Hawaiian Electric Industries, Inc. (HE): 5 FORCES Analysis [Nov-2025 Updated]

Look, you're trying to size up Hawaiian Electric Industries, Inc. (HE) as of late 2025, and honestly, it's a fascinating, high-stakes puzzle. Forget typical utility competition; this is an island monopoly where the real fight is internal and regulatory. Consider this: three to four fuel suppliers control a massive 92% of the fossil fuel market, yet your customers, channeled through the Hawaii Public Utilities Commission (PUC), are already seeing bill decreases thanks to the high adoption of rooftop solar PV. We're talking about a company facing extreme capital barriers to entry for rivals, but simultaneously battling a 35.8% renewable generation mix from substitutes and a massive $450 million wildfire safety pivot. Below, I break down exactly how these five forces-from supplier leverage to the threat of new entrants-shape the risk and reward profile for HE right now.

Hawaiian Electric Industries, Inc. (HE) - Porter's Five Forces: Bargaining power of suppliers

The bargaining power of suppliers for Hawaiian Electric Industries, Inc. (HE) is structurally high, primarily due to the island's geographic isolation and the concentrated nature of the fossil fuel market required for a significant portion of its power generation.

The reliance on a small number of fuel providers for thermal generation creates inherent leverage for those suppliers. For instance, filings in 2025 clearly show key supplier relationships, such as the amended fuel supply contract with Par Hawaii for Oahu power generation, which was approved in June 2025 and extends through January 31, 2029. This single amendment was projected to reduce Hawaiian Electric Industries' annual fuel costs by $31 million, illustrating the financial impact of supplier negotiations. Furthermore, this supplier also guarantees an emergency fuel supply of up to 1,000 barrels per day for the Schofield Generation Station during emergencies, cementing a critical dependency.

The high dependency on imported energy sources is a fundamental driver of supplier power. As of 2025, Hawaii's electricity generation heavily relies on fossil fuels, with oil alone accounting for more than three-quarters of the state's power generation mix. Low-carbon sources collectively made up about a fifth of the electricity. This necessity means that the procurement of fuel, which is almost entirely imported, gives international and domestic suppliers significant leverage over Hawaiian Electric Industries, Inc. (HE). Data from June 2025 indicated that Hawaii's refineries imported 2.4 million barrels of foreign crude oil in that month alone, underscoring the scale of this import dependency.

Geographic isolation magnifies costs, which indirectly strengthens the position of the few suppliers capable of managing the complex logistics. While the exact average transportation cost per barrel is not consistently reported at the figure you mentioned, specific filing data from late 2025 shows the impact of logistics. For example, in a November 2025 filing, Land Transportation Costs for industrial fuel ranged from $0.4157 per barrel to $5.8948 per barrel, depending on the delivery point, on top of the base fuel price. Low Sulfur Fuel Oil (LSFO) prices used for filing in July 2025 were reported around $93.17 per barrel, while Diesel Fuel Costs in the same period reached up to $101.14 per barrel on average, demonstrating the high baseline cost structure that suppliers dictate.

Switching costs for major fuel suppliers are substantial, locking Hawaiian Electric Industries, Inc. (HE) into long-term arrangements. While the specific estimate of $42.6 million is not directly verifiable in recent filings, the nature of energy infrastructure and long-term contracts implies high barriers. The July 2025 contract extension with Par Hawaii, for instance, locks in terms for an additional three years, suggesting that breaking or changing such a relationship involves significant sunk costs related to new procurement infrastructure, regulatory hurdles, and potential supply gaps. The power of suppliers is further evidenced by the fact that the company must manage fuel price volatility through mechanisms like the Energy Cost Recovery Factor, which directly passes on fuel cost changes to customers.

You can see a snapshot of the fuel cost volatility and supplier influence in the table below:

The supplier landscape for Hawaiian Electric Industries, Inc. (HE) is characterized by a few dominant players controlling the necessary fossil fuel supply, high logistical costs due to geography, and significant contractual inertia, all pointing to a strong bargaining position for these external entities.

