NRDC Policy section 5 of the policy)

Hawaiian Electric is participating in efforts to develop protocols for calculating and tracking GHG emissions from biofuels.  Hawaiian Electric is taking a number of proactive steps to address GHG including, but not limited to, the following:

1. A palm-oil life cycle analysis was completed and submitted to the PUC (HECO-R-401) as a part of the Rebuttal Testimonies and Exhibits in the Biodiesel Supply Contract with Imperium Services, Inc. evidentiary hearings held in October 6-7, 2008.  The life cycle analysis found that RSPO-certified palm-based biodiesel used in Hawaii will provide greenhouse gas benefits.  The GHGenius Model was used to develop the analysis.  This is a life cycle assessment tool for the evaluation of current and future fuels.  The GHGenius Model runs generated greenhouse gas reductions between 74.4% and 76.8% compared to petroleum diesel, and a fossil energy balance of 10.5 and 12.9 comparedto a fossil energy balance of 4.5 for diesel fuel.  A copy of the Life Cycle Analysis can be found here.
2. The Hawaii State Legislature passed the Global Warming Solutions Act of 2007 (Act 234) which established a ten-member task force to drive development of a work plan due at the end of 2009 to enable the State to reduce GHG emissions to 1990 levels by 2020. Hawaiian Electric is a member of the task force.  The State Department of Business, Economic Development and Tourism ("DBEDT") has completed that state inventory of 1990 GHG emission, on which the Act 234 target is based.  Hawaiian Electric is monitoring its GHG emissions and actively evaluating measures to reduce GHGs, including active participation with the state task force.
3. A life cycle analysis of the waste animal fat and yellow grease biodiesel to be supplied by REG was completed and submitted to the PUC on January 14, 2010 as a Supplemental Response of Hawaiian Electric to Life of the Land’s Information Request LOL-IR-26 in Docket Number 2009-0296 for the Biodiesel Test Supply Contract.  The life cycle analysis found that animal fat-based biodiesel used in Hawaii will provide greenhouse gas benefits.  The GHGenius Model was used to develop the analysis.  This is a life cycle assessment tool for the evaluation of current and future fuels.  The GHGenius Model runs generated greenhouse gas reductions of 96% compared to petroleum diesel.  The report also showed that animal fat biodiesel delivered 18.34 units of energy for each unit consumed in its production and transportation.  This compares to diesel fuel which delivered 6.29 units of energy for each unit of energy consumes in production. A copy of the Life Cycle Analysis can be found here.

Local Agriculture Research & Development
(related to HECO-NRDC Policy sections 1 & 6)

It is Hawaiian Electric’s goal to preferentially procure as much as possible of its biofuel from locally-grown feedstock in Hawaii.  To encourage and promote the cultivation of locally-grown feedstock crops, Hawaiian Electric has taken the following steps:

1. Hawaiian Electric is also working with the Hawaiian Agriculture Research Center ("HARC") on a biofuels agriculture crop research project.  HARC is conducting research and is coordinating the work of the University of Hawaii at Manoa’s College of Tropical Agriculture and Human Resources ("CTAHR") and University of Hawaii at Hilo’s College of Agriculture, Forestry and Natural Resources Management ("CAFNRM").  Hawaiian Electric provided initial seed funding (executed an agreement with HARC in 2007) and used matching funds from the Electric Power Research Institute ("EPRI") to co-fund this research.  A total of $75,000 or $25,000 to each research group was made available.  HARC, the University of Hawaii at Manoa, and the University of Hawaii at Hilo are each responsible for separate projects in the research effort. 

Year 2 funding was provided for 2008-2009 time period.  A total of $75,000 or $25,000 to each research group was made available (includes EPRI cost sharing).  The general results for each research project are as follows:

HARC

·         Establishment and fertilization test plots of Moringa oleifera and Jatropha curcas on Molokai was not successful.

o   Poor survival rate was due to inconsistent application of irrigation rounds and poor root development in compacted soil layers.

·         Establishment and fertilization test plots of Moringa oleifera was conducted on Oahu. 

o   Moringa from Molokai was more aggressive in its branching and pod production.  Thus, these trees are unlikely to be a commercial source of bio-oils at this time.

·         Establishment and fertilization test plots of Jatropha curcas continues on Oahu.  Three seed sources were included in the test plots (India, Madagascar, and Hawaii).  These trees showed tremendous diversity in their yield, structure and response to stress. 

o   On average, the higher irrigation rate produced greater rate of germination across all origins. 

o   Seed freshness will affect establishment rates in direct-seeded plantings. 

o   Fruit production in trees receiving the higher rate of irrigation was noticeably more rapid than those receiving less water.

o   After a period of time, trees receiving lower rate of irrigation consistently had many or more fruits per fruiting tree.

