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I Almost Bought Hawaii's Electric Utility for $6B and Made It a Renewables Paradise

Eric Wesoff's picture
Greentech Media

Prior to joining Greentech Media, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in...

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  • Jun 5, 2014

I have a confession to make.

In 2011 I became involved, in a small way, in a multi-billion-dollar scheme to buy out HECO, Hawaii’s electric utility, and take it private. The plan was to shift HECO from its reliance on fossil fuels and allow the island to instead be powered by its natural gifts of geothermal, solar and wind resources.

The crazy part of this story is that the deal came pretty close to actually getting done.

I’ll make a long story short.

Hawaii has the nation’s highest electricity prices, and the situation will only get worse in the years to come. Roughly 75 percent of the island’s electrical power comes from imported oil. A solution HECO developed back in 2011, The Hawaii Clean Energy Initiative, allowed the utility to continue its tradition of burning stuff such as uneconomical biofuels.  

Kuokoa, the group I worked with, proposed a solution that would transition the island away from its petroleum habit toward baseload geothermal along with solar and wind on a modernized grid. Our analysis showed that the cost of green electricity could be kept flat and was certainly lower than anything HECO could offer over the next 50 years.

Like many investor-owned utilities, HECO is boxed in. Making any significant grid overhaul requires enormous capital outlays — which is at odds with quarterly expectations or raising already high retail rates. Additionally, HECO’s fleet of legacy generation units will require billions in clean air standards upgrades. At the same time, deep PV penetration is reversing load growth and destabilizing the grid.

The new plan:

  • Take HEI, HECO’s parent company, private and sell off the HEI-owned American Savings Bank
  • Use the utility dividend stream to help support financing costs
  • Invest private funds in an accelerated and transformed capital program
  • Build geothermal plants, especially on Hawaii
  • Install an undersea inter-island cable system to deliver power to Oahu
  • Upgrade the T&D system to handle renewables
  • IPO the radically different utility for long-term growth and financing

The entire island chain of Hawaii has just 2,400 megawatts of generating capacity with 95 percent of the population served by a single utility. It’s feasible that a willing utility and a team of entrepreneurs could effect some real change on a grid of this scale.

You would think that a utility blessed with significant solar, wind, ocean, and geothermal energy resources would already be leading that transformation today. But a certain amount of institutional inertia, aggravated by decades of dependence on oil, is delaying an epochal opportunity. 

A certain amount of cultural inertia is at play as well. In past decades, local Hawaiians might have taken a dim view of using the island’s geothermal resources. That stance has softened, however. The plan would have taken advantage of the Big Island’s geothermal resources to provide baseload power to Oahu.

The plan factored in the grid upgrades necessary to support the shift to renewables.   

It was an audacious $6 billion showcase deal that meant going after a regulated utility in one of the more idiosyncratic U.S. states. Still, private equity firms and banks buy and sell utilities and power firms every week — deal sizes in this range are not out of the ordinary.

That was the plan.

The Kuokoa team had utility, community, regulatory and finance experience and put together extensive and convincing financial models that made sense and and had a much better outcome than HECO’s 75-cent-per-kilowatt-hour power.

An energy transformation could occur in Hawaii if HECO was institutionally able to look beyond short-term profit and embrace distributed generation rather than inhibiting it.

Don’t just take my word for it.

In fact, Hawaii’s PUC, backed by the state’s governor, just issued a harsh rebuke to HECO regarding its flawed integrated resource plan. As GTM’s Bentham Paulos reported, the Public Utilities Commission issued regulatory orders calling for HECO to implement a distribution circuit monitoring program and establish a more transparent interconnection queue. HECO must also submit a plan to “expeditiously retire older, less-efficient fossil generation, reduce must-run generation, increase generation flexibility, and adopt new technologies such as demand response and energy storage for ancillary services and institute operational practice changes.”

Paulos adds, “Even if Hawaiian power providers aren’t ready to embrace distributed generation, regulators clearly are.”

The acquisition offer

Anyway, we had a real plan that penciled out — and all we needed to do was raise $6 billion in debt and equity. 

