LNG can reduce energy bills on Oʻahu
O’ahu Is Paying Too Much for Power
O’ahu residents and businesses currently have the most expensive retail power in the United States.
At $0.43 per kilowatt hour (kWh), the average price of power on O’ahu is more than three times the U.S. average. That’s largely because 70% of the island’s power still comes from burning expensive imported oil in aging, inefficient power plants.
By switching from oil to liquefied natural gas (LNG) and a modern gas-fired power plant – as JERA is proposing – Oʻahu would benefit from both cheaper fuel and more efficient power production.
A Shift for Stability
Oil is among the most expensive fuels used to generate electricity, which is why most of the world’s power is generated from cheaper sources, including natural gas and LNG.
All commodities – from oranges to oil – are subject to price volatility. However, the LNG industry has long offered contracts and pricing structures that can mitigate exposure to price surges and major fluctuations. Large international companies like JERA can source LNG supplies from many projects around the world at diverse pricing structures.
Traditional long-term LNG contracts are priced at a discount to a crude oil price index, which is designed to keep the price tracking below the cost of oil over the life of the contract. Although spot LNG prices rose above their oil equivalent levels between 2021 and 2023 – a result of an unprecedented global scramble for gas caused by Russia’s invasion of the Ukraine – they subsequently settled back to their usual discount. Buyers of LNG on an oil price-index were less exposed to the global gas price spikes during this period.
By sourcing from a large portfolio, JERA can offer structures that protect Oʻahu against price shocks and volatility, ensuring the fuel is affordable, stable, and reliable. That translates to lower and more predictable power bills for Oʻahu residents.
Increased Efficiency = Lower Power Prices
A new gas-fired plant will be a key factor in lowering generation costs, requiring significantly less fuel to produce the same amount of power as the current oil-based infrastructure. The Kahe and Waiau plants are an average 58 years old, and they waste roughly two-thirds of their fuel as heat1 rather than turning it into electricity. The newest gas turbines convert more than half of their fuel into power, making them around 70% more efficient. Newer power plants also require less maintenance, which means fewer operating costs. Lower fuel and maintenance costs mean those savings can be passed on to the customer on their power bill.
JERA’s initial modeling indicates power bill savings from the switch to LNG will amount to an average of about $500 per meter per year, though actual savings will depend on each household’s or business’s usage. Electricity is often a large input cost for businesses, so some of these savings can be passed on to customers as lower prices for everyday goods and services, not just the electricity bills themselves.
These savings also reach ratepayers more evenly than the benefits of rooftop solar, which accrue mainly to homeowners who can install panels. Renters or multifamily homeowners generally do not have access to rooftop solar, even as they continue to pay their share of grid costs. About 49% of O’ahu single-family homes have installed rooftop solar, but once multifamily units are counted, only about 25% of all O’ahu housing units have solar. Savings from switching to LNG from oil-generation can positively impact every ratepayer regardless of homeownership.
Investing for the Long-Term
O’ahu’s existing oil-fired power plants need to be replaced to keep the electricity grid reliable. At the same time, any replacement infrastructure needs to align with and contribute to the transition to a 100% renewable energy future.
JERA’s proposal meets both these criterial and reflects a genuine and flexible long-term investment.
At least 90% of the infrastructure needed for O’ahu’s conversion to gas-fired power will have a life beyond 2045 with long-term use or redeployment potential.
The new power plant in JERA’s proposal can be converted to run on clean fuels, such as hydrogen. The subsea pipelines, mooring systems and other infrastructure associated with floating receiving LNG receiving terminal may also be repurposed for use in importing future low carbon and/or renewable gas based fuels. And the floating terminal itself can be sold or redeployed elsewhere when it is no longer required.
Moving from oil to gas would also have substantial near-term economic benefits. The $2 billion investment required for the project is forecast to lift annual GDP by $150 million a year and create more than 1,100 high-quality jobs during a five-year construction period.
In Summary
Reliable, lower-cost electricity production using LNG will reduce emissions on Oʻahu and support the ongoing rollout of renewable energy on O’ahu.
Related Myths & Facts
LNG will keep the lights on for Oʻahu
