Hawaii made waves nearly a year ago when regulators decided to terminate its retail rate net metering program.

The island’s electric rates — the highest in the U.S. — made rooftop solar an attractive option to many residents looking to trim power bills. As the resource proliferated over the past few years, regulators and utilities were confronted with a new challenge: how to integrate more renewables on an overloaded grid while establishing a proper rate design for distributed generation.

It’s not an easy task, and one that a couple of other states — like Arizona and California — are taking on as well. But Hawaii was the first in the United States to end its retail rate remuneration. Often labeled the “postcard from the future” for renewables policies, any decision Hawaii regulators make hold broad implications for the rest of the U.S. power sector.

That’s because Hawaii has more rooftop solar per customer than any other state. Roughly 17% of the customers of Hawaiian Electric, the state's dominant utility, have installed rooftop solar, more than any other utility of its size in the U.S.

Due to the sheer speed of growth, regulators knew they must come to a solution that not only compensates solar fairly, but also incorporates technologies and grid practices to manage it.

In October of last year, the Hawaii Public Utilities Commission came up with two interim compensation options to buy time until they come up with a more permanent replacement. In their order, regulators wrote the new phase of the docket would focus on building competitive markets for distributed resources, and that regulators would "closely monitor the progress of the HECO Companies and [the Kauai Island Electric Cooperative] as each utility moves toward 100% renewable energy."

But only a few months after the new incentives became available, the solar sector began to complain of a squeeze.

In late March, the AP reported that 10 of the state's 16 solar installers intended to downsize as a result of lower remuneration rates and a backlog of interconnection applications waiting at the utility.

As more reports of job losses appeared, solar companies also warned regulators in May that the caps on the most popular of the new incentives — the customer-grid supply (CGS) tariff — were about to be hit on several islands.

In August, news finally broke that several caps were, indeed, hit. Now solar companies are pressuring regulators to raise the limits, while the utilities are trying to push customers to choose the less popular self supply option.

How Hawaii solves its crisis could either crater its rooftop solar industry or open up the door to new technologies and buy more time for regulators to come up with a permanent solution.

“There are basically two options: [regulators] don't do anything and rooftop solar sector craters, or at least until storage becomes more economical,” said Cory Honeyman, a research analyst at GTM Research. “Or some alternative solution is created as they work out the long term solution for NEM 2.0.”

Whatever they decide, the solar sector nationwide will surely take notice.

How it all began, in an Island far, far away…

In October of 2015, the Hawaiian PUC made a landmark decision to do away with its retail rate net metering program. Instead of receiving credits for solar generation at the retail rate of electricity, new rooftop solar owners would choose from two interim incentive options.

The CSS option allows a limited amount of inadvertent energy exportation to the grid, with a minimum bill of $25 for residential customers. Small commercial customers will have a minimum bill of $50. The intent is to create solar customers that put minimum stress on neighborhood grids, many of which are already overloaded.

CGS, in contrast, allows customers to export electricity to the grid, but not a the retail rate. Instead, the new grid-supply programs credit customers at a fixed rate between $0.15/kWh and $0.28/kWh, depending on location.

So far, the CGS option has proved vastly more popular.

As of August 17, applications for the CGS stood at more than 2,000, whereas the CSS only has 34 applications across all the islands.

The CSS option isn’t economical for most residents, said Autumn Proudlove, an analyst with North Carolina Clean Energy Technology Center, since it requires storage to make it worthwhile.

“So unless you have a storage system, it would make complete financial sense to go with the grid supply option,” Proudlove, who tracks state solar policy, told Utility Dive. But these storage systems don’t come cheap.

The Honolulu Star Advertiser noted such systems would cost customers around $40,000 — a hefty investment for Hawaii households with an yearly average income of $69,000.

For the option to truly become affordable, the technologies will have to come down significantly in cost, Honeyman said.

“I think it really speaks volumes for where demand is at for residential solar and storage,” Honeyman said. “The economics are still some years away from seeing some real meaningful scale even in a market like Hawaii.”

A slew of bills aimed at enhancing energy storage prospects failed in Hawaii’s legislature earlier this year. But those bills could reappear in the next legislative session, potentially bringing down the cost of storage through extending tax credits, offering rebates or both.