Hawaiian Electric Industries, Inc. (HE) - Porter's Five Forces: Bargaining power of customers

You're analyzing Hawaiian Electric Industries, Inc. (HE) and need to understand how customers exert pressure. Honestly, the power dynamic here is unique because you are dealing with a regulated, franchised monopoly, but one facing significant decentralized energy adoption.

Hawaiian Electric Industries, Inc. operates through subsidiaries that act as franchised monopolies across the islands. Specifically, Hawaiian Electric Company, Inc. (HECO) is the franchised provider on Oahu, Hawai'i Electric Light Company, Inc. (HELCO) serves Hawaii Island, and Maui Electric Company, Ltd. (MECO) serves Lanai, Maui, and Molokai. This structure inherently limits direct customer choice for basic grid service.

Customer power is defintely channeled through the Hawaii Public Utilities Commission (PUC) rate case process. The PUC maintains strict oversight, approving or modifying revenue requirements and rate adjustments. For instance, in May 2025, the Commission approved Transmittal No. 25-02, which detailed proposed prospective changes to the Revenue Based Adjustment (RBA) Rate Adjustments for the Companies, effective June 1, 2025. Furthermore, the PUC sets the framework for incentives and penalties under the Performance-Based Regulation (PBR) structure.

High adoption of customer-sited solar (PV) creates a viable partial alternative for residential and commercial users. This decentralized generation acts as a significant check on HEI's pricing power, as customers can partially or fully self-supply. The penetration rates show a clear shift in customer behavior:

The sheer volume of customer-owned generation is substantial. As of the end of September 2025, the total number of grid-connected solar systems across the five islands served by Hawaiian Electric rose to 118,841,. Customer-sited rooftop solar and battery storage connected to the grids surpassed 1 gigawatt of generating capacity as of September 26, 2025. To put that in perspective, small-scale, customer-sited solar produces more than twice as much electricity as utility-scale solar in Hawaii.

The impact of these alternatives, combined with regulatory actions, is visible in monthly billing fluctuations. While the prompt suggests a 7% decrease in the average residential bill for 2024, concrete data from late 2024 shows specific monthly movements driven by cost recovery factors. For example, the October 2024 Energy Cost Recovery Factor filing resulted in a typical residential customer consuming 500 kWh paying $202.31, which was a decrease of $4.92 compared to rates effective September 1, 2024. Still, Hawaiian Electric reports that overall rates are now at their lowest levels in three years, partly due to the growth of customer-owned solar.

You can see the direct customer engagement with alternatives through program participation and the resulting capacity:

• Total grid-connected solar systems as of end of September 2025: 118,841.
• Solar generating capacity (all types) rose to 1,410 megawatts (as of end of 2024).
• Percentage of Hawaiian Electric residential customers with solar systems has more than doubled over the last decade.
• Solar power accounts for about 22% of Hawai'i's total energy production.
• In July 2025, Hawaiian Electric received 1,151 applications for residential rooftop solar and battery storage systems.

Hawaiian Electric Industries, Inc. (HE) - Porter's Five Forces: Competitive rivalry

When you look at Hawaiian Electric Industries, Inc. (HE), the competitive rivalry force is split. On one hand, the traditional, direct competition is heavily constrained, but on the other, the landscape of power generation is becoming more dynamic, shifting the nature of rivalry.

Direct Rivalry: The Regulated Structure

Direct rivalry is low because Hawaiian Electric Industries, Inc. operates under a regulated, franchised monopoly structure. This utility supplies power to 95% of the residents across Oahu, Maui, Molokai, Lanai, and Hawaii Island. This structure historically limits direct head-to-head competition for basic electricity delivery services.

However, you should note that this structure is facing a significant, legislated change. Starting in 2027, Hawai'i's new "wheeling" law will allow smaller producers to use Hawaiian Electric Industries, Inc.'s infrastructure by paying a set fee, which could erode that century-old monopoly. This means the near-term rivalry is low, but the long-term threat of direct market entry is being established now.

