Fortis deal supports oil-to-gas switching, new power plant at Hawaiian Electric

Fortis Inc. (TSX: FTS) announced May 19 that its Fortis Hawaii Energy Inc. subsidiary has entered into an agreement with Hawaiian Electric Co. Inc. to export liquefied natural gas (LNG) to Hawaii to be used for power generation.

Under the 20-year agreement, Fortis Hawaii would deliver 800,000 metric tons of LNG annually to Hawaiian Electric from FortisBC‘s Tilbury LNG facility in Delta, British Columbia, starting in 2021. The agreement outlines the conditions to be met and the necessary approvals to be received to allow the project to proceed, including government and regulatory approvals in both British Columbia and Hawaii and the approval of the pending merger of Hawaiian Electric and NextEra Energy (NYSE: NEE).

“FortisBC is uniquely positioned to capitalize on the strong market demand for clean-burning B.C. natural gas as a bridge fuel in the transition to renewable energy production,” said Barry Perry, President and CEO of Fortis Inc. “Our small-scale Tilbury facility fits well with the needs of customers like Hawaiian Electric and shipping from Canada’s West Coast costs less than from other locations, including the U.S.”

Hawaii has an ambitious goal of 100% renewables for electricity generation by 2045. In a filing with the Hawaii Public Utilities Commission, Hawaiian Electric said importing natural gas from British Columbia will decrease its present reliance on imported oil for almost 80% of its electricity generation, reduce greenhouse gas emissions significantly and provide a reliable, cleaner, lower-cost fuel for its transition to a 100% renewable energy future.

To support the agreement, a further expansion at FortisBC’s Tilbury LNG facility would be required. The expansion would include additional liquefaction equipment and a new 46,000 m3 (1.1 million gigajoules) storage tank, as well as a new power line so that FortisBC can continue to power its operations with electricity. If all conditions are met and government, regulatory and internal approvals are received, expansion of the Tilbury LNG facility would commence in 2018.

FortisBC’s natural gas utility would continue to own and operate the existing equipment and facility at Tilbury that serves domestic customers. This includes the peak-shaving facility FortisBC has safely operated since 1971 and the expansion project currently under construction. Any new assets built to support Hawaiian Electric and future international customers would be owned by a separate Fortis company.

Hawaiian Electric seeking approval for new combined-cycle plant

The Hawaiian Electric Companies on May 18 asked the Hawaii Public Utilities Commission (PUC) to review and approve a proposed contract with Fortis Hawaii to import LNG for electricity generation on O’ahu, Hawai’i Island and Maui. The contract is the culmination of a request for proposals issued two years ago. If approved, Hawaiian Electric envisions beginning use of natural gas in 2021 with a 20-year contract ending as Hawaii approaches its 100% renewable energy goal.

“We are committed to achieving our state’s 100 percent renewable energy goal with a diverse mix of renewable resources,” said Ron Cox, Hawaiian Electric vice president for power supply. “As we make this transition, LNG is a cleaner-burning alternative that potentially can provide billions of dollars in savings and stabilize electric bills for our customers compared to continuing to rely on imported oil with its volatile prices.”

At the same time, Hawaiian Electric is asking the PUC for authorization to construct a modern, efficient, combined-cycle generation system at the Kahe Power Plant to get the maximum customer benefits from use of cleaner, less expensive natural gas; better support integration of renewable energy; and facilitate retirement of three older, oil-fired generators at the Kahe Power Plant.  

The Fortis Hawaii contract is also contingent on PUC approval of the merger of Hawaiian Electric with NextEra Energy. This project requires substantial upfront financial support and expertise that NextEra Energy can provide, said Hawaiian Electric. If the merger is not approved, the Hawaiian Electric Companies would still be interested in pursuing on their own the benefits of LNG for customers, but the companies would need to negotiate a new contract which likely would mean lower, delayed savings for customers and delayed benefits for the environment.

Hawaiian Electric estimates the natural gas contract and greater efficiencies from modernized generation could save electricity customers from $850 million to $3.7 billion through 2045, depending on future oil prices. At the same time, annual oil imports for electricity generation would be reduced by over 8 million barrels, or 80%, as soon as 2021.

The savings take into account the estimated $341 million cost of converting existing generating units to use natural gas at Kahe Power Plant on O’ahu, Mā’alaea on Maui, and Keahole and Hāmākua Energy Partners on Hawai’i Island, and the estimated cost of $117 million for LNG containers. The logistics system to deliver and offload the LNG will not require development of new infrastructure off- or on-shore in Hawaii.

“We know Governor Ige has expressed opposition to importing LNG,” Cox said. “However, we have just reached contract terms with a supplier after a long negotiation and now have much more than a theoretical plan for the governor, Public Utilities Commission, energy stakeholders and the public to consider.”

The price of natural gas will be tied to market prices in British Columbia, not to oil prices, providing lower, less volatile prices, especially as today’s low oil prices rise, as expected. The contract provides for lower payments if the Hawaiian Electric Companies decide to take less than the full capacity commitment of LNG; for example, if more renewable resources come online more quickly than expected.

The vessels and trucks (owned by others) and the containers to import LNG under this plan are modular and movable so a significant portion can be resold or repurposed when no longer needed to serve power generation in Hawaii. The carrier ships, barges and possibly the trucks to deliver LNG to power plants will be fueled by LNG, further reducing oil use in Hawaii.

Three Kahe units to be shut, other units to switch to LNG

Hawaiian Electric also proposes to modernize the  generation fleet on O’ahu. Three steam generators at the Kahe Power Plant (Units 1-3) would be deactivated by the end of 2020 when each will be over 50 years old and replaced with an efficient, combined-cycle system located at the plant further from the shoreline than the existing units. The location provides greater energy security, for example from tsunamis, and a less visible profile.

The combined-cycle system would include three modern, quick-starting, fast-ramping combustion turbines with three heat recovery steam generators and a single steam turbine. This flexible, fuel-saving combination would be 30% more efficient than the deactivated generators. This modern generation is needed to balance the increasing amounts of variable renewable energy being added as Hawaii transitions to 100% renewable energy. The combined-cycle system will be capable of using renewable biofuels. Hawaiian Electric is seeking Public Utilities Commission permission to construct the new generating system with an estimated in-service date of January 2021.

The estimated cost for modernized generation at Kahe Power Plant and to interconnect the new system to the grid is $859 million. This cost is factored into the overall savings projected for the LNG plan.

The Hawaiian Electric Companies’ plan also proposes using natural gas in two remaining Kahe units (5-6) and the Kalaeloa Partners power plant on O’ahu. In addition, natural gas is proposed for use on Maui at Mā’alaea Power Plant and on Hawai’i Island at Keahole Power Plant and the Hāmākua Energy Partners plant. Natural gas could also be used at the planned Schofield Generating Station and other future generating sites to provide savings for customers.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.