February 19, 2019

Puerto Rico’s Electric Power Reawakening: A Multifaceted Approach

Gustavo Bonet and Angélica Valderrama

The Puerto Rico Electric Power Authority (PREPA) is the primary electricity provider in the archipelago of Puerto Rico.PREPA has been a vertically integrated monopoly for decades. As has been widely reported, PREPA is also saddled with a debt of approximately nine billion dollars. Before Hurricanes Irma and Maria, PREPA had declining sales and excess capacity—peak demand was at 3060 MW, while capacity stood at 5839 MW. Fossil fuels continued to supply 97–98 percent of its generation fleet, with imported fuel oil supplying the bulk of it, while 11 large-scale renewable projects ran through power purchase and operating agreements with PREPA. PREPA’s grid crumbled after the hurricanes, leaving many without power for months. This article reviews Puerto Rico’s efforts to rebuild the grid in the context of the long-term plan approved for PREPA before the hurricanes and identifies key issues informing those rebuilding efforts.

On the heels of the hurricanes, the Puerto Rico Energy Resiliency Working Group, comprised of governmental and private entities, laid out a blueprint to rebuild Puerto Rico’s electrical system. The group called for the transformation of the system to one “that is hardened, smarter, more efficient, cleaner, and less dependent of fossil fuel imports.” The group contemplated “increased use of distributed energy resources and accelerated penetration of renewables.” Their assessment also recognized the potential conversion of certain units from fuel oil to natural gas, but acknowledged that distributed energy resources (DER) including energy storage and microgrids “may lessen PREPA’s dependence on large central generating stations, with the potential to retire existing plants and/or defer new ones.” The microgrids serving critical infrastructure and remote communities had an estimated capital expenditure of $1 billion. The group recognized that its recommendations would have to be vetted in the context of a new integrated resource plan (IRP).

In a similar vein, in July 2018, Siemens—consultant for PREPA’s IRP—concluded that the Puerto Rico electric system should strive to be more “renewable, resilient, and reliable.” To become more resilient, Siemens proposed that the island be divided into 10 regional microgrids, which it called the “mini-grids.” Siemens’ proposal had an estimated cost of $7.6 billion for capital investments, of which $5 billion were attributed to the capital cost of new solar photovoltaics and battery storage.

Regulatory Changes and Customer Participation

A decade ago, Puerto Rico’s unregulated and monopolistic energy landscape may have stymied plans to make the grid cleaner and more resilient. Widespread electrification, albeit unreliable, may have also rendered the promise of DER as illusory and unnecessarily expensive. Less than a year after the hurricanes, however, Puerto Rico’s regulatory environment and energy-related developments may facilitate efforts to make electricity services more reliable and resilient and to deploy DER. New laws include:

  • The Regulation on Microgrid Development, which sets the framework to develop personal, cooperative, or third-party microgrids that can connect and disconnect to PREPA’s grid and may run on renewable energy and/or combined heat and power.
  • The Puerto Rico Electric Power System Act, which initiated the sale of PREPA’s generation assets and delegation of other electric services to public-private partnerships.
  • The Electric Cooperatives Act of Puerto Rico, which formally recognizes the cooperative system as a means to finance and operate electric power projects.

Recent exponential growth in solar deployment offers insight into customers’ potential use of these regulatory tools to meet their electricity demands. Maximo Solar, for example, reportedly reached $32 million in year-over-year sales in 2018 compared to $18 million the prior year.

The community of Toro Negro, in the town of Ciales, has already spearheaded a community solar project whose solar panels were supplied by Maximo Solar. The project has a total capacity of 82.8kW, consists of 20 independent solar and battery systems, three different types of inverters and will provide power to 28 residences in the community. Each residence may connect to and receive electricity from PREPA’s grid, and 6 out of the 20 systems may supply electricity to PREPA’s grid. Comunidad Solar Toro Negro, Inc., a nonprofit, holds the project’s property interests and will operate it.

