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April 9, 2024
Did you know that Hawaii has the highest household electricity costs in the United States? To combat energy inequity in the state, Hawaii’s green bank, the Hawaii Green Infrastructure Authority (HGIA), created its on-bill financing program known as the Green Energy Money $aver (GEM$) to make clean energy more affordable for low- and moderate-income households. In this episode, co-hosts Dan and Aaron speak with HGIA Executive Director Gwen Yamamoto Lau about some unique energy challenges and solutions from the island state’s perspective.
Show notes:
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Episode Transcript:
Dan Bresette: Hello, and welcome to the Climate Conversation. I'm Dan Bresette, president of the Environmental and Energy Study Institute. And what's this? Someone is slipping me a script here, and I'm joined today by my incredibly handsome and charming colleague, Aaron Facundo. Hello, Aaron. Nice to see you today. Thanks for joining me on the podcast.
Aaron Facundo: Hey Dan, I'm excited to be hosting the podcasts with you today. Today we're gonna be talking about renewable energy efforts in Hawaii, specifically what Hawaii’s Greenbank, the Hawaii Green Infrastructure Authority, has been doing to make clean energy upgrades available to everyone on the islands, particularly low to moderate income households.
Dan: That's right, Aaron, and needless to say climate change affects everyone in various ways, some more than others. Living with climate change is a unique challenge for Island communities. Hawaii consists of eight main islands and over 100 minor islands and islets. The state also has the highest household electricity costs in the United States, amounting to about 42 cents per kilowatt hour. By comparison, Rhode Island comes in second and about 32 cents per kilowatt hour.
Aaron: Hawaiians in general face adversity in accessing affordable clean energy, but low to moderate income communities are especially vulnerable to energy insecurity. To overcome the equity barrier, greenbanks can help fill market gaps through innovative financing to accelerate the transition to clean energy. Speaking to us from the Hawaii Green Infrastructure Authority is Glenn Yamamoto Lau.
Dan: Gwen Yamamoto Lau is executive director of the Hawaii Green Infrastructure Authority or HGIA, which is attached to the state's Department of Business Economic Development and Tourism. Drawing from over 25 years of experience in conventional commercial financing, Gwen works to facilitate non-traditional financing tools to fill market gaps and promote energy, justice, and economic development for the state of Hawaii. She was also appointed to the U.S. Environmental Protection Agency's environmental financial advisory board for a three year term ending next June 15. Gwen, Welcome to the Climate Conversation. It's great to see you again.
Gwen Yamamoto Lau: Thank you Dan, likewise.
Dan: Gwen, I’d like to go back in time a little bit. Hawaii's green bank was founded 10 years ago in 2014, which would have made it one of the earliest green banks in existence. How did HGIA help underserved ratepayers when it was first constituted?
Gwen: Yeah, that's a great question Dan. So our initial residential rooftop financing solar was a direct loan program. We launched it in June of 2013, and at that time, we approved applicants with credit scores as low as 600 and provided a 20 year loan terms that carried a fixed interest rate of 5.99%. Its commercial loan program, fashioned after the SB 504 Loan Program, reduced the minimum project level of debt service coverage ratio to 1.1x and bears a fixed interest rates ranging from 4½% to 7½% depending on the pars global cash flow, again for 20 year term of the loan. As a source of our loan capital was this utility securitisation bond. The Hawaii Public Utilities Commission governs our loan program and required HGIA to deploy at least 51% of our loans to undertake repairs that are unable to access financing at reasonable rates in terms of banks and credit unions. As a loan fund, the state understood that it was not feasible to invest 100% of loan capital into borrowers, unable to obtain traditional financing without suffering significant charge offs and low losses.
Dan: So then flash forward a couple years 2019 comes along, and Governor David Ige announced the launch of the HGIA's Green Energy Money $aver on bill financing program. And it's important for people when you say saver, it sounds like it starts with an S but it doesn't it starts with a dollar sign, but we'll say Green Energy Money $aver or GEM$. Could you give us a quick rundown of what GEM$ is, and how does GEM$ help low and moderate income households and businesses access low cost financing for clean energy upgrades and what makes it unique from other programs that might be available in other parts of the country?