Over the next few months, we spoke with large lending institutions, investment banks, private equity firms, wealthy people, venture capital firms, family offices, angel groups and grid and finance experts. I don’t believe a single person that saw the plan didn’t acknowledge the obvious logic of the proposal.

(Recall that this article is the short version of events.)

We eventually connected with a banking behemoth that found the proposed deal credible enough to study further. And curiously enough, after a lot more analysis, the bank gave the nod to provide the debt for a slightly scaled down version of the project. 

I’ll repeat that: the big bank with a name you’d recognize said it was in for several billion dollars.

It gets weirder.

The transaction would require an equity piece as well. A few stellar introductions and some skillful analysis later, and we had a global private equity firm known for leveraged buyouts that was also in for several billion dollars. The PE firm’s analysis was detailed, deliberate and thorough. I read through the financial analysis again last night, and it’s hard to find a stone left unturned.

To recap, we had just located the debt and equity needed to make an offer to acquire HECO at a strong premium over its market value.

All that remained was to make an offer (something these equity folks do every day), negotiate with Hawaii’s regulators and politicians, and liberate the Hawaiian islands from their burden of oil. Cue rainbows and unicorns.

So what are the mechanics of an acquisition? How did Apple formally approach Jimmy and Dr. Dre  with an offer for Beats? How does Facebook reach out to WhatsApp?

In the case of HECO and the offer, our top-tier private equity entity had longstanding back-channel relationships with members of the board of HECO. Our rockstar private equity representative made the dramatic, multi-billion-dollar, transformative offer to HECO’s decision-makers.

And was promptly turned down.

End of story.

What’s the next step? For a private equity firm not willing to go the hostile-takeover route, the “no” answer from HECO meant “no” and signaled that it was time for them to look for their next deal.

As for the utility irritants at Kuokoa, the Honolulu Star-Advertiser reported, “Kuokoa dropped its bid to take over HEI in early 2013.”

So, the story of Kuokoa is over. The effort went further than almost any of us expected, and we emerged with a mammoth story of “the one that got away.”

But Hawaii’s utility story is still very much being written. Despite earning profits in its recent quarter, HECO faces an existential threat from the price of oil, the price of renewables, the intervention of the PUC and its own lack of proactive solutions. And the buyout story is not necessarily over either. A smarter takeover crew, armed with more experienced personnel and a stronger succession plan, could really make a run at this utility. Last week, HECO announced that Richard Rosenblum, its CEO since 2009, looks to retire within a year.  

Private equity firms have already read the writing on the wall on the fate of fossil fuel generators.

HECO still has the choice of acting as a model for utility transformation or serving as the poster child for utility paralysis in the face of change.


2013 HEI electricity sales and financials

Revenue for the utility portion of HEI, Hawaiian Electric Industries: 


Other recent GTM articles covering renewable energy in Hawaii


Affiliations: I was an investor in this effort and a consultant to Kuokoa from July to October 2011.

greentech mediaGreentech Media (GTM) produces industry-leading news, research, and conferences in the business-to-business greentech market. Our coverage areas include solar, smart grid, energy efficiency, wind, and other non-incumbent energy markets. For more information, visit: , follow us on twitter: @greentechmedia, or like us on Facebook:

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Robert Bernal's picture
Robert Bernal on Jun 5, 2014

Just as with nuclear, these things should be mandated to be kept up to date and properly decommissioned after a long and useful life.

I read the artical and it’s just a piece from those who promote fossil fuels (heritage foundation). They said something about electricity prices getting to cheap. That’s the same excuse some people have for shutting down nuclear: too cheap to deal with. So, is that the real problem, something cool and amazing gets built with 21st century tech and all of a sudden, cheap yahoos don’t want to deal with the maintenance, because oil is still too cheap? Maybe I will promote a silly carbon tax!

In reality all these yahoos against clean (and nuclear) energy just want to make money off of fossil fuels.

The webhost for the sight I have buys wind energy and say that it is powered 130%. I know it’s not much but if the electricity is too cheap to deal with, then maybe we ought to go with that too and make laws to ensure that ALL clean powerplants are maintained for as long as posible (regardless of the little repair costs).

