Restructuring Puerto Rico’s Ailing Utility

Puerto Rico looks set to miss its target to achieve 12% renewable energy by next year. The island currently generates between 2-6% of its electricity from alternative, clean sources – namely hydro, wind and solar power.

This is surprising considering Puerto Rico’s potential for renewables and a largely supportive government and public for alternative energy. The island has a progressive regulatory framework, which allows for independent power producers (IPPs) and net metering, including long-awaited rules for pairing energy storage and renewable energy negotiated last year. Affordable rooftop solar PVs have been rolled out for both residential homes and businesses and backed further by tax incentives and public education campaigns. However, the island struggles with project financing and an aging infrastructure limiting new large-scale renewable projects.

At the heart of Puerto Rico’s energy sector is the publicly owned Puerto Rico Electric Power Authority (PREPA), or Autoridad de Energía Eléctrica (AEE), who has sole rights over energy distribution.

PREPA/AEE has over $9 billion USD in debt, accounting for roughly 12% of Puerto Rico’s national debt. This year, the decision to restructure PREPA was announced when it missed two debt payments. The final blow came when Citigroup curtailed PREPA’s line of credit for fuel purchase from Petrobras, their main oil supplier, who threatened to cut future oil shipments.

To pay Petrobas and keep the oil flowing, PREPA took $100 million USD from their capital improvements fund – resources which could have gone towards much needed improvements in grid infrastructure, some of which dates back to the 1960s.

Puerto Rico’s Aging Infrastructure Holding It Back

Simply put, PREPA cannot afford to improve its aging infrastructure and yet, without these upgrades, Puerto Rico cannot relinquish its dependence on expensive oil and transition to cleaner renewable energy.

To accomplish this, natural gas is viewed as a stepping-stone. Puerto Rico is building an offshore Liquefied Natural Gas (LNG) terminal in Aguirre in order to take advantage of US volumes which come online in 2015. Juan Román, Vice President and fiscal agent at the Government Development Bank (GDB), predicts a switch to natural gas from oil-fired generation will lead to an annual saving between $200-300 million USD.

Hopefully the savings will lead to technological improvements. These upgrades are important because they facilitate integration of renewable projects into the existing grid system and allow for larger projects such as the existing Santa Isabel Wind farm (101 MW) and the San Fermin Solar farm (26 MW). As advised by Prof Agustín Irizarry-Rivera from the Universidad de Puerto Rico, PREPA should focus on better load management technology or improved storage facilities in order to improve overall grid efficiency. This would be a major step forward.

What all of this will mean for renewable energy in Puerto Rico is yet to be seen but clearly the first step is for PREPA to get its house in order.


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