Gwen: So, GEM$ financing is a type of on-bill program. When we first launched disconnection notices we used as our only credit screen, which means we no longer had to pull credit reports. However, if the borrower or the applicant had disconnection notice over the past 12 month period they were not eligible for financing. However, last year Hawaii’s PUC approved a request to eliminate all credit screens. And disconnection notices are now used to determine minimum estimated bill savings thresholds. If they didn't have any disconnection notices, we target a 5% minimum, if they have one to four, 10% minimum, and five or more, 50% minimum and the reason for this is because clearly if they're getting disconnection notices they're having trouble paying the bill, and therefore we want to give them a deeper savings so that they can catch up on their past due bills and then move forward for real savings. And loan obligation is tied to the electric utility meter instead of a person, especially in the case of a tenant which was important to us, is 43% of our households rent and were therefore locked out of solar due to the high cost of real estate in Hawaii.
Aaron: So Gwen, I'm assuming that having GEM$ approved by the Hawaii Public Utilities Commission wasn't a very simple cut and dry process. So I wanted to ask what exactly took place to kickstart this program in its formative years?
Gwen: Great question Aaron. Years before HGIA was even being contemplated, the journey of Hawaii's on-bill program began with actual four session log of 2011. So it started in 2011, and culminated almost after eight years of work invested by PUC electric utility and energy stakeholders. So in 2011, actual for directed the PUC to investigate the viability of an ongoing financing program, and if viable to implement. So the PUC did their due diligence and deemed on-bill to be viable. And together with the utility and energy stakeholders, they began working on implementation with Hawaii's PBF administrator on what was to be known as the Hawaii Energy Bills Data program. However, due to complexities related to financing in 2016, the Hawaii Energy Bill Saver Program was suspended. And the PUC then directed the utility to work with HGIA to design and implement an ongoing payment mechanism for our exclusive use. In 2017, we began our work with the utility. In June of 2018, we began accepting on-bill applications. And finally in April 2019, the on-bill financing program was officially launched. The most time-consuming part of the implementation was IT programming to send electronic pushes between the utility and our loan servicer, which took approximately 18 months to complete. However, after the launch of this risk mitigating mechanism, the authority was able to reaffirm its commitment to underserved ratepayers, and instead of 51% of our loan capital benefiting underserved, in September of 2018, we committed to ensuring that all remaining nodes only benefit underserved.
Aaron: I guess the next question I want to ask, how can the GEM$ onboard program leverage different sources of capital like bonds, federal 0% loans, greenhouse gas reduction funds and more to offer low cost financing to low to moderate income households, renters, and nonprofits.
Gwen: So you know, over the past six years, even through the pandemic which shutdown our state, the Authority has fortunately not suffered any loan losses, and I'm knocking on wood right now. And this is primarily due to the strength of the risk mitigating on the repayment. As such, our program has attracted private capital, as well as federal funds, which we leverage with our state funds to assist more out US households and increase bill savings and other environmental impact. So, you know, again, private capital is attracted to the lower risk due to our under repayment mechanism.
Aaron: So we've had a lot of discussion about GEM$, but what are some other efforts HGIA has undertaken to help fight the climate crisis and how else is HGIA making energy more affordable in the state of Hawaii?
Gwen: Yeah, so in addition to GEM$ financing, we also administer the State Small Business Credit Initiative, providing credit enhancements and participation loans to bridge the access to capital gap for small businesses and nonprofits. While this program is not limited to climate related businesses, we have provided thus far predevelopment financing for community owned community solar projects, and we're currently working on underwriting a biochar manufacturing plant. Additionally, the state passed enabling legislation for the authority to administer Hawaii CP financing program. And CP stands for as you know, commercial property assessed clean energy, so that will help us not only facilitate more clean energy, leveraging private capital, but also for Hawaii's program, we added resiliency as part of the qualifying improvements.
Dan: As we mentioned earlier, Hawaii's household electricity price is the highest in the entire United States. I have some assumptions I could be making about why but why is that actually the case? And what are some other climate related obstacles that Hawaii specifically faces?