I hate fossil fuels because I’m forced to use them. Obviously, I know these wind turbines are no good without batteries or pumped storage but if these things get cheap enough, then maybe we can afford batteries. Afterall, machine automation is just now starting to get pretty nifty.

Nathan Wilson's picture
Nathan Wilson on Jun 5, 2014

So Eric, what renewable electricity penetration did you expect to achieve in Hawaii?  Did you plan to add pumped-hydro storage?

According to the 2013 NREL report, on the Hawaiian grid, the HCEI had a goal of reducing fossil fuel use in electricity by 70% using a combination of renewables and efficiency.  The NREL study however, only considered renewble penetration as high as 23.5% on Maui and 20% on Oahu.  The Maui case used energy storage (batteries), with about 2 hours of storage (enough time to cold-start an oil-fired generator), and a power output of 4% of the peak grid firm capacity; this system had very high 23% curtailment of the produced renewable energy.

I would imagine the Hawaiian prospects for high renewable penetration have decreases substantially since 2011 (when the Kuokoa study was done).  The large amount of installed solar (which lacks energy storage) will degrade the economics of baseload energy sources like geothermal, thereby increasing the need for flexible generation.  And the aggressive push for net-metering by residential solar PV installer has resulting in a lot of homeowners who believe that the utility has an obligation to provide free time-shifting of their solar energy. 

Another example of high renewable energy penetration on island grids is El Hierro in the Canary Islands.  As described in this flyer, their goal is nearly all renewable electricity, but they are installing 7 days worth of pumped hydro storage. 

Robert Bernal's picture
Robert Bernal on Jun 5, 2014

I agree about everything except the batteries. They are more efficient than combustion, therefore, we must seek to improve them (the LiFePO4 is the best I know of with thermal stabilty with 2,000 complete charge/discharge cycles.

Or is it better to use nuclear heat to make clean fuels even though less efficient in the car? (I want electric minicars that can operate inside of large buildings on many levels, to reduce urban sprawl). I’d give up a little efficiency for a car that doesn’t kill in a closed garage.


donough shanahan's picture
donough shanahan on Jun 5, 2014

Always interesting to see a graph (Fig 1) that states that despite the massive investment required (First phase box), electricity prices would be unaffected by this spend. How does that work?

Bas Gresnigt's picture
Bas Gresnigt on Jun 5, 2014

Do you also have historical figures of operational periods of NPP’s.
I get the impression that the historic av. operational period of those is <20years.

Bas Gresnigt's picture
Bas Gresnigt on Jun 5, 2014

Much lower operational costs:
No fuel costs; less staff than with coal power plants especially if those are old.

Joris van Dorp's picture
Joris van Dorp on Jun 5, 2014

Good find.

Of course, it doesn’t really contradict the thrust of N Nadir’s argument, which is that windfarms exist due to generous subsidy regimes only. In case you hadn’t noticed, there is currently another historic subsidy binge going on right now which likely explains the ‘repowering’ (at long last) of the Kamaoa farm. When the current binge is over, the wind farms on Hawai are likely to grind to a halt and rust once again, and then presumably maintain that state until the next round of generous subsidies is initiated.

Nuclear power plants are very different. They are amortised over a 20 or 40 year period, and then provide another 20 or (potentially) 60 more years of service with relatively little additional capital expenditure required. They really are a gift to future generations in the literal sense of the word. New nuclear power plants built today such as the AP1000 and EPR have a design lifetime of 60 years. There is no particular reason why they shouldn’t run for as long as 100 years.

By the way, wind farms erected in my country – the Netherlands – require the owner to maintain a decommissioning fund which must cover the cost of returning the farm to greenfield status. It turns out that the costs of this requirement are not very significant. One hopes that wind farms being erected today around the world are all maintaining such funds. If renewable energy systems fail to fully internalise their life cycle costs – including decommissioning – then that is the most glaring evidence that ‘social responsibility’ and ‘sustainability’ are nothing but sales-talk.

As a point of information, nuclear power plant owners have historically been required to cover the full lifetime costs, including waste handling and decommissioning. Contrary to popular anti-nuke misinformation, nuclear power plants do NOT pass on any costs to future generations. The renewable energy industry could do worse than try to emulate the level to which nuclear power costs are interrnalised. As far as I know, nuclear power is the ONLY energy technology which has fully internalised its costs.

