Taxpayers are paying what could amount to a multimillion-dollar premium for power from recently installed solar panels on the roofs of state-owned buildings, including several airports.

The rate the state pays for solar power is not only more than what it would pay for traditional electricity, it's nearly twice what private consumers pay for solar energy in today's market.

In January 2008, the state launched its Photovoltaic Energy Systems Project, aimed at putting solar power generators on state roofs within two years to produce as much as 34 megawatts of electricity, enough to meet the need of thousands of homes.

The intent was to move Hawai'i off its dependency on imported oil and save money. While the solar panels may prove cost-effective over the life of the system, the state is paying a premium in the early years that might have been avoided, solar industry officials said.

The state negotiated a price when the cost of power was near its recent peak and locked it in for 20 years. It also failed to get a large number of competitive bids, which could have lowered the price, industry officials said.

"The state is definitely paying too much for electricity at least on the airport projects," said Sean Mullen, president of solar power integrator Suntech Hawaii. "It's twice as high as it should be."

The state signed 20-year power purchase agreements with Hoku Scientific Inc. last fall. Under the agreements, the state is paying 38 cents a kilowatt hour on Maui and Kaua'i for solar power. In Hilo the rate is 33 cents a kilowatt hour, and in Kona the rate is 32 cents a kilowatt hour. Hawaiian Electric Co.'s rates for medium and large customers on Maui this month vary from 16 cents to 21 cents a kilowatt hour.

Additionally, two local solar power companies surveyed by The Advertiser said comparable power purchase agreements today sell electricity for 20 cents to 22.5 cents a kilowatt hour.

State Transportation Department Director Brennon Morioka acknowledged that the state's purchase power agreement prices were fixed at a time when prices were high. However, he said, the state could still benefit over the long term.

"When we were doing the (power purchase agreements), the price of oil was fluctuating so much. and it was still going up, and no one really knew when it was going to end," he said. "We think our rates are very competitive. We believe electricity rates ... will only be going up anyway, so in the long term, we are going to be saving money. Maybe not as much as some others that entered into the (power purchase agreements) at the right time, but it is just a matter of timing."

Mullen and others also blamed a lack of competition for the relatively high solar power rates paid by the state.

PLAN HITS A SNAG

The state began the solar project in January 2008, hoping to build 34 megawatts of generating capacity. The plan was slowed by a bid protest against contract winner SunPower Systems Corp. Later, SunPower backed away for financial reasons from an agreement to install more than 12 megawatts of capacity.

After that loss, the state applied for and received an exemption from procurement laws and then offered the contract to Hoku Scientific, which had been a prior bidder. Under that deal, Hoku is supplying less than 1 megawatt of capacity on state facilities on Maui, the Big Island and Kaua'i.

Jim Whitcomb, owner of Haleakala Solar in Pu'unene, said he balked at bidding on the initial, large 12-megawatt contract won by SunPower. However, he said, he would have bid on the much smaller project awarded to Hoku.

"I never even heard about it," said Whitcomb, who said he's been in the solar business in Hawai'i since 1977. "I wish I had a chance to bid on it.

"Really, they would have gotten a better deal if they had opened it up to competition. The competition is fierce out there now, and it was fierce back then."

Suntech's Mullen agreed that the state could have gotten more competitive prices by issuing a new request for proposals after the deal with SunPower fell through.

Morioka said the state did not seek to issue a new request for proposals because it needed the solar power system installed before the expiration of a 30 percent federal credit at the end of 2008. The availability of that credit has since been extended by Congress.

Morioka said the state contacted several solar power providers, notifying them they could bid on a scaled-down airport photovoltaic project.

"I know we started contacting a lot of them to let them know," he said. "It was actually open to everybody. Hoku was the only provider that responded."

Critics of the state's power purchase agreement rates also said the state could have waited for the Legislature to change the state tax credit program so that companies such as Hoku could benefit from them. Such a change was made in the recently passed Senate Bill 464, which makes the renewable energy credit refundable for taxpayers who agree to accept a lower credit of 24.5 percent. The bill has been sent to Lingle for review.

Hoku could still benefit from the solar tax credit if that bill becomes law. However, any such cost savings would not reduce the rates the state pays for solar power.

SAVINGS UNCERTAIN

It's unclear how much money the state may save using solar power versus conventionally generated electricity during the next 20 years. However, if the state is paying 15 cents a kilowatt hour too much for solar power, the estimated added cost is about $200,000 a year or $4 million over 20 years for the 779 kilowatts of power now installed on state rooftops.

The solar power rates paid by the state will rise annually by 2 percent to 3 percent, which should work in the state's favor as the cost of oil-based products will likely rise much faster.

"All in all, from here on out I think it's going to be a very good thing for the state," Mullen said. "I think they just dove into it too quick. If they would have taken a step back, I think it could have worked out a little bit better for the state."

Dustin Shindo, chairman and chief executive of Hoku Scientific, said the long-term power purchase contract will provide a hedge against increases in the cost of grid electricity.

"Today's rates notwithstanding, the average price of electricity in Hawai'i has increased steadily over time, just like the average price of oil," he said in an e-mail. "As a result, the (state transportation power purchase) contracts are expected to save Hawai'i taxpayers a significant amount of money over 20 years, to say nothing of the environmental and strategic benefits of using clean, renewable power."

Meanwhile, Morioka said, the state is readying bid solicitations for 3 to 10 megawatts worth of projects that will take a year or two to complete at about 20 sites.

"We want to maximize as much of the space as possible," he said. "Our ultimate goal is getting some of our facilities off the grid."