Hawaiian Electric Industries (NYSE:HE) is dealing right now with what is likely to become an industrywide problem of integrating rooftop solar power into old utility infrastructure. But that's one of the big reasons why NextEra Energy (NYSE:NEE) wants to buy the company's utility arm for $4.3 billion.
The Hawaiian problem
The big issue Hawaii's largest, and virtually only, utility is facing is huge for the utility industry. Although California is the state with the most solar power installed, Hawaii has the most solar penetration. For example, around 10% of Hawaiian Electric's customers on the island of Oahu have rooftop solar installed, well beyond the penetration rates in other states. Early last year the company complained that some "distribution-level circuits have rooftop PV capacity exceeding 100 percent of the daytime minimum load."
That's why Hawaiian Electric started pushing the brakes in 2013, slowing down the number of approvals it gave for new rooftop systems to be connected to the grid. MJ Shiao, solar director at GTM Research, recently told GreenTech Grid, "With one in every ten customers with solar and thousands more PV systems set to be interconnected, HEI is the living case study for high-penetration PV and the potential benefits and pitfalls of advanced PV integration regulations and technology." Which is why Hawaiian Electric's pending acquisition by NextEra is so interesting.
The petri dish
GTM Research's Shiao is basically saying that Hawaiian Electric is the petri dish in which the integration of rooftop solar will be tested. NextEra Energy, meanwhile, is a growing giant in the clean energy space, owning and operating around 17% of the country's wind power and about 14% of its utility-scale solar.
Adding Hawaiian Electric to the fold will not only give it a foothold in a state that can use some clean, renewable energy (Hawaii has historically imported oil for its power needs), but it will also give it a chance to learn first hand what it's like to have huge amounts of customers pushing power back at the grid from their rooftops. And, just as important, this giant experiment will be conducted in a largely closed system, since Hawaii is an isolated archipelago.
In fact, rooftop solar giant SolarCity (NASDAQ:SCTY.DL) saw the same opportunity to experiment in Hawaii. That's why it's partnered with the Energy Department's National Renewable Energy Laboratory (NREL) and Hawaiian Electric to "address operational issues associated with high degrees of distributed solar penetration on electrical grids." SolarCity wants to learn how to make rooftop solar an asset for utilities before the problems facing Hawaii become widespread. The solar pioneer knows it has to be a partner to the utility industry if it wants to keep growing.
The initial results of SolarCity's partnership with Hawaiian Electric have already produced results. According to a late-November news release from SolarCity, "Applying the preliminary results of NREL and SolarCity's research with Hawaiian Electric, the utility expects that they will approve over the next five months almost all customers who have been awaiting interconnection." And NextEra wants in on the ground floor of that progress as it looks to become an industry Goliath in the clean energy space, which increasingly includes rooftop solar.
NextEra is also the parent company of Florida Power & Light, with 4.7 million customers in The Sunshine State. Florida has relatively little rooftop solar installed, despite the huge opportunity for the technology to thrive in the state's sunny locale. Which means NextEra is smart to get ahead of any problems it might have in its home state by learning in the Hawaiian petri dish. And that's good for SolarCity, too, since it gives the company an "in" with a mainland utility in a sunny state in which it could expand. Not to mention that both companies could offer their knowledge and experience to other utilities around the country and, perhaps, world.
Utility deals can take time to complete and there aren't going to be too many synergies between utilities located in Hawaii and Florida. But that's not the real opportunity to be found in this deal. Watch the progress that Hawaiian Electric and SolarCity make on integrating rooftop solar in Hawaii, because you could see a reprise in Florida and other states when NextEra Energy consummates this prescient deal.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.