Hawaii’s biggest utility wants to end to its solar net metering program by April, and replace it with a new tariff regime that will be less lucrative for solar-owning customers -- a move that’s sure to raise opposition from the state’s solar industry.

But Hawaiian Electric Companies (HECO) says the change is needed to prevent distributed solar from overwhelming grid stability, burdening non-solar customers with extra costs, and crowding out other, less expensive forms of renewable energy.

HECO, which owns the utilities on the islands of Oahu, Maui and Hawaii, also promised that the tariff is only a transitional step toward a new distributed generation program, dubbed “DG 2.0.” By 2017, the utility promises, this new regime will allow customers to make money from self-generated power that also supports the grid, by including smart inverters, energy storage, demand response and other grid-edge technologies.

These are the highlights from a Tuesday filing (PDF) with the Hawaii Public Utilities Commission (PUC), detailing HECO’s long-awaited proposal to move away from the traditional net metering approach to supporting customer-owned, grid-tied solar. It’s the latest utility to challenge its state’s use of net metering, which pays customers the retail electricity rate for the solar energy they produce.

HECO’s transitional distributed generation, by contrast, will pay customers a credit for solar energy exported to the grid that’s based on measures of the cost of wholesale power for the islands’ utilities. That credit will consist of the sum of the Base Fuel Energy Charge, a per-kilowatt-hour figure derived from the price of the fuel -- mostly oil -- used to generate power on the islands, and the Energy Cost Adjustment rate, which allows each island to modify its base charge due to changes in fuel prices and the cost of electricity bought from independent power producers.

Based on Jan. 2015 figures, these credits would have added up to totals ranging from 14.7 cents per kilowatt-hour on Oahu to 22.3 cents per kilowatt-hour on Maui, HECO’s filing stated. That’s about half the islands’ average retail electricity rates, which ranged from 31.2 cents per kilowatt-hour on Oahu to 37.7 cents per kilowatt-hour on the Big Island as of December 2014.

Even so, HECO states that its new rates should provide “sufficient energy credit to incentivize investment in renewable DG with an estimated payback period for a 5 kW PV DG system that ranges from five years to nine years,” a reasonable timeframe for new systems that are taking advantage of ever-declining solar module and balance of systems costs.

Like many other utilities, HECO claims that the costs of paying its net-metered customers the retail rate is undercutting its revenues and forcing it to push more costs onto customers who don’t have solar. Company-wide, the financial impact of net-metered customers has grown from an estimated $19 million at the end of 2012 to $53 million at the end of 2014, the utility claims -- “large enough to raise an equity issue between those who self-generate and those who do not.”

Growth in net-metered solar could also make Hawaii less attractive for utility-scale or community-owned solar, wind or geothermal projects, HECO noted. That’s because every megawatt of net-metered solar coming onto the grid represents a megawatt that’s no longer available to be provided by a cheaper, more grid-friendly alternative.

Despite all these arguments, HECO’s proposal is still a bitter pill to swallow for the state’s residential and small commercial solar installers, who, like their mainland brethren, rely on attractive net metering rates to make their projects cost-effective. To counter this, HECO’s filing accompanies its transition rate proposal with a pledge to allow more solar systems to be interconnected to its already solar-rich distribution circuits.

That’s the real bottleneck for Hawaii’s solar installers, who have been forced to lay off thousands of workers in the face of a steep decline in permitted projects over the past two years. The reason for the slowdown is HECO’s concern that many of its distribution circuits have too much solar on them. Distributed generation accounts for more than 15 percent of individual circuit peak load on many circuits, and for a significant number, the amount of solar power being generated at midday exceeds the amount of energy being used by the customers on the circuit -- a situation that can cause voltage disruptions and other grid stability issues.

HECO’s filing offered one specific advance on relieving this bottleneck -- its plan to “increase the circuit penetration threshold for transient overvoltage on their systems from 120% of Gross Daytime Minimum Load to 250% of GDML.” That represents a significant increase in the number of new projects that can be permitted on feeder lines that would be barred from accepting new solar under the old rules.

HECO is moving ahead with this plan based on research it’s been doing with SolarCity and the Department of Energy’s National Renewable Energy Laboratory (NREL), aimed at proving that advanced solar inverters can be programmed and controlled to mitigate problems caused by excessive solar. The results, outlined in Appendix 1 of the filing, indicate that “transient overvoltage can be managed; however, integration of distributed generation projects may require mitigation measures and modifications to generation facilities, circuits or the power system."

In other words, advanced inverter functions can solve some of HECO's solar penetration problems, but not all of them. HECO is already involved in a number of demand response, energy storage and energy management pilot projects aimed at helping it incorporate intermittent wind and solar power into its grid operations. While these aren’t ready to be incorporated into its new transitional tariff yet, HECO wants its “DG 2.0” regime to include all of these technologies as part of the calculation of costs and benefits. HECO, of course, is in the midst of a $4.3 billion acquisition by NextEra Energy, a big player in both nuclear power and large-scale renewable energy, which presents another layer of uncertainty for Hawaii's distributed solar future.

Hawaii is one of a group of states, including California, New York, Massachusetts and Minnesota, that are working on wide-ranging reforms to energy policy that could lead to significant changes to their net metering regimes. HECO’s new proposal is just one of many steps in this years-long process, toward what the state’s PUC has identified as a “new model where the customer-value proposition is predicated upon how distributed solar PV benefits both individual customers and the overall electric system.”