Gwen: So according to our State Energy Office, Hawaii's price of electricity has been the highest in the nation for the past 23 years. In 2022, the cost of electricity in Hawaii was 64% higher than the next highest state, and nearly triple the average price of all other things. As tourism is our number one industry in Hawaii also consumes nearly seven times more energy than it produces, with forfeits of its consumption from petroleum, making it the highest such consumer among states nationwide. It's the petroleum and fluctuating prices and the variability about it that is driving up prices, especially with the war in Ukraine, and then we shut down our last coal power plant. This is the impetus behind the state's goal to achieve 100% renewable portfolio standard by 2040. You know, Regarding your question on other climate related issues, being an island state Hawaii is at ground zero, and we are very vulnerable to climate related issues. The wildfire last year destroyed the historic line of town. And similar to California, we have homes on the north shore of falling into the ocean. Additionally, Hawaii is the most isolated archipelago in the world, roughly 2400 miles from the northwest coast, and 3900 miles from Japan. It lies farther from any major landmass than any other island geography. And it's this physical isolation that presents unique energy infrastructure challenges with six separate and isolated energy grids with one on every major island. And as such, we are not able to rely on any neighboring jurisdiction for immediate assistance in times of natural and other disasters. So climate change and climate related issues are real to Hawaii, and I really want to have everyone work together to lower greenhouse gas emissions and take better care of the environment.
Dan: So Gwen, follow up question, climate impacts the one that I think is probably on everyone's mind for lots of reasons, including the fact that it was in the news. And it was a really horrible thing to see photos of and video of these terrible wildfires that hit Maui last year. What were some ways that HGIA was able to help or has been able to help those communities and other communities around Maui recover from that terrible event.
Gwen: Thanks for asking. It's so tragic, and we just couldn't believe it. So similar to when the state was shut down during the pandemic, immediately following the wildfires, we contacted all of our Maui borrowers and gave them a you know, opt in six months deferral, you know, you don't have to pay a bill whether or not you're you're located in Lahaina, what happened with the wildfires is it displaced 1000s of home households. And so these families were moved into a hotel, and some of them were still in hotels, and six months later, it just negatively impacted the economy of the entire county of Maui. And so we offered our interest deferrals, we also went to the Treasury under the SBCIP program, that's the Small Business Credit Initiative Program. And we asked the Treasury for some exceptions for Maui County, which they approved, you know, it's going to be about five years to rebuild and to recover. And so with our typical credit enhancement program, which we can offer the rest of the state that provides a cash collateral of 20%, or of the loan amount or $1 million dollars. For Maui county, we can provide up to 50% of the loan amount in cash collateral up to $5 million on our loan Participation Program, instead of a maximum of $5 million, we can do ten million dollars for a total of $ 20 million. So really appreciative to the Treasury for allowing us the exceptions to help us rebuild.
Dan: Thanks, Gwen. In my intro, I mentioned that you are a member of EPA’s Environmental Financial Advisory Board. You're thinking about obviously, what's happening in the state, but also what the federal government can be doing. And you have, you know, access to sort of that policy network that's, you know, here in Washington. For our audience, which is primarily a congressional audience. What are a handful of maybe closing thoughts you might offer to policymakers on Capitol Hill? What should they know? And what should they understand about climate issues facing Hawaii and also HGIA is work to help make clean energy more affordable for more people?
Gwen: Yeah, that's a great question. You know, when we were constituted back in 2014, energy equity was kind of a novel idea back then. It was a nice to have not a need to, you know, with the Biden White House Justice40 initiative, with 40% of the federal funds in energy, clean energy, climate change, going to benefit disadvantaged communities, it just advanced the lens on climate, energy equity, and, you know, a just transition, and it's no longer a nice to have, it's a critical need that we all need to pay. So, you know, I think, with Hawaii, we have 44% of our households struggling, it's the working poor, are they struggling to make ends meet and ensure it's not just in Hawaii. And, so whether it's energy, whether it's clean water, you know, I think affordability issues are real, and it's something that Congress can assist our families with. And especially when we were looking at financing, it's not a one and done dollar of taxpayer dollars, you know, the loans are made, they're repaid, and they are reinvested over and over again to help more families in need. And so we'd appreciate Congress's lens to that and really appreciate their greenhouse gas reduction fund appropriation last year under the IRA.
Dan: Thank you so much, Gwen. It has been really, really nice to talk to you and to see you again via zoom and next time you're in DC. I think the last time you were in DC, you actually were able to come to one of our briefings. It was great to see you there so hopefully we'll see you again soon but thanks so much for taking time to talk to Aaron and me on our podcast today
Gwen: Likewise, mahalo, appreciate it.
Aaron: If you want to learn more about EESI’s work on climate finance, head to our website at eesi.org. Also follow us on social media @eesionline for all of our recent updates. The Climate Conversation is published as a supplement to our bi-weekly newsletter, Climate Change Solutions. Go to eesi.org/signup to subscribe. Thanks for joining us and see you next time.
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