Editor’s note: The following was first published in the Nov. 14 issue of Caribbean Business.
Puerto Rico could be on the verge of a renewable energy boom that could lead the island to kick the fossil-fuel habit in the next three decades while consolidating an industry that could help power up the troubled local economy. However, foot-dragging by the public utility monopolizing the production and sale of electricity on the island could shoot down these aspirations, according to renewable energy-industry executives and professionals.
With the enactment earlier this year of the Puerto Rico Energy Public Policy Act of 2019, or Act 17, the legal framework was set up to enable the local renewable energy industry—consisting of private companies building mostly solar- and wind-powered generation systems for homes and businesses—to compete on a level playing field with the Puerto Rico Electric Power Authority (Prepa)—the public utility that monopolizes production and sale of electricity on the island.
After years of uneven growth, the renewable energy industry has gained a renewed stature with the installation of battery-backed systems after Hurricane Maria’s devastating blow to the island’s electric grid two years ago. The disaster resulted in a months-long blackout, which studies say could have led to between 3,000 and 4,000 preventable deaths. Many hospital patients and senior citizens died after vital electrically operated medical equipment ceased to function.
About 4 percent of the electricity that is being consumed in Puerto Rico is generated by renewable energy, which includes solar, wind, landfill gas and hydroelectric power sources, according to Prepa. Solar photovoltaic-generated power is the dominant renewable energy source on the island, producing two-thirds of renewable-sourced electricity consumed locally. Prepa still generates most of its electricity using fossil fuels such as petroleum, natural gas and coal.
Act 17, the result of bipartisan legislation submitted jointly by New Progressive Party Sen. Larry Seilhamer and Popular Democratic Party Sen. Eduardo Bhatia, established a timetable that requires all retail energy providers in Puerto Rico, including Prepa, to increase their share of renewable energy-produced electricity sold to customers to 100 percent by 2050. In-between goals include increasing this share to 20 percent by 2022, 40 percent by 2025, and 60 percent by 2040.
Renewable energy targets
The estimated share of renewables in global electricity generation was 26 percent by the end of 2018, according the Renewables 2019 Global Status Report by REN21, an international renewables policy organization, which states that renewable energy targets are in place in nearly all countries, with several jurisdictions making existing goals more ambitious in 2018.
“Getting to 40 percent of renewables by 2025 is very ambitious. It would be the most rapid move away from fossil fuels and to renewables that has ever occurred worldwide,” PJ Wilson, president of the Solar & Energy Storage Association of Puerto Rico (SESA), told Caribbean Business during a roundtable with industry professionals. He noted that a previous renewable portfolio-standard law from 2010 required 12 percent of the island’s power come from renewable energy by 2015. “The rate of installation [for] solar would have to grow at least 50 percent a year to meet these targets.”
As of June 30, there was about 310 megawatts (MW) of installed solar-energy capacity interconnected to the island’s electricity grid—an increase of about 38 percent over the 225 MWs installed in 2017, according to Prepa’s proposed 2019 Integrated Resource Plan (IRP). Of the 310 MWs of solar-power capacity currently in place, most—56 percent or 173 MWs—consists of so-called distributed generation, or production by small-scale systems (25 MWs or less) installed in homes, businesses and government agencies, and which are included in Prepa’s net-metering program. The rest of the capacity, about 137 MWs, consists of large-scale solar-energy farms that have power purchase and operating agreements (PPOAs) with Prepa.
Net-metering customers grow
In Prepa’s net-metering program, established in 2007, utility customers who install renewable energy systems for their homes and businesses that produce more electricity than what they consume may receive credits that cut their monthly Prepa bills. The number of net-metering customers almost doubled between fiscal years 2017 and 2019, according to Prepa, increasing from 8,500 to 14,800.
While, as a result of the 2010 law, some 63 large utility-scale solar and wind systems were legally committed to be developed to provide power to Prepa, only 14 have been built or are currently under development, Wilson said, noting the “utter failure” of relying on the public utility to develop more renewables. The Prepa 2019 IRP states that the utility had PPOAs with 11 private renewable energy-powered generators with a total of about 273 MWs of capacity—of which 52 MWs were still in the final testing stage—as of December 2018.
“Prepa won’t do it, so it depends on the industry to continue building solar systems on people’s houses,” Wilson said, noting that the Puerto Rico Energy Bureau [PREB]—charged with regulating the sector—has the “crucial role” of “crafting very strong, easily enforceable rules.”
PREB is revising Prepa’s IRP, which will include actions the utility must take to facilitate interconnection of privately generated power, including renewables, to the island’s power grid.
Advanced legislation
Jéramfel Lozada Ramírez, president of the Puerto Rico Association of Renewable Energy Consultants & Contractors (Aconer by its Spanish acronym), called Act 17 an “advanced and robust piece of legislation,” which he said many other U.S. jurisdictions lack and is the “model to follow.”
To encourage the building of a renewable energy system, the law calls for Prepa and PREB to set up a market for renewable energy certificates, or RECs, which can be sold as an energy commodity. This incentive would bring down the initial costs of such systems.
“If we take the right steps to implement it, it would be formidable,” said Lozada Ramírez, who presides the organization that has 100 member-companies and 200 professionals from the industry. The trade group started out with five member-companies when it was established in 2007.
“The renewable energy industry will move toward helping achieve the portfolio goals to the extent that Prepa allows us to,” added the electrical engineer, owner of a renewable system construction & consulting company. “We might want to install all the renewable energy we can, [but] we have physical limitations in the transmission and distribution system. This will require upgrades.”