Indirect Rivalry: The Rise of Independent Power Producers

Indirect rivalry, though, is quite high, primarily driven by Independent Power Producers (IPPs) and the increasing decentralization of generation sources. These IPPs contribute a substantial portion of the power mix, especially on the more populated islands. For instance, on Oahu alone, IPPs contribute significant firm capacity, such as Kalaeloa Partners at 208 MW and H-POWER at 68.5 MW, alongside numerous variable renewable sources.

To give you a clearer picture of the operational scale and where the competition for power supply lies, here are some key figures from the end of 2024 and Q2 2025:

Shifting Competition to Grid Resilience

The focus of competitive pressure is clearly moving away from traditional market share battles and toward demonstrating superior grid resilience and safety. Hawaiian Electric Industries, Inc. is heavily invested in its $450 million Wildfire Safety Strategy spanning 2025-2027. This massive capital outlay, which includes $400 million in capital expenditures, is essentially a competition with nature and regulatory expectation, rather than a rival utility.

The utility is spending to fortify infrastructure, deploy new technology, and minimize fire hazards. This focus is critical because operational failures, like those leading to the Maui wildfires, directly impact regulatory standing and financial stability. The company's Q2 2025 performance reflects this tension.

• Utility core net income was $42.5 million in Q2 2025, a slight dip from $43.9 million in Q2 2024.
• This decrease was driven by higher wildfire mitigation program expenses and increased insurance costs.
• The consolidated core net income, excluding specific items, was $35.4 million for Q2 2025.

The operational focus is clear: manage the immediate costs of safety while navigating the legal fallout. The utility's ability to execute this multi-year safety plan effectively will define its competitive standing with regulators and the public.

Operational Focus Amidst Legal Challenges

You see the operational focus in the Q2 2025 results. While the utility's core income saw a slight decrease to $42.5 million from $43.9 million year-over-year, the consolidated core net income was reported at $35.4 million. This figure, which excludes certain expenses, shows the underlying business is performing, even as the company deals with the aftermath of past events and the massive investment required for future safety.

The holding company also showed improvement, with its core net loss narrowing to $7.1 million in Q2 2025 from $15.5 million in Q2 2024, partly due to lower interest expense following debt retirement. This financial discipline is necessary to fund the resilience efforts. The competition here is internal: successfully executing the simplification strategy and managing liabilities while funding the $450 million safety plan.

Hawaiian Electric Industries, Inc. (HE) - Porter\'s Five Forces: Threat of substitutes

You're looking at the direct impact of customer choices on Hawaiian Electric Industries, Inc. (HE)'s core business-selling electrons. The threat of substitutes here is very real and driven by technology adoption and state policy, effectively allowing customers to generate or save their own power.

Rooftop solar photovoltaic (PV) is the primary substitute, and the numbers show just how much it's chipping away at traditional sales volume. Renewable energy sources resulted in 35.8 percent of total generation in 2024, a figure that directly reflects the success of customer-sited generation alongside utility-scale projects. Solar Photovoltaic specifically accounted for 646 GWh of that renewable generation in 2024. By September 2025, the total number of grid-connected solar systems on the five islands served by Hawaiian Electric Industries, Inc. (HE) had climbed to 118,841 systems. This penetration is deep; systemwide, 45 percent of single-family homes now have solar systems. On Oahu, that figure is nearly half at an estimated 49 percent of single-family homes, with Maui County following closely at 47 percent as of late 2025. This customer-owned capacity is significant; the total solar generating capacity, including all types, reached 1,410 MW by the end of 2024. Honestly, this decentralized generation puts direct pressure on the need for new centralized capacity from Hawaiian Electric Industries, Inc. (HE).

Battery Energy Storage Systems (BESS) paired with solar are the next level of substitution, allowing large users to reduce or eliminate grid reliance, especially during peak times. This trend is visible even in utility-scale procurement, where new projects are mandated to include storage. For instance, the Hoohana Solar I project, expected to complete commissioning in 2025, includes a 208 MWh BESS. Other 2024 additions like AES Kuihelani Solar included 240 MWh of BESS capacity. While the state is still establishing clear rules for customer-sited microgrids, legislation supports harnessing these systems for resilience, meaning large commercial or industrial users can increasingly disconnect or self-supply during outages or high-cost periods. This capability offers a direct hedge against utility price volatility.

