IEEFA Puerto Rico: Regulators must move roadblocks to renewable energy for market redesign to succeed

August 28, 2018

Cathy Kunkel

Puerto Rico has a historic opportunity to rebuild its electrical system and phase out its obsolete oil-fired generation in favor of a much more decentralized and reliable system based on renewable energy. To do that, the island must design a regulatory framework that maximizes the penetration of renewable energy and empowers the creation of locally-based energy systems, such as municipal, cooperative and community owned micro- and mini-grids.

That is the gist of formal comments the Institute for Energy Economics and Financial Analysis (IEEFA), the Sierra Club, El Puente, the Latino Climate Action Network and Cambio PR filed with the Puerto Rico Energy Bureau (formerly the Puerto Rico Energy Commission) this week.

The bureau sought comments from the public in two important cases: one covering a range of questions related to restructuring of Puerto Rico’s electrical system, including the possibility of establishing a wholesale electricity market in Puerto Rico as well as retail choice; and the other on the Puerto Rico Electric Power Authority’s proposed integrated resource plan.

In the market restructuring case, our joint comments concluded that some of the regulatory tools— including establishing wholesale and/or retail electricity markets— the Bureau is considering are not appropriate to Puerto Rico’s electricity system. We warned that the wholesale and retail electricity market ideas that Puerto Rico is contemplating importing from the mainland do not fit Puerto Rico’s current context. Largely implemented on the mainland in the late 1990s and early 2000s, these ideas were not designed with the goal of maximizing deployment of distributed generation or cost-effective renewable energy. Indeed, many of the U.S. jurisdictions that restructured their electricity systems in the 1990s are now trying to determine how to make a transition to distributed energy resources, lower-priced renewable supply, and demand management— the same questions facing Puerto Rico.

The second case at the bureau centers on the Puerto Rico Electric Power Authority’s upcoming integrated resource plan, its plan for the island’s electricity mix for the next twenty years. While the IRP will not be finalized until late September, the Energy Bureau invited stakeholders to comment on the assumptions and modeling scenarios for the IRP, which were prepared by Siemens and presented to the bureau earlier this month.

OUR JOINT COMMENTS CRITICIZED THE IRP’S HEAVY FOCUS ON BUILDING NEW INFRASTRUCTURE FOR IMPORTING NATURAL GAS INTO Puerto Rico. Although the cornerstone of PREPA’s previous IRP— plans for the Aguirre Offshore Gas Port— no longer seems to be under serious consideration, the new IRP considers bringing natural gas to the port of San Juan, as well as building new natural gas import facilities at Mayaguez and Yabucoa. Incredibly, only one of the seven modeling scenarios that PREPA will be evaluating as part of the IRP does not include new natural gas.

We also argued that PREPA has likely underestimated future natural gas import costs, an assumption that will have significant consequences on the model’s prediction of the optimum future energy mix.

PREPA’s natural gas-heavy IRP is consistent with the priorities of new PREPA CEO Jose Ortiz, who has recently touted his plans for prioritizing new natural gas infrastructure. We maintained that PREPA should instead use the IRP modeling process to maximize the level of cost-effective renewable energy, storage, energy efficiency and demand response— and then see how much remains to be covered by imported fossil fuels. Prioritizing imported fossil fuels will mire Puerto Rico in the past and will continue to make the system both expensive and financially unstable.

Cathy Kunkel is an IEEFA energy analyst.

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