Puerto Rico’s Path Toward Renewable Energy Development

After decades of mismanagement, underinvestment, and natural disasters, Puerto Rico is taking steps to provide reliable and clean electricity for its residents.

Puerto Rico’s electric power sector has suffered from decades of mismanagement, underinvestment, and most recently, natural disasters. In 2017, Hurricanes Irma and Maria devastated the island’s electricity infrastructure, leaving many residents without power for months. In 2020, a 6.4-magnitude earthquake left two-thirds of Puerto Rico’s residents without power and damaged two of the island’s major power plants, causing widespread power outages and shifting the island towards a higher reliance on petroleum.

The island has renewable energy sources in the form of solar, wind, hydropower, and biomass but primarily relies on imported fossil fuels to meet its energy demands. For fiscal year 2021, fossil fuel-fired power plants generated about 97% of the Commonwealth’s electricity, while renewables generated only 3%. Puerto Rico has begun to delineate its path towards sustainable energy development, but its administrative bureaucracy and energy stratification are lengthening the process.

Renewable energy projects in Puerto Rico have created tensions between the Puerto Rico Energy Bureau (PREB), an independent body that regulates the island’s energy public policy, and the Puerto Rico Electric Power Authority (PREPA), a government agency that used to own the island’s electricity transmission and distribution system, whose heavy reliance on petroleum has made the Commonwealth’s power prices fluctuate with international petroleum prices. While the island’s largest populated centers are in the north, PREPA’s primary power plants are in the south, making the electric system depend on 2,400 miles of transmission and 30,000 miles of distribution. PREPA has failed to make essential investments to modernize its fleet to be efficient and sustainable.

Although PREPA sought to launch its procurement of renewable energy projects by negotiating amendments to contracts entered years ago with 16 renewable contractors, none of them were operational at the time of the amendments. In 2020, the Fiscal Oversight and Management Board (FOMB), a body established by Congress to restructure Puerto Rico’s debt, rejected these contracts because the projects were not the result of a competitive procurement process and the prices exceeded benchmarks in PREPA’s fiscal plans. PREPA subsequently began a public bidding process for renewable energy projects. In 2018, the legislature approved privatizing parts of PREPA in a restructuring plan, and in 2020, PREPA chose LUMA Energy to manage and operate its generation assets and electricity system. LUMA has ownership of the islands’ transmission and distribution, whereas PREPA oversees all generation.

PREB announced in February its approval for the construction of 18 projects for the storage and distribution of photovoltaic energy with a capacity of up to 844.8 megawatts (MW). The generation figures fell short of the goal set by PREPA’s Integrated Resource Plan (IRP), which established that the first phase of projects should achieve 1,000 MW of energy and 500 MW of battery storage. The IRP includes a total of six sections, each with different energy generation goals designed to comply with the laws contained in the Energy Public Policy Act, which mandates that the island must obtain 40% of its electricity from renewables by 2025, 60% by 2040, and 100% by 2050. The Financial Oversight and Management Board recently announced that it conditionally approved the 18 proposed Power Purchase and Operating Agreements (PPOA) between PREPA and 15 companies to provide the 844 megawatts of renewable energy. The 18 PPOAs will allow Puerto Rico to generate 23% of its electricity from renewable sources by 2024, a good step towards achieving its renewable generation goals. All of the bids submitted in this procurement process provided more favorable pricing terms than each of the 16 projects PREPA had previously submitted to the board, and the approval of these contracts could yield $387 million in savings over 15 years. LUMA is currently conducting interconnection and system upgrade impact studies with regards to the proposed contracts’ projects.

At present, Puerto Rico fails to comply with the statute of the renewable generation objectives in Law 17, which says that by 2022, a fifth of the electricity generation must be renewable. Currently, the island has less than 4% of generation corresponding to green energy. In addition, FOMB has not received the associated projects for energy storage, which must be selected by PREPA and confirmed by PREB.. For Puerto Rico to improve its competitiveness for appropriate economic development, there needs to be approval of the proposed renewable projects which will help avoid additional rate increases associated with imported fossil fuels and comply with current local and federal energy policy.

This insight is a part of our Undergraduate Seminar Fellows’ Student Blog Series. Learn more about the Undergraduate Climate and Energy Seminar.

Sean Deresh

Undergraduate Seminar Fellow
Sean Deresh is an undergraduate student in the Vagelos Integrated Program in Energy Research. Deresh is a 2022 Undergraduate Student Fellow and a Kleinman Center Student Advisory Council Member.