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How Electricity Shortage in Hawaii Impacts Construction Risk

How can developers, lenders, and construction professionals prepare for these delays and avoid project impacts?

There is a surprising, yet highly impactful, roadblock to construction projects in Hawaii – electricity shortages resulting from long delays in wiring structures to the utility grid. It is not uncommon for projects to sit unfinished in development purgatory for months at a time for this sole reason. The delays can cause schedule misses in project development, issues securing contractors, skyrocketing unexpected expenses, or, in rare cases, derailing the ability to finish a development altogether.

Although construction delays caused by shortages in utility services are both frustrating and costly, this challenge isn’t going to change in the foreseeable future for many reasons. As an island state, there is an inherent physical ceiling on development volume and electricity service needs. Additionally, there is a limited pool of people to hire from with qualified electrical expertise, so utility companies provide service based on a waiting queue. There is a general lack of desire among local companies to surge the workforce for a specific project or seasonal work, only to lay them off thereafter.

Most important of all, connecting to the grid and establishing or restoring electricity isn’t always a quick, straightforward process like those in the mainland are accustomed to. In some cases, development projects are being built on primitive land with no prior modern infrastructure, and a main connection to the grid is not located near the project site.  In other cases, land use around a new development can be severely restricted by zoning and entitlements, particularly for designated homestead land and/or land protected by the National Environmental Policy Act (NEPA).

There are several ways developers, lenders, and construction professionals can prepare for these inexorable delays to keep projects generally on schedule and avoid detrimental project hindrances. One is to simply be aware that this is the cost of doing real estate development in Hawaii and to prepare accordingly. When scheduling major milestones for a construction plan, allow a buffer of at least two to three months in case of major delays for installation to the grid or establishing electricity on a property. Find ways to manage the overall project budget to adjust costs on other aspects of construction and to “build in” electricity-related delays into the development estimate. This contingency item can include additional civil engineering to build auxiliary infrastructure on parts of Hawaii that are undeveloped and don’t yet have electrical grid capacity or for extra work to install within an older area where upgrades are required. Finally, build relationships on local, and even neighborhood, levels. Hawaii’s islands are an intimate microcosm where being friendly and establishing relationships can help expedite utility and engineering services as well as Hawaiian environmental and legacy regulations.

Through a combination of planning, careful Construction Risk Management and old-fashioned relationship development, developers, and lenders can continue to take advantage of Hawaii’s burgeoning commercial real estate opportunities without incurring significant losses.