Puerto Rico holds a special place in my heart. My husband was born there, we have family there, and I’ve spent idyllic vacations on all three of its main islands. I also spent two years in the trenches trying to get solar built on the island, only to be frustrated at every turn.
Most people know Puerto Rico is in financial ruin. PREPA, the government-owned utility, declared bankruptcy due to its $9B debt. Electricity is so expensive it’s strangling the economy, driving business off the island, and is at the root of many of the evils the islands struggle with, such as unemployment and crime. At 22 c/kWhr, the average commercial electricity rate is 2x the continental US average.
Nearly 50% of Puerto Rico’s electricity is generated by imported oil. Solar and wind are much cheaper and would provide immediate economic relief, yet only 2% of Puerto Rico’s electricity comes from renewables. Why’s that?
In 2011 and 2012, PREPA signed many contracts with wind and solar developers in a politically-driven push to lower electricity rates and migrate to clean energy. Oil hovered around $100/barrel and electricity prices were even higher than they are now. Sadly, the contracts were poorly written. They were “must take” contracts with poor cancellation options that both limited the utility’s options and increased risk and financing costs. There were no curtailment clauses for over-generation, and with many contracts signed at 18 c/kWhr, they were lucrative for solar and wind developers. Renewable energy developers arrived on the island en masse, and PREPA signed dozens of these contracts.
Then things got weirder. PREPA issued the most stringent interconnection requirements possible, known as the “Minimum Technical Requirements” (MTRs). Engineers started to comb through the document, and threw their hands up in despair. More stringent than any other standard world-wide, it would be difficult to find or modify hardware that could comply with PREPA’s standard. The document was also so vaguely written, engineers struggled to even figure out how compliance would be measured. Finally, the MTRs required solar and wind developers to spend a lot of money correcting problems already inherent on the grid, without any compensation.
A year was invested in good faith trying to work with PREPA to clarify the requirements, point out the inconsistencies, and negotiate a workable solution. Slowly, it became clear that the stringent interconnection requirements were not actually about technical and grid performance issues. Unable to cancel the contracts it had signed, PREPA corrected its mistake by making it nearly impossible to interconnect the solar and wind projects to the grid.
Indeed, those contracts were a mistake. PREPA didn’t need the generation it agreed to take. The utility already had long-term contracts in place with third parties for approximately one-third to one-half of the electricity generation on the island. The amount of solar and wind encompassed in the contracts would have basically required PREPA to shut down all the utility-owned generation on the island. It’s worth mentioning that PREPA’s utility workers union is one of the largest on the island, and forms a critical voting block for legislators. Shutting down generation wasn’t an option, neither politically nor for the utility. So instead, after a few tortuous years, solar and wind developers all left the island. Some of those companies went bankrupt, most lost a lot of money, and financiers that backed them promised not to go down that rabbit hole again.
What’s the moral of this long story? Any long-term solution must cut through the Gordian knot of politics, employment, and the utility.
I co-wrote the legislation that created the Puerto Rico Energy Commission and put in place some regulatory oversight of PREPA before my former company lost patience and pulled me out of there. That legislation passed in 2014, but even it is not enough.
To solve its problem, Puerto Rico needs much bigger changes, such as:
1. Any solution must address the PREPA utility union. There has been talk of privatization for years, and one of the benefits would be allowing for the renegotiation of union contracts and pensions. This will be difficult for legislators, since many of their voters are financially tied to the utility;
2. The utility (public or private) needs to be subject to the same regulatory oversight and reliability standards as all the other US utilities. The standard, quasi-judicial, transparent regulatory process that takes place in any state in the US must be applied to Puerto Rico for reputable private companies to be willing to participate;
3. PREPA’s generation fleet needs to be retired. Inefficient coal and oil generation plants that are forty or fifty years old must be scheduled to be shut down. LNG may be a solution, but legal constraints require the use of US shipping, and lack of infrastructure on the island will drive up cost. Wind and solar costs have dropped well over 50% in the last 5 years and I anticipate that any reputable study will show they are the lowest cost solution for Puerto Rico;
4. Organizations familiar with renewable energy contracts, and challenges managing an isolated grid with a significant percentage of variable generation, need to be brought into to advise and guide. HECO, CAISO, NREL, APPA, NRECA, or even my company all have experience to help avoid repeating the same mistakes made 5 years ago;
5. The “Minimum Technical Requirements” and their companion document, “Alternative Technical Requirements,” need to be shredded if they haven’t already. There are real challenges associated with managing an isolated grid with a high percentage of variable generation, but there are also much more cost-effective solutions than what the utility required. A real study needs to be done to determine how to layer in cost effective solutions as the percentage of variable generation on the grid increases;
6. Distributed generation solutions should be immediately encouraged. But only if they are deployed with “smart” technologies, such as “smart inverters” that can be easily upgraded in the future to allow distributed assets to provide voltage support and other grid-critical services;
7. RFPs need to be issued to both software companies that can dispatch and control distributed assets, as well as solar and wind companies to replace retiring generation. Well structured, large RFPs (e.g. for all the schools, hospitals, and municipal buildings) will attract larger players, increase competition, and drive down costs. The Puerto Rican government must secure some solution for these contracts in case of default, or recognize that financing costs will remain very high;
8. Some on the island have been pushing legislation to allow electricity wheeling for years. This decision should not be made without first making a bigger decision about PREPA’s future. The larger question is not only privatization, but whether generation should be separated from transmission and distribution.
Although Hurricane Maria has now drawn attention to the desperate energy situation in Puerto Rico, this crisis has been building for many years. Urgent repairs to fix downed powerlines in the coming weeks and months will continue to draw media attention. But the underlying problems, hidden from most pundits, must be solved. Properly implemented, solar and wind power can provide Puerto Ricans the benefits of reliable and low-cost electricity that their fellow U.S citizens enjoy and take for granted on the mainland.