Lanai Sustainability Research has agreed to knock $15,000 off Maui Electric Co.’s monthly bill to make up for the estimated $360,000 it overcharged the utility for power while its battery energy storage system was nonoperational.

Both sides agreed that the monthly offset of $15,000 would begin in October, according to documents filed with the state Public Utilities Commission. Of that total, $11,000 will account for the battery system being inoperable, a cost that which will remain in effect until the battery is replaced or the power purchase contract is terminated. Another $4,000 will be applied until the $360,000 in overpayments is recovered or the agreement is terminated, at which time Lanai Sustainability Research would have to shell out the unpaid balance in a lump sum payment within 30 days of termination.

The move will reduce electric bills for customers on Lanai, though MECO says exactly how much will depend on the amount of electricity each customer uses.

Lanai Sustainability Research first started operating on Dec. 19, 2008, according to MECO spokeswoman Shayna Decker. It’s located about three miles south of Lanai City at the intersection of Miki Road and Kaupili Road and has a generating capacity of 1,200 kilowatts.

The solar farm sits on 10 acres managed by Pulama Lana`i and includes a 1.25-megawatt battery storage system, according to the Hawaii State Energy Office. It’s estimated to provide about 30 percent of Lanai’s power needs, or about 400 homes. The solar farm’s developers include Castle & Cooke, SunPower, Xtreme Power and Pulama Lana`i, the Larry Ellison company that owns most of the island.

According to the energy office, it’s considered “one of the first solar farms in Hawaii, and one of the first in the world with battery storage.”

MECO agreed to purchase power from the facility at $0.28276 per kilowatt-hour through 2033, under a power purchase contract approved by the PUC.

On Nov. 8, 2018, MECO notified Lanai Sustainability Research that it was in breach of the agreement because the battery system “was disconnected, inoperable and/or was not functioning as required by the terms of the PPA,” according to a letter from MECO President Sharon Suzuki. The parties believe the battery system has been nonoperational since around January 2017.

On Nov. 21, 2018, Lanai Sustainability Research told MECO that it couldn’t fix the problem within 30 days of the notice. Per the agreement, the company had up to 180 days from the notice to fix the problem — so long as they were making “diligent efforts” to do so.

Suzuki said that company agreed to replace the battery and began receiving quotes from battery vendors.

“During this time, (Hawaiian Electric Cos.) determined it would be in the best interest of our customers on Lanai to move forward with a request for proposals for renewable energy to continue the companies’ efforts to reach our clean energy goals,” Suzuki said in an Oct. 28 letter.

She said the two sides began negotiating the best options and came up with an agreement that would make up for the money MECO had been overcharged because the battery wasn’t working.

To come up with the total, the utility calculated the difference between the price it paid for energy delivered from the facility while the battery system was out of service — about 27 to 30 cents per kWh — versus the energy price without the battery system that was presented in the originally approved power purchase contract — about 19 to 22 cents per kWh — from January 2017 through June of this year.

“On average, the difference was just under $11,000 per month, or an estimated overpayment of approximately $360,000 since the battery system was nonoperational in January 2017,” Suzuki said in an Oct. 2 letter.

Suzuki said that the agreement would provide “an immediate bill reduction to customers on Lanai.” It would also give Hawaiian Electric Cos. a chance to review draft renewable requests for proposals and work with the owner of the Lanai facility on a better option moving forward, instead of requiring them to replace the battery “and continuing a high-priced project,” Suzuki said.

The rates that MECO pays the Lanai facility are “significantly above current market prices for PV paired with storage,” Suzuki said. By contrast, AES Renewable Energy’s proposed 60-MW solar and 240-MWh battery project along Kuihelani Highway is expected to charge 8 cents per kWh.

Decker said Friday that MECO is “working with LSR to determine what options would work best for the island of Lanai.

“Such options could include replacing the current Lanai Sustainability Research battery energy storage system or replacing the current LSR facility with a new facility,” she explained.

Decker said MECO could renegotiate the price if they choose to go with a new battery system. Any renegotiation would need agreement from Lanai Sustainability Research and approval by the PUC. If all parties agree to replace the current facility with a new one, that would require Lanai Sustainability Research to terminate the current agreement.

Decker said that the Lanai request-for-proposal energy goals range from 13,300 to 20,800 MWh annually, “depending on the status of LSR and the Four Seasons Resort Manele combined heat and power unit.” The request for proposals is still pending PUC approval; once it’s passed and MECO sends it out, bidders will have about 60 days to respond.

* Colleen Uechi can be reached at cuechi@mauinews.com.