������Ƶ

Aina Koa Pono is back with what the company says is a new and improved contract to supply Big Island residents with 16 million gallons of locally produced biofuel.

State regulators rejected the first contract negotiated between the Honolulu startup and Hawaiian Electric Co. last year, saying the cost of the fuel was “excessive, not cost-effective, and thus, is unreasonable and inconsistent with the public interest.”

The contract is one of several that HECO has negotiated with local companies in recent months in hopes of creating a local biofuel market that will help the electric utility meet its clean energy goals. But companies have struggled to meet the challenge and produce fuel at a cost that is competitive with imported oil.

Aina Koa Pono’s new contract shaves $125 million off the projected cost to ratepayers. But that doesn’t mean it will be cheaper than oil-generated electricity for residents.

The biofuel would cost the average residential ratepayer about $1 more per month beginning in 2015, according to HECO. The previous surcharge was projected to be about double that.

That’s if the cost is spread out among Oahu and Big Island residents, which the utility hopes to do in order to offset the cost to residents on the Big Island. They already pay some of the highest rates in the state, and that price is about four times the national average. Eventually, Aina Koa Pono hopes to also supply fuel to other islands, including Oahu.

The biofuel surcharge is expected to vanish as diesel prices rise, said Peter Rosegg, a spokesman for HECO.

“Every expectation is that at some point during the contract the surcharge would disappear because the biofuel would be cheaper than diesel,” he said. “But there’s a lot of different pricing projections. We don’t know when that point will come.”

The contracted price for the biofuel is being kept confidential. But Henry Curtis, a utility consumer watchdog who is executive director of Life of the Land, estimated that in the first contract ratepayers would be subsidizing the cost of the fuel by about $26.5 million per year, or $530 million over 20 years, the length of the contract. Rosegg would not comment on whether that price was accurate.

If the new contract is approved by the Hawaii Public Utilities Commission, Aina Koa Pono hopes to commercialize a new thermal microwave technology that the company says can breakdown biomass to liquid fuel in just 50 minutes. The company is looking to use invasive plants, eucalyptus trees, macadamia nut husks, tree trimmings and coffee pulp and hulls in the plant.

If successful, the fuel can be dropped into the electric utilities’ generators as a replacement for oil.

The biofuel plant carries no financial risk to ratepayers if the company isn’t able to deliver on the fuel, said Rosegg.

Biofuel, not unlike other renewable energy options in Hawaii such as geothermal and wind energy, has its share of critics. Besides being costly, HECO also will have to invest in converting its generators and updating fuel supply infrastructure to accommodate the fuel. And clean energy advocacy groups, such as Blue Planet Foundation, have argued that biofuel should only be used for ground transportation, and not electricity generation, because the state doesn’t have enough land to accommodate both. The group contends that other sources such as wind and solar should be given priority for electricity generation.

But biofuel supporters say that it can boost the local economy and keep millions of dollars from going out of state to purchase foreign oil.

Aina Koa Pono says it expects 400 jobs to be created during construction of the plant during the course of three years and bring about 200 agricultural and processing jobs to Kau, where the plant would be located.

In addition to generating tax revenues, Chris Eldridge, a partner at Aina Koa Pono, said in a press release that the plant can help local farmers by providing a buyer for their agricultural waste.

The company has also contracted with Georgia-based Mansfield Oil Co. to provide distribution and supply services. Mansfield will also purchase about eight million gallons of the biofuel to be sold both in Hawaii and on the mainland, according to Aina Koa Pono.

The Hawaii Public Utilities Commission is in the process of reviewing other recently negotiated biofuel contracts, including one with Phycal, for an algae biofuel plant on Oahu, and Hawaii BioEnergy, which is working on a Kauai project.