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IEEFA Update: Puerto Rico’s Solution—a Microgrid System Supported by Solar Energy

November 03, 2017
Tom Sanzillo and Cathy Kunkel

In the lingering aftermath of Hurricane Maria, the flaws in Puerto Rico’s electric system are apparent.

First among them is an island-wide system designed with the bulk of its power plants located along the southern coast of the island while the majority of the population lives along the north shore. Electricity delivery has been historically overly dependent on Puerto Rico’s long-distance south-to-north transmission corridors.

Puerto Rico can break free of the past by rebuilding with a 21st-century mindset.  

If one were to design a grid that prioritizes reliability and resiliency, it would improve on the old scheme by placing generation closer to load. And it would be about as different from the current system as one could imagine.

Puerto Rico can break free of the past by investing in a comprehensive electricity-generation microgrid initiative supported by residential and commercial solar investments that will make oil and gas receding components of the island’s power generation.

Mismanagement at the Puerto Rico Electric Power Authority (PREPA) has been well documented by the Puerto Rico Energy Commission, which outlined prudent solutions to Puerto Rico’s pre-Hurricane-Maria grid problems in an integrated resource plan it approved in 2015. The commission wisely included retiring some older oil-fired units, investing more in energy efficiency and renewable energy and permitting for generation closer to the most populated areas of the island.

This plan remains broadly sound, albeit in need of updating.

In its April 2017 fiscal plan, PREPA projected a 23 percent drop in sales over the next 10 years. Now — with economic and population-migration losses — PREPA can expect the decline to be even steeper. This likelihood undermines the justification for PREPA’s previously-planned investments in new centralized generation.

WHAT ELSE HAS CHANGED SINCE THE HURRICANE is that Puerto Rico is attracting more interest from private solar developers than ever. Some of these developers, notably Tesla, are getting a foot in the door already by donating solar and battery systems.

Further, among the unanswered post-storm questions today is how badly damaged Puerto Rico’s fossil-fuel-powered plants are. It is possible that the cost of repairing existing generation could prove more expensive than installing new distributed solar systems.

In an order issued last week, the commission laid out a post-Maria plan to rebuild Puerto Rico’s energy system in a smarter way than anything PREPA has articulated and with the clear aim of constructing a modern, resilient and affordable energy system.

The commission has initiated an investigation into how the island’s still-broken electricity system failed so badly and has put forth a roadmap to identifying regulatory actions that will promote investment in new technologies—including distributed generation and microgrids—that can help restore electricity. Over the longer term, the commission is aiming also to implement rules that will drive Puerto Rico toward a sustainable electric-service model.

Broadly speaking, we agree with this direction. Rules should be written now to encourage as much deployment of distributed generation and microgrids as possible. Once these resources have been integrated into the grid and once true long-term demand for electricity can be ascertained, a revised integrated resource plan can be developed that allows for an orderly transition away from dependence on imported fossil fuels.

Key to this modernization will be substantial reduction if not the outright elimination of PREPA’s legacy debt and the enactment of public-accountability measures that will allow full reform under the direction of an appointed independent manager for up to 10 years.

Outside oversight and a consistent set of regulatory eyes — under the supervision of the board that is responsible for enforcing the Puerto Rico Oversight, Management and Economic Act (PROMESA) working hand in hand with the Puerto Rico Energy Commission — will be crucial in combatting the disruptive impact of the type short-term politics that have historically plagued the island.

Tom Sanzillo is IEEFA’s director of finance. Cathy Kunkel is an IEEFA energy analyst. This column first appeared this week in The Hill.


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Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.

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Cathy Kunkel

Former Energy Finance Analyst Cathy Kunkel has written reports and given expert testimony on the finances of Appalachian natural gas pipelines and drilling; electric utility mergers, rates and resource planning; energy efficiency; and Puerto Rico’s electrical system. She has degrees in physics from Princeton and Cambridge.

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