Limited renewable energy-grid capacity
Lozada Ramírez said that a 2014 Prepa-commissioned Siemens report concluded that the maximum amount of renewable energy that could be accepted by the island’s energy grid—or hosting capacity—without it being compromised was about 600 MWs. In fact, a more recent Prepa-commissioned study by Siemens for IRP plans to rebuild the utility grid to resiliency, including the establishment of mini-grids, states that under such a scenario penetration of renewables in the grid could reach 35 percent.
José A. Guzmán Jiménez, past president of Aconer, said Prepa was supposed to draw up the rules for Act 17 implementation 180 days after the law was signed in April, but it has still not done so yet.
“Prepa has not been our ally in this,” he said. “I don’t like to demonize Prepa because it has excellent employees, but there is a reality. We continue having obstacles placed by Prepa, and communication remains difficult. All that we’ve achieved, unfortunately, has been through the Legislature, and technical issues have been resolved through new laws. That is a slow process.”
Industry professionals said Act 17 amendments to the Net Metering Act of 2007 (Act 114) addressed many of the problems with Prepa that had slowed the average renewable system installation for months. The amendments allow such systems of 25-kilowatts capacity or less to be installed and interconnected to the grid without a previous inspection by Prepa engineers, although they can do so afterward. Processing of net-metering applications cannot exceed 90 days or otherwise they will be automatically approved, according to new regulations, which eased the right-of-way restrictions involving Prepa lines that had held up installations.
Moreover, renewable energy groups successfully lobbied lawmakers to eliminate the requirement that a manual shutoff switch for solar systems be placed outside the home. They said the safety concern that had justified this rule had been addressed by new technology that keeps renewable-produced energy from seeping back into the system.
“We could have worked on this directly with Prepa and saved time and effort,” Guzmán Jiménez said. “These are the types of things the industry has had to fight and laws made, which is ridiculous.”
Carlos Parés, director of legal & public policy for Máximo Solar Industries and a SESA board member, said renewable energy technology usually advances faster than local laws and regulations. He said certification of such products by the commonwealth Energy Public Policy Office, now under the Economic Development & Commerce Department, can take months. This office also certifies renewable energy-system installers and other professionals. He said this office must consult other agencies such as the Office of Budget & Management and PREB before issuing final certifications.
“There is the multiplicity of agencies and offices that govern one issue, and they have distinct opinions about the same product,” he said. “That creates inefficiency.”
Parés said Act 17’s easing of restrictions have cut installment times of systems of less than 25 KWs, which are usually built for homes, to an average of two months, down from the previous nine months.
“That also happens [in the various] Prepa regions: Some require things that others don’t,” Guzmán Jiménez said. “They have tried to make this uniform by setting up an internet portal to file net-metering applications.”
Wilson said PREB is developing a new digitalized system to streamline net-metering applications with an online portal.
Bureaucratic short circuit
In fact, Lozada Ramírez said that despite its merits, Act 17’s energy-portfolio goals for renewables are “unrealistic” given that local authorities continue to place more obstacles in the industry’s way. He said the industry was grappling with a new requirement, the so-called rapid shutdown mechanism, which is included in the new construction and electric codes adopted last year and aim to protect first responders such as fire fighters, in case of a fire. The industry is asking for a two-year waiver to catch up and adopt a technology he said is unavailable locally.
Prepa rejected the waiver, attributing this to Puerto Rico Fire Department concerns, he said. The department is also requiring roofs to have a clear area in which fire fighters can make a hole, despite the fact that most homes in Puerto Rico are made of concrete.
“This is increasing the costs of the installations,” he said. “The technology…is not mature enough; it needs more R&D. This is holding up many renewable energy projects. Many are commercial projects under construction and these costs were not budgeted. Residential systems are also being affected, and will require additional equipment.”
The first local survey of the solar-photovoltaic industry carried out by the nonprofit Solar Foundation last year found 90 percent of solar employers indicated that interconnection delays were a factor that made growing a business more difficult. Over three-quarters of respondents also pointed to permitting delays. The survey said there were 2,000 solar jobs on the island.
Moreover, industry professionals expressed concern over what could be the biggest blow to renewables on the island: The proposed fee on electricity produced by net-metering clients, which is scheduled to go into effect next year as part of Prepa’s restructuring support agreement (RSA) with bondholders.
Aconer and SESA have filed challenges to the RSA before U.S. District Judge Laura Taylor Swain, who is overseeing the commonwealth’s debt-restructuring process under the Puerto Rico Oversight, Management & Economic Stability Act (Promesa).
“The Prepa RSA would set back everything,” Lozada Ramírez said, noting that much of the renewable energy capacity being installed on the island is being done through a combination of funding from nonprofits and federal workforce programs. “You invested in your system, and Prepa gave you nothing, and now they want to charge you at least 2 cents for each kilowatt [-hour] of energy you produce, so they can pay their debt. This agreement is worse than the RSA approved under Act 4, when Lisa Donahue was at Prepa. You can forget about those projections if this is approved.”
Wilson said the RSA-mandated fee would violate Act 17’s ban on direct or indirect fees on renewable energy consumption. He said the proposed 2.7 cents per kilowatt-hour fee could increase system costs by an initial 10 percent to 25 percent. A $24,000 system with batteries could cost an extra $6,000 in 20 years, he said.
“I think Puerto Rico is very clear where it wants to go: 100 percent renewable as soon as possible,” he said. “The $9 billion in Prepa bondholders have a lot of power. Already 90 percent of them have signed off on the agreement. But the bondholders don’t realize this fee will make it less likely they will get paid because it will slow down the solar grid. Prepa is not bankrupt because people are going into renewables, but because of mismanagement and corruption.”
Requests for comment were sent to Puerto Rico Energy Bureau President Edison Avilés-Deliz and Isabel Medina, secretary of the Energy Public Policy Office, as well as Prepa.
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