UH-Manoa (CTAHR)

·         Leaf tissue from the Jatropha tree at Pearl City Urban Garden Center has been taken to check the sterilization protocol and test the selected tissue culture media.

·         Buds and later plantlets with visible leaves have emerged.

·         Root development being examined.

UH-Hilo (CAFNRM)

·         Site visit conducted at Costa Rica’s Agricultural Services and Development facilities to observe and select oil palm varieties that may be well-adapted to Hawaii’s specific climate zones and growing conditions. 

·         Three varieties (10,000 seeds) were selected for importation based on their attributes (low sunlight, drought resistance, and low temperatures).

·         Maintained a thorough catalog of procedures followed during germination and monitoring of the three oil palm varieties.

o   A variety of potting mixtures and nursery conditions were imposed

o   Disease and fungal problems were tracked and cataloged.

o   Worked with several outside collaborators to increase the number of observation sites across the island (climate differences, insect and disease pressures and handling of seedlings).

·         Worked on land analysis project to map potential growing sites for both oil palm and Jatropha (based on rainfall zones, infrastructure or roads, soil type and profile, and landownership).

·         Establishment of test plots (Hamakua coast and Puna lava fields) and observations of established plot (Kau District) of Jatropha curcas on the Big Island.

o   Puna site was not as productive as the Hamakua site due to difficulty in sending taproots through cracks in the subsurface pahoehoe lava rock.

Year 3 funding was provided for 2009-2010 time period.  A total of $75,000 or $25,000 to each research group was made available (includes EPRI cost sharing).  Biofuel agriculture crop research will continue at each facility.  Year 4 funding (similar funding level) is planned to be provided for 2010-2011 timer period to these research groups.

In addition, CTAHR received a grant ($150,000) from the Western Sun Grant Center at Oregon State University.  The objective of the proposal is to determine the effect of ambient temperature on the fatty acid composition of oils from Jatropha, Kamani, and coconut, and the effect of fatty acid composition on diesel engine NOx emissions.  The project includes collaborators from universities/colleges of Guam, American Samoa, Micronesia, Northern Marianas, and Alaska.  If the hypothesis is confirmed, CTAHR would be able to identify areas to grow these crops that produce oils with minimized NOx emission.  Hawaiian Electric provided a letter of support for this grant.

2. In 2008, Hawaiian Electric announced an agreement to work with HR BioPetroleum, Inc. (HRBP), a high-tech start-up with roots at the University of Hawaii, and Alexander & Baldwin, Inc., to support the early development stage of HRBP’s proposed commercial-scale microalgae oil production on Maui.  The objective is to produce lipid oil for conversion to biodiesel and other products, such as animal feed.  The algae project would be located adjacent to Maui Electric’s Ma‘alaea Power Plant that could provide carbon dioxide from its stacks for algae nutrients.  The use of algae as a biofuel feedstock is still in the exploratory stage, but appears promising.  Microalgae have significant potential as an energy crop with the prospect for very high yields of oil per acre. 
3. Hawaiian Electric is currently working on the establishment of the Hawaii Biofuel Foundation (HBF). The HBF will be a non-profit organization governed by a multi-stakeholder board comprised of representatives from HECO, the local agricultural and environmental sectors, academics, research and development sector, labor interests and Native Hawaiian cultural practitioners. The purpose of the HBF is to stimulate the development of local and sustainable biofuel production in an effort to reduce the environmental and economic impacts associated with the consumption of petroleum based fuels in Hawai’i. The HBF will fund, and obtain grants toward the funding of, various initiatives, assessments, research and development projects, and demonstration projects that will support local feedstock production, processing, and use; development and testing of biofuels sustainability standards; and the conservation and restoration of ecosystems affected by biofuel feedstock production. Hawaiian Electric has secured legal and accounting services needed to prepare necessary paperwork required to establish the 501(c)(3) organization. A board of directors has been selected, and the board is in the process of certifying the article of incorporation and the by-laws.  Filing of pertinent federal and state tax exemption paperwork will follow the certification of the articles of incorporation and by-laws.

This constitutes the second annual report by Hawaiian Electric summarizing progress and issues encountered in the efforts to implement the HECO-NRDC Policy. Hawaiian Electric will continue to provide annual updates summarizing progress and issues encountered in implementing the HECO-NRDC Policy, in accordance with Section 8 of that policy.