Energy Finance Report

The Role of Renewable Energy Remains Uncertain in Transforming Puerto Rico's Electrical Grid

Posted by Jeffrey Karp on 11/30/18 12:36 PM
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By Jeffrey Karp and Kevin Fink

Over a year has elapsed since Hurricane Maria devastated the island of Puerto Rico, which, in addition to claiming thousands of lives, destroyed Puerto Rico’s electrical infrastructure. As discussed in prior postings, a number of factors have contributed to the delay in restoring and upgrading the electrical grid, including contract mismanagement by the Puerto Rico Electric Power Authority ("PREPA") and the lack of a consensus approach regarding the energy mix to be deployed on the Island.

While two bills, S.B. 773 and 1121, were introduced in the Puerto Rico legislature that would require 50% renewable energy by 2040 and 100% by 2050, both bills have lost momentum. Despite S.B. 773 having passed in the Senate, in early November 2018, Governor Rosselló ordered the House of Representatives to send the bill back to committee, with sources reporting the Governor disapproved of a 75% tax credit for renewable energy projects in 2019 and 2020. Moreover, S.B. 1121 - which would create a new public energy policy incorporating, among other things, the same 100% renewable energy goal by 2050 – also has passed in the Senate. However, House review will be delayed until the January 2019 session to provide the requested additional time to evaluate the proposed measure.

The Institute for Energy Economics and Financial Analysis ("IEEFA"), an organization conducting research and analysis on financial and economic issues related to energy and the environment, remains skeptical of the ability to meet these ambitious targets, citing Puerto Rico’s past failure to comply with a 12% renewable energy mandate by 2015. Moreover, S.B. 1121 provides a lifeline to oil-fired power plants not scheduled for retirement in the next five years. Such plants are to be converted to dual-fuel capacity, thereby facilitating an influx of natural gas supply to the Island. Proponents of full-scale renewable energy deployment, primarily via microgrids, have identified the proposed reliance on natural gas – with the necessary development of accompanying infrastructure – as a major factor that will undermine meeting the aggressive renewable energy goals in the two bills.  

In the midst of this uncertainty, support for an additional energy resource, nuclear energy, recently has surfaced among some members of the Puerto Rico House of Representatives, as well as a non-governmental organization ("NGO"). On November 5, House Resolution 1189 was introduced, which would order the Chamber’s Government Committee to investigate the feasibility of nuclear energy generation on the Island, with a focus on new modular technologies. If the resolution passes, the Committee must present a report to the full House of Representatives within 180 days. The introduction of nuclear energy to the grid also has garnered support from the Nuclear Alternative Project, an organization advocating for the implementation of Small Modular Reactors (SMRs). SMRs are touted to be faster-to-construct, require less initial upfront investment, and easier to decommission given their modular construction and small unit size. Although SMRs may emerge as an attractive technology in the future, currently nuclear energy appears to lack sufficient political support. Both pending bills and a June 2018 DOE report on energy resilience options for the Island do not even consider a nuclear energy option.

If one were to prognosticate, it seems that the passage of legislation mandating at least a modest increase in renewable energy is on the horizon. However, much uncertainty remains regarding the role that other energy resources, such as natural gas, may play in strengthening Puerto Rico’s electrical grid.

Topics: Puerto Rico, Hurricane Maria, Renewable Energy

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