Continuing for a bit longer, concerning the often-raised anti-nuke talking point about the ‘costs of nuclear disasters’ such as Fukushima, it turns out that the entire cost of the Fukushima debacle (which cost has arguably been inflated beyond reason due to the hysterical over-reaction to the accident) translates in less than 1 $ct per kWh of electricity produced historically by nuclear power in Japan. Internalising such nuclear ‘disaster’ costs more directly into the price of nuclear energy is something that the European Union is working on, among others. Clearly, the creation of such a fund is not going to make nuclear power much more expensive than it is today. With the additional safety systems incorporated in modern nuclear power plants, the cost of any nuclear ‘disaster’ will be covered by a fraction of a cent/kWh. Considering that (in Europe) electricity for households is heavily taxed as it is (by almost 20 $ct/kWh) it could be argued that this huge tax should already be understood to contain a generous fee for any conceivable nuclear ‘disaster’ that may or may not occur in future. Explicitly internalising this cost is a political move only, to pander to the ridiculous propaganda of the anti-nukes, but with little or no significance for the economics of nuclear power.

Engineer- Poet's picture
Engineer- Poet on Jun 5, 2014

Most of the commercial plants completed and commissioned in the USA are still operating, and many have already passed their 40th anniversaries.  The bulk of them have been re-licensed for a further 20 years.

You would know this if you ever paid attention to what people have been telling you for the last several years, but it seems that what you “know” has nothing to do with the facts despite many attempts to educate you.

Robert Bernal's picture
Robert Bernal on Jun 6, 2014

I guess it’s like “why have cheap electricity from reliable clean sources when we can sell expensive electricity from sources that need to be replenished more often and from old fashioned CO2 emitting sources”.

Nathan Wilson's picture
Nathan Wilson on Jun 6, 2014

I would also point out that solid oxide fuel cells can be powered by ammonia fuel as well.  That is noteworthy, because ammonia can do a few things that batteries and hydrogen cannot: it can be economically stored for months at a time.  This is important because any sustainable energy system (whether renewable or nuclear) that is adequate in summer will over-produce in the spring and fall.

This excess energy can be used to make fuel from water and air, but the fuel needs to be a liquid for convenient storage (certain regions of the US are suitable for large-scale underground hydrogen storage, but not near the heavily populated coasts).

Using fuel cells (as well as internal combution engines) with hydrogen or ammonia also get around another problem with batteries that I expect to get more attention in the future: toxic waste which results from production and disposal of batteries.

Bas Gresnigt's picture
Bas Gresnigt on Jun 6, 2014

The energy tax is explicitly intended to stimulate energy savings.
As it is used for general government spendings, using that tax for even more subsidies to nuclear implies that other taxes will have to be raised.

Bas Gresnigt's picture
Bas Gresnigt on Jun 6, 2014

Agree there are a number that reach 40years, but others stopped before reaching even the first refuel cycle.

The investment risk seems to be so big that private capital invests only in new NPP’s if they get full (governement) guarantees. So the risks are transferred to the rate- & tax-payers; a major subsidy.

Nick Grealy's picture
Nick Grealy on Jun 6, 2014

Slide 5 here shows the power generation by source: Oil at 76% coal at 15%. Astoundingly low renewables for a windy, volcanic, sunny island with some of the largest rainfall in the world.

Replacing oil with LNG saves 30% CO2 and it certainly doesn’t cost $6BN either.



Bob Meinetz's picture
Bob Meinetz on Jun 6, 2014

Bas, 3 reactors from a total of 88 commercial power plants in the U.S. (many with multiple reactors) failed to make it to their 2nd refueling cycle. That’s an astounding record of reliability to complement nuclear’s astounding record of safety.

I’m not counting Shoreham, which was closed due to irrational fears stoked by antinuclear activists in the wake of Three Mile Island. Misguided activism is clearly the #1 threat to nuclear power as well as the public, with over 50,000 deaths every year from air pollution due to U.S. fossil fuel generation.