Long-Term Planning

While Toro Negro pushes for energy independence, the second proceeding for PREPA’s IRP is under way. It is useful, however, to revisit the first IRP proceeding. A year before the hurricanes struck, the Puerto Rico Energy Bureau (previously the Energy Commission) approved the Final Resolution and Order on the First IRP of PREPA. The Commission approved certain elements of PREPA’s IRP like investments in transmission systems, but rejected others like the Aguirre Offshore Gas Port project (AOGP), which included constructing an LNG port in the South and converting certain units to natural gas. PREPA was ordered to conduct a cost-benefit analysis of AOGP, as it had not proven that it was the most cost-effective plan.

In its preliminary filings for the second IRP, PREPA has proposed several scenarios that rely on at least one new LNG facility on the island or offshore and that introduce the minigrid concept advanced by Siemens. Intervenors have stressed that PREPA should focus on cost-effective and feasible energy portfolio options. Assured Guaranty Corporation, Assured Guaranty Municipal Corporation, and National Public Finance Guarantee, for instance, warn that PREPA has not demonstrated the new LNG projects’ feasibility, cost, or permitting outlook. Meanwhile, NGOs have cautioned PREPA against downplaying the rapid integration of residential solar, using an understated load forecast, and mispricing fossil fuels.

On November 19, 2018, the AOGP project was cancelled. Days after, the Energy Bureau allowed PREPA to continue a request for proposal (RFP) process to convert certain generation units in San Juan to natural gas and build the necessary infrastructure to supply natural gas to those units. The first IRP, however, did not study the conversion of these units to natural gas. The Energy Bureau instead ordered PREPA to model said conversions in the ongoing IRP proceeding.

Concluding Thoughts

Puerto Rican residents are implementing significant changes to how the electric system was traditionally perceived. Their participation in novel proprietary, financing, and system models to supply themselves with power deserves attention. Although Toro Negro is only 1 of 2 projects submitted to the Energy Bureau for review as a microgrid, its success could incentivize other communities to establish their own microgrids. PREPA is expected to submit its official IRP proposal in February 2019, where the recent exponential growth in customer solar and battery systems should be quantified. In the island, a car is indispensable and, post-hurricane Maria, so is near load electricity generation.

PREPA’s pursuit of an RFP to supply natural gas to San Juan circumvents the IRP process, and the Energy Bureau’s endorsement may serve to undermine the validity of the approved IRP. Although the Energy Bureau ordered PREPA to study options including the conversion of certain power generation units to natural gas in the current IRP proceeding, it will remain to be seen how PREPA’s push for LNG in San Juan shapes the island’s energy plan to the potential exclusion of DERs and other alternatives that may be less capital-intensive and could provide a meaningful shift in the island’s energy portfolio development. Given PREPA’s projected load forecast and AOGP’s trajectory, customers may be better served with an IRP process that fully vets newly proposed gas alternatives and how these may feed off and enhance the demand-side projects happening concurrently. Moreover, as shown in the Working Group and Siemens reports, different microgrid configurations could yield material cost differentials, differences that should also be vetted.

    Gustavo Bonet and Angélica Valderrama

    Published: February 19, 2019



    Gustavo Bonet is a native of Arecibo, Puerto Rico. He earned his J.D. at the Universidad Interamericana de Puerto Rico–Law and his LL.M. from Vermont Law. He served as the Puerto Rico Energy Commission’s General Counsel and is currently a Principal at Synergy Strategic Consulting, LLC, where he provides consulting services in matters involving energy regulation, environmental law, and corporate risk management. He is licensed to practice law in Washington, D.C., and Puerto Rico. The views expressed here are his own and do not represent the position of the firm, its agents, or clients.

     

    Angélica Valderrama is a native of Aguadilla, Puerto Rico. She earned her J.D. from Vermont Law, where she was part of the first cohort of the Energy Clinic of the Institute for Energy and the Environment. Upon graduating, she worked as Legal Specialist in the Puerto Rico Energy Commission. She is currently a Research Associate at Institutional Shareholder Services (ISS). The views expressed here are her own and do not represent the position, strategy, or opinions of ISS or its agents.