Hawaiian Electric Industries: Pioneering a Carbon-Free Future Through Grid Innovation

Hawaiian Electric Industries (NYSE: HE) is set to provide its Q2 2025 earnings update on August 7, marking a critical moment for investors to assess the company's progress in transitioning Hawaii's energy grid to 100% renewable power by 2045. While financial metrics will be under the microscope, the company's long-term value hinges on its ability to execute its decarbonization and grid modernization strategies. Here's why this could be a winning bet for patient investors.

Decarbonization: From Coal to Clean Energy

Hawaiian Electric's most visible achievement is its retirement of the last coal plant in 2022, a milestone that eliminated 1.5 million tons of annual CO₂ emissions. The company is now focused on replacing fossil fuels with renewables, including solar, wind, and geothermal energy. By 2030, it aims to add 1 gigawatt of renewable capacity, enough to power 200,000 homes. Progress is measurable:
- 50,000 rooftop solar systems installed to date, with community solar projects expanding access for low-income households.
- Biofuels and green hydrogen trials underway to address gaps in renewable energy storage.

This shift aligns with Hawaii's aggressive climate targets, creating a regulatory tailwind. The company's Climate Change Action Plan also includes retiring six fossil-fueled units by 2030, further reducing emissions.

Grid Modernization: Building Resilience and Efficiency

Hawaiian Electric's grid modernization isn't just about sustainability—it's about survival. The 2023 Maui wildfires, which damaged critical infrastructure, underscored the need for grid hardening. Key upgrades include:
- Replacing 871 wood poles with fire-resistant materials, reducing wildfire risks by 43% on Oahu since 2016.
- AI-driven monitoring systems, a $200 million investment, now track grid stability in real time, optimizing renewable energy integration.
- Non-Wires Alternatives (NWAs), such as the Waikoloa project, which seeks distributed energy solutions to avoid costly grid expansions.

These efforts are already bearing fruit. Hawaiian Electric's outage duration fell by 18% in 2024, improving customer satisfaction and reducing operational risks.

Financials and Risks: Navigating the Transition

While Hawaiian Electric's Q1 2025 results showed a $0.23 EPS, in line with expectations, its path isn't without hurdles. The Maui wildfire settlement, which could cost $479 million in 2026, and ongoing wildfire mitigation expenses ($80 million annually) weigh on near-term profits. However, the company's performance-based regulation (PBR) framework incentivizes efficiency gains. By meeting PBR targets, Hawaiian Electric can secure higher rebase revenues, shielding investors from operational volatility.

Legislative support also reduces risks. Hawaii's Senate Bill 897 caps wildfire liability and enables securitization of safety investments, while Senate Bill 1501 supports clean energy procurement. These policies are critical for funding grid upgrades without diluting shareholder value.

Investment Thesis: A Long-Term Play with Undervalued Upside

At a trailing P/E of 6.8, Hawaiian Electric trades at a discount to peers like NextEra Energy (NEE), which trades at ~24x earnings. This reflects skepticism about near-term costs but overlooks the company's strategic advantages:
1. Regulatory tailwinds: Hawaii's 2045 carbon-neutral mandate ensures steady demand for the company's services.
2. Low execution risk: Hawaiian Electric's monopoly position in Hawaii's electricity market provides pricing stability.
3. Grid resilience dividend: Reduced outages and wildfire risks could lower insurance costs and improve EBITDA margins over time.

Conclusion: A Utility of the Future

Hawaiian Electric is at a pivotal juncture. While short-term costs are unavoidable, its investments in renewables and grid hardening position it as a leader in the energy transition. With a low valuation and regulatory support, now could be an opportune time to buy HE for a multi-year holding period. Investors should monitor the August 7 earnings call for clarity on Q2 results, wildfire settlement progress, and updates on renewable project timelines.

In a world increasingly focused on sustainability, Hawaiian Electric isn't just a utility—it's a blueprint for how to rebuild the grid of the future.