Bas Gresnigt's picture
Bas Gresnigt on Jun 7, 2014

Low penetration of renewable, solar and wind, is common in areas & countries where incumbent utilities have major influence on politics.

Also quite logical; why should they cooperate with the installation of renewable?
As that will erode their comfortable position.

So when Spain got a new rightwing government, the utilities arranged new laws which tax solar so much that nobody installs solar, only the utilities themselves do a little. 
Hawai’i government accepted the refusal of utilities to connect solar installations.

Those utilities used the ridiculous argument of grid stability; either
– the utility is not capable at all (since installation some additional equipment to adapt is cheap and can be done fast as shown in Germany, etc.); or
– the utility refused and cooked up that excuse, This seems more likely, as solar penetration in Hawai is small.

Whatever. Government should have removed the board of the utility, as it doesn’t cooperate with its targets, or grant the utility license to another company.

Robert Bernal's picture
Robert Bernal on Jun 7, 2014

The investment risks are big because silly presidents (Nixon and Clinton) pulled the plug just before the commercial research phase began, at ORNL and Argonne, respectively. The tech is there, just unproven. If the fate of the planet depended on advanced nuclear, do you think we would just sit around idle, waiting to die? No, we would deploy all the tech fixes and do so immediately!

Bas Gresnigt's picture
Bas Gresnigt on Jun 7, 2014

Germans are also in this matter accurate bookkeepers.
So this Wikipedia page states all.

37 reactors operated & operate producing electricity during an average period of 22 years.*)

If the 4 reactors that were built (so all investment money spent) but were closed within a few month thereafter are counted; than the average lifetime is 20years.

*) For the 9 reactors not closed yet, the scheduled closing date is taken.
Than the av. operating period for those 9 reactors is 35years. Clearly above the average.
I estimate that a number of those 9 reactors will be closed much sooner, due to their bad economic performance.

– this German picture and assming the av. for USA is 10years higher;
– the fast changing electricity generation & market;
– the recent actions of German utilities that show they consider their reactors to have negative value;
– the 35years garantee period for Hinkley

I estimate that the new reactors (Vogtle, VC Summer, Hinkley, Flamanville) will not reach a lifetime of 35years on average. Only the Finnish reactor makes a chance for a substantial longe lifetime (hardly any sun and not windy in Finland).

– a pity we do not have a reliable detailed list of US reactors. Asuming US reactors do ~40%(?) better, the av. operating period for US reactors is <30years.
– Germany has/had at least one research/eduction reactor for each of its 37 is electricity producing reactors. An indication regarding the subsidy amounts for nuclear.

Nathan Wilson's picture
Nathan Wilson on Jun 7, 2014

Alas, ammonia is not compatible with PEM fuel cells; even on-board reformers with 99.9% cracking would leave too much residual ammonia (some sort of poisoning occurs).  It is conceivable to follow the reformer with some sort of scrubber to remove the residual, but I don’t know how often such a device would need to be serviced.  I think the PEM compatibility problem is why the DOE is not pushing hard for ammonia (here is a 2006 paper from the DOE on the topic).

Of course the cost effectiveness of high efficiency fuel cells is lower with lower vehicle use (assuming high per kWatt cost and long life).  So that a personal car that is driven 10,000 miles per year is a worse fit than a heavy-duty truck or train which does a 100,000 miles per year.  The truck and train have much less of a concern with warm-up time, since operators are accustomed to diesels with their slow warm-up anyway.  For personal cars, it will be hard to justify paying extra for a fuel cell rather than an ammonia fueled ICE (which will have thermal efficiency similar to a diesel, since ammonia tolerates high diesel-like compression ratios, and can also be implemented as a battery-hybrid).

Here is a presentation of recent work at the Colorado School of Mines on ammonia-compatible fuel cells, using proton conducting ceramics.  These are not as far along as oxygen-conducting solid-oxide fuel cells, but they operate at lower temperatures (400-700C vs. 700-900C, but still higher than PEMs at 200C), plus they can be run in reverse to produce ammonia.