Not so sunny in Hawaii…

Shortly after regulators eliminated retail rate net metering, a segment of the solar industry attempted to stop them. The Alliance for Solar Choice (TASC), a solar advocacy group representing national installers, requested an injunction against the ruling, but a judge upheld the decision.

Other distress signs began to appear. In May, a report by the Hawaiian Solar Energy Association said 73% of its members reported declining employment, on average, by 35% percent. In July, 88% of solar companies reported job losses.

Meanwhile, two HECO subsidiaries — Hawaii Electric Light Company (HELCO) and Maui Electric Company (MECO) — maxed out their 5 MW caps for the Grid Supply tariff by the end of July, according to a report from Hawaii Energy Law Services. And HECO reported the 25 MW cap on Oahu had nearly been reached earlier this month.

Permitting numbers for rooftop solar arrays have also fallen. By the latest numbers, permit applications are down 27.3% since last August.

Marco Mangelsdorf, a local solar developer in Hawaii, described the current atmosphere for solar developers as a waiting game.

“We are waiting to see what [regulators] are going to do,” he said.

Despite the push to raise the cap from solar advocates, a HECO spokesperson told Utility Dive in May there isn't yet cause for concern when the caps are hit because of the backlog of approved — but not installed — rooftop solar projects under the previous net metering program.

As such, any increase in the caps should be limited in scope, HECO spokesperson Darren Pai wrote in an email. According to Pai, 13,000 applications for rooftop systems had been approved in May, but yet to be installed.

Mangelsdorf told Utility Dive that installers are still filing applications under the grid supply tariff despite utilities like HECO pushing the CSS option for customers.

For utilities like HECO, the CSS option is preferable technically because it “prevent[s] any excess electricity from being exported to the grid," Mangelsdorf said. "That's important because, unlike the interconnected power grids on the mainland, there's a physical limit to the amount of electricity that can be put on island grids at any given moment.”

Other solar developers like Sunrun and SolarCity have rolled out offerings aimed at the CSS option. SolarCity’s product is a combination of storage, solar systems and a Nest thermostat, water heater and controller, allowing consumers to use more of their energy onsite.

The savings are significant, according to Mark Dyson from Rocky Mountain Institute. By using the product, customers could “save 33% on their electricity bill, "which amounts to "nearly 80% of the savings that the old NEM arrangement offered."

Sunrun’s Brightbox is another option. The company teamed up with Tesla to offer solar-plus-storage system, a much simpler one than SolarCity. While the first Brightbox installation occurred earlier this year, the company plans to roll out this offering in full force before the end of the year.

Both offerings could receive a boost if a group of energy storage bills reappear in the next legislative session, bringing down the cost of storage installation through extending tax credits, offering rebates or both.

Even so, the promise of cheaper storage doesn't compare to the hey day of Hawaii's rooftop solar installation, Mangeldorf recalled.

"It’s nothing like $20,000 or $15,000 rooftop solar arrays to be sold in quick sucession.”

Looking ahead

For solar advocates, the immediate short-term solution is clear: raise the caps. But in other states, that's often come with a price to the solar sector.

Facing caps in Nevada, regulators eliminated retail rate net metering not only for new customers, but for existing ones as well, leaving 30,000 customers with lower incentives than they expected when investing in their solar systems. That effectively killed the rooftop solar industry, as three top developers (SolarCity, Sunrun and Vivint) exited the state.

Massachusetts’ solution was more of a stop-gap measure. Lawmakers extended the caps, but failed to come up with a longer-term policy satisfactory to both sides. Critics have said the caps will likely be hit before the end of the year, setting the stage for another debate.

By taking a look at these other states struggling with caps, Hawaii could skirt the problem by accelerating the timeline for a long-term decision, Honeyman said.

“The issue is it's not like it was a sudden shock that it happened this quickly,” Honeyman said. “ It's more about what is the actual timeline now for re-evaluating net metering and coming up with a long-term policy that can kind of steer clear of some of these ebbs and flows that would continue to happen if you continue to have these short-term policy options.”

“I think, as we seen in a lot of state markets over the rest of this year and into next year," he added, "it's going to be imperative for regulators to accelerate their timeline to come up with their program.”