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A highly anticipated program aimed at speeding up dozens of renewable energy projects in Hawaii is rife with problems including solar companies jockeying for advantage in order to tap into an increasingly lucrative market.

Solar energy companies have been gaming the system and Hawaiian Electric Co. has failed to adequately oversee the projects, according to state regulators and an outside contractor responsible for monitoring the program.

Some local companies are becoming frustrated with increasing delays and worry that staying with the program could hurt them financially.

Under the “feed-in-tariff” program, or FIT, developers can sell solar energy to the electric utility for a fixed price for 20 years. But there is only a limited amount of space in the program because of contraints on the electric grid. Solar companies have been marking their spots in the online queue for months, with projects spilling onto a waiting list.

One company in particular is under fire by the Hawaii Public Utilities Commission. Commissioners have accused Solar Hub Utilities of being a “queue squatter” — signing up projects that the company doesn’t intend to complete, and then selling them for a profit.

Financial filings with the Securities and Exchange Commission indicate that Solar Hub sold the rights to its 68 projects to , a California company, for $44 million. In filings with the PUC, Solar Hub says it spent about $4 million on getting the projects into the queue.

The projects take up about one-third of the FIT program’s capacity.

FIT Program Supposed to Speed Transition to Clean Energy

The FIT program was launched with great fanfare in November 2010, after two years of wrangling among energy stakeholders and voluminous filings with the PUC. The program has been successful in encouraging more renewable energy in countries throughout Europe. Hawaii is one of only a handful of states that offers the program.

The program also includes wind, hydropower and concentrated solar power, but it’s dominated by solar panel developers.

The feed-in-tariff differs from other solar programs. Residents can have solar panels installed on their rooftops through the popular net-energy-metering system — which can nearly eliminate electric bills. Developers can also negotiate a contract with HECO to sell the utility solar power through what is called a power purchase agreement.

The FIT program was designed to be simple, reduce development risk and speed up the amount of renewables being placed on HECO’s grids on Oahu, Maui and the Big Island.

But it hasn’t played out that way. While few developers signed on to the program initially, by the end of 2011 a perfect storm was brewing as the number of applications rose dramatically.

A key federal tax credit was about to expire, larger projects were being allowed into the queue and the price of solar panels was plummeting. The lower capital costs significantly improved the profit margin on FIT projects.

“You put all those things together and suddenly you have this sort of flash flood,” said Mark Duda, an executive with local solar company, RevoluSun, which has completed about 10 FIT projects.

The dozens of solar companies that have popped up throughout the state in recent years to take advantage of a thriving market, as well as mainland companies, began taking a more serious interest in the FIT program and the queue quickly filled up.

But problems have been rampant, according to a filed in May by Harold Judd, the program’s independent observer. Developers signed up projects without securing a required 20-year commitment from property owners. They tried to use the same tax identification number for multiple systems in an attempt to get around system size limits. And companies claimed spots in the queue without having completed design plans that were stamped by a Hawaii-licensed electrical engineer.

At least one company tried to “acquire political influence and use threats to further a desired goal,” wrote Judd.

He said that HECO employees hadn’t fully grasped the concept of a FIT program. Instead of adhering to the strict rules of the program, they were still trying to negotiate deals with developers and allowing multiple extensions for projects that weren’t meeting requirements.

“It appears to the (independent observer) that this situation is the product of HECO personnel wanting to be helpful, and developers wanting an easy path to the lucrative rates offered under FIT,” he wrote.

Judd stressed that projects are either qualified or not.

One “goal of the FIT program is to be ‘plug and play’: either a project qualifies and is ‘shovel ready’ or it is not,” he wrote.

The program was designed so that only serious projects that had completed design plans and secured site control would be let into the queue.

“The goal of the commission in implementing the tariff was to make the thing really, really, really clear. And they chose a standard that was supported by the solar industry and HECO,” said Duda. “I think there was a problem in not upholding the standards immediately.”

There have been periodic purges of the queue to remove non-compliant projects.