Robert Bernal's picture
Robert Bernal on Jun 8, 2014

My first search (must be based on where I live)…

I clicked on the first one and it started in the 70’s, got renewed in 2001 and should expire in the 30’s. This sugeests that the average plant is already 40 years old. However, I still would like to see the MSR to be the leading power supply for 10 billion without efficiency mandates (or rations as they might really become!) because they don’t require water for core cooling and they produce about 100x the energy for the same volume of waste (as the PWR)

Your renewable energy only scheme will require cuts in personal and industrial energy usage which will lower the standard of living to some degree depending on how much more efficient each process and device can become. Note that just about all industrial and agricultural activities are pretty much as effecient as they are ever going to be, already (unless we all move to a giant building that “does it all”). Perhaps another 50% in cuts is a reasonable guess, for across the globe. However, billions more people want your lifestyle. This obviously means one thing.


With all that CO2 free power, there is little reason to mandate limitations on energy usage. The reason why I say “little” is because the wastes are very much smaller in volume (and therefore can be properly dealt with). So, efficiency, YES, but mandates… NO!

Matthew Shapiro's picture
Matthew Shapiro on Jun 9, 2014

Fascinating story. I can corroborate the technical and economic viability of converting an island system to nearly all renewable energy, having recently completed a study of the same. When you’re dealing with imported energy prices that high (and the aging oil-based infrastructure on Oahu as well), all normal parameters go out the window on the project economics. Having had some dealings with HECO as well, I can affirm that it’s struck me as one of those insular corporate cultures that seems to believe it can ignore the needs of the world around it.

Matthew Shapiro's picture
Matthew Shapiro on Jun 9, 2014

Michael: Although I can’t speak to the specifics of the particular combination of resources and necessary infrastructure improvement needed to make the shift that Eric has spoken of, many of the questions raised in the comments here can’t be addressed efficiently in this particular thread. That said, the capital & O&M costs of various elements (geothermal, wind, solar PV) are quite well established on a global basis; resource assessment is quite a refined science, so production estimates for said elements are going to be fairly reliable; and bulk energy storage options (primarily pumped storage but also batteries) are well-established as well.

The primary uncertainty I’d see is associated with the inter-island cable (which has been studied for several years based on the ill-fated “Big Wind” proposal), which may be crucial because of the role of geothermal in this particular proposal. Absent that, there may be alternatives that involve each island being energy independent, rather than attempting to make them an interconnected system.

The cable question notwithstanding, for any island system that has access to good wind, solar, and/or geothermal resources, with options for storage and conventional back-up as well, just add up the costs of each element and it seems to be a “no-brainer” in terms of economics and CO2 to make the switch to a supply base high in renewable energy. The benefits to the economy of the state of Hawaii should be factored in as well, considering the likely decrease in electric rates.

Joris van Dorp's picture
Joris van Dorp on Jun 10, 2014

Incorrect. Again.

In the Netherlands, all households pay energy taxes, except households which have installed subsidized PV panel systems. They pay no energy taxes and no transmission costs. It is those households who are consuming $20 ct/kWh of tax breaks, which you and I and everyone who doesn’t have PV panels is paying for them.

If you would be truly concerned about how energy tax revenues are allocated (which I seriously doubt, given our previous discussion of PV tax/subsidy regimes), then you would be advised to lambast the heavy subsidies given to owners of subsidized solar panel systems. The implicit ‘disaster’ subsidy for nuclear power that I am talking about above is less than 1 $ct/kWh for nuclear electricity. The EU is working on making this subsidy explicit sometime in the coming years. Compare this to the $20 ct/kWh subsidy given to solar panel owners, which you deny, deny, and then deny some more.

Robert Bernal's picture
Robert Bernal on Jun 22, 2014

Agreed, except that the alarmism is totally disproportional to the actual threat! We need factory produced advance high temp closed cycle (100MW) nuclear complete with excess molten salt for storage and backup.

Bas Gresnigt's picture
Bas Gresnigt on Jun 22, 2014

Hawaii’s utilities should pay some visits to Germany and Danish utilities as those are capable to handle much bigger wind and solar shares with little costs (in Denmark wind alone generates ~35% of its electricity). Also visit Fraunhofer, etc.

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