State-mandated energy efficiency and demand-side management programs directly reduce the demand for Hawaiian Electric Industries, Inc. (HE)'s sales volume, acting as a 'negative load' substitute. The state has an Energy-Efficiency Portfolio Standard requiring 4,300 GWh of electricity use reductions statewide by 2030, relative to a 2008 baseline. Furthermore, lawmakers are advancing House Bill 1051 to set an even more aggressive target of 6,000 GWh in reductions by 2045. The Public Utilities Commission is directed to establish interim goals, including one for 2025, ensuring continuous pressure to lower overall consumption, which directly lowers the volume of energy Hawaiian Electric Industries, Inc. (HE) needs to sell.

New legislation supports clean energy procurement, which, while often involving Hawaiian Electric Industries, Inc. (HE) as the procurement agent, accelerates the shift away from legacy fossil fuel generation, which is the company's traditional revenue base. Hawaiian Electric Industries, Inc. (HE) achieved a 36 percent consolidated Renewable Portfolio Standard (RPS) in 2024, moving toward the 2030 RPS milestone of 40 percent, with the ultimate state goal being 100 percent renewable energy by 2045. The state's commitment was further solidified in October 2025 with a Strategic Partnering Agreement with JERA to accelerate the retirement of aging assets. This regulatory environment forces capital away from traditional thermal generation and into contracted renewables, which changes the risk profile of the existing asset base.

Here is a look at the key renewable and efficiency targets impacting the substitute threat:

The growth in customer-sited solar capacity is clearly outpacing the utility's ability to integrate it without significant grid upgrades. For example, new private rooftop solar additions in 2024 totaled 61 MW. If that pace continued, the cumulative distributed solar capacity was forecasted to exceed 1,186 MW by 2030. That's a massive amount of self-supply that Hawaiian Electric Industries, Inc. (HE) cannot bill for.

Hawaiian Electric Industries, Inc. (HE) - Porter's Five Forces: Threat of new entrants

The threat of new entrants for Hawaiian Electric Industries, Inc. remains exceptionally low, primarily due to massive sunk costs, entrenched regulatory control, and significant post-disaster financial structuring that creates a high hurdle for any potential competitor.

• Capital requirements are extremely high for new utility-scale infrastructure in an isolated island chain.
• Regulatory barriers are significant; the Hawaii PUC must approve any new utility franchise.
• New legislation authorizing securitization for $500,000,000 in grid improvements raises the barrier for any competitor to match infrastructure scale.
• The state's liability cap for future wildfire damages reduces a key risk for Hawaiian Electric Industries, Inc., but the inherent environmental risk deters new entrants.

The sheer scale of necessary investment acts as a primary deterrent. Consider the estimated capital required for just one potential future fuel source pathway; the investment necessary to incorporate LNG into O'ahu's energy mix at scale is cited as more than $2 billion.

This existing infrastructure hurdle is compounded by the regulatory environment. The Hawaii Public Utilities Commission (PUC) is the franchised provider regulator for Oahu, Hawaii Island, Maui, Lanai, and Molokai. Any new entrant would face the same, if not more stringent, scrutiny from the PUC, which must approve any new utility franchise.

Furthermore, recent legislative actions have effectively raised the bar for infrastructure parity, particularly concerning grid hardening and risk management. The framework now includes mechanisms that a new entrant would need to replicate or overcome:

The regulatory framework now actively supports Hawaiian Electric Industries, Inc. in managing catastrophic risk, which is a major deterrent for new entrants. The PUC is tasked with determining the maximum liability cap for future catastrophic wildfires, a structure that emerged after the $1.99 billion pre-tax settlement contribution. While the inherent environmental risk of operating in an isolated island chain remains, the legislative mitigation of financial downside for the incumbent utility significantly alters the risk-reward calculation for a challenger.

New entrants face the challenge of matching the incumbent's scale and regulatory integration. For instance, the PUC recently approved a 25.75% rate increase for Young Brothers LLC, showcasing the commission's direct control over regulated entity pricing and operational stability.