Commissioners are currently working to solve the problems. This includes delisting all projects that failed to show proof of a valid building permit application, which includes design plans, as of early January.

Solar Hub in the Cross Hairs

The move is alarming Solar Hub. Pat Shudak, the company’s CEO, told Civil Beat that the PUC removed 60 of its projects in December based on the tax identification rule. And now the company is at risk of having 27 of 68 more projects delisted because of building permit issues.

Last week, the PUC issued a ruling that would remove the projects, which is being partially contested by HECO.

Shudak said that the company had followed all the rules and that state regulators were being unfair.

“It’s hard for me to see how an outside party like the PUC can make a ruling based on things that people are doing or not doing,” he said, adding that such decisions should rest with HECO which reviews the documents.

In response to the PUC ruling, the company submitted a 747-page document to commissioners laying out its defense.

The company argues that it had all the required documentation for its projects.

Solar Hub’s filing didn’t go over well with commissioners who struck it from the record and called it “wholly inappropriate.”

“In the commission’s view, the submission represents a thinly veiled attempt by Solar Hub, a non-party, to reargue points that have already been addressed in the commission’s prior orders and tardily flood the record with self-serving information,” wrote Chair Hermina Morita and Commissioner Lorraine Akiba.

Queue Squatter?

Solar Hub has had its struggles in the queue, but it’s a that California-based SPI Solar issued in mid-June that’s particularly attracted the attention of state regulators.

SPI Solar announced that it had become the largest utility-scale solar developer in Hawaii after purchasing the development rights to Solar Hub’s 68 projects, totaling 29 megawatts.

“We are very pleased that we were able to secure Solar Hub Utilities rights to these projects at this stage of development,” said Stephen Kircher, CEO of SPI Solar in the company press release.

According to the that SPI Solar filed with the SEC, the company acquired all of the project assets on June 7 for $1.50 per watt, or $44 million. SPI was to pay Solar Hub a $9 million cash advance by the end of July and the rest on a project-by-project basis, after SPI installed the solar panels and interconnected the projects to the electric grids.

SPI Solar also said in the press release that it was already in negotiations with another company to flip the projects once the solar panels installed.

“We have already solicited offers for the entire portfolio of projects upon commissioning and have entered into a Letter of Intent with a very well funded and respected buyer of solar projects,” Kircher says in the press release.

Last month, commissioners sent a letter to HECO saying that the program was “never intended as a means for developers to make a profit from selling spots on the FIT queue.” Regulators asked the utility to identify any other developers “who may have improperly gamed the FIT program by ‘queue squatting.’”

Shudak says the company is not a queue squatter and that it didn’t sell the projects — rather it received a “development loan” from SPI Solar.

“To categorize us as queue squatters is offensive to say the least,” he told Civil Beat. “It’s hurtful and it’s degrading after all that work.”

He said that Solar Hub would maintain the projects through their duration.

“We are staying for the 20 years because we are the owner of the projects,” he said.

“If you actually look at the arrangement with SPI, they have loaned us the money.”

Officials at SPI Solar did not respond to repeated requests for comment.

Seventy percent of SPI Solar is owned by Chinese solar panel manufacturer, LDK Solar, which has posted steep losses this year. It’s been that LDK Solar is at risk of going bankrupt.

HECO spokesman Peter Rosegg said that Solar Hub’s actions in the queue hadn’t raised concerns with HECO and that responsibility rested with Judd.

“If the independent observer didn’t raise any problems, we don’t have any problems either,” he said. “So it’s just like, whoever signed up, signed up. Until the PUC clarifies how to deal with the issue of compliance and sales, we can’t really do anything about that.”

While selling queue space goes against the intent of the FIT program, according to regulators, the PUC is currently looking into whether the rules explicitly forbid it.

Meanwhile, solar companies are hoping that the program’s kinks get worked out soon.

“This has been painful and inconsistent,” said Duda. “We’re getting to the point where the financial consequences are starting to pile up.”

While Judd noted in his report that the program was progressing at “a glacial pace,” he said that he believed the FIT program was still viable and none of the issues presented a fatal flaw.