Puerto Rico has suffered more than its fair share of misfortune over the last few years; from Hurricanes Maria and Irma to a series of earthquakes that have continued to strike the island since late 2019. Now with this year’s hurricane season looming, the risk of catastrophic events once again brings the need for island-wide dynamic and resilient energy systems into sharp relief. Along with the rest of the world, Puerto Rico is managing a Covid-19 outbreak which is further highlighting failures of the island’s existing energy infrastructure. Puerto Rico could implement an island-able decentralized system with flexibility to respond to any series of events while meeting the territory’s renewables mandates with the least amount of financial strain for the island’s residents and businesses. Current plans rely heavily on natural gas fired power plants and anticipate a future transition to clean energy, but reliance on natural gas makes little sense for Puerto Rico even in light of record low Henry Hub prices. While transitioning the current diesel-reliant energy mix to a natural gas system would provide cost savings, it also exposes the island to the same structural vulnerabilities that caused significant hardship during the last 5 years. The Island is pursuing short-sighted energy development plans that will burden the local economy and decrease resilience and flexibility in the face of future catastrophes, weather-related or otherwise.
The destruction caused by Hurricanes Maria and Irma was a wakeup call for the island’s struggling energy sector. Maria alone left 1.5 million households and businesses without access to power in some cases for up to a year.
From 2000-2018 Puerto Rico’s population declined by 25%, and the 2017 hurricane season accelerated these worrying trends. In an effort to address the state of the island’s poor infrastructure and the economic strain it causes for consumers, the Puerto Rican Power Authority (PREPA), unveiled an Integrated Resource Plan (IRP) to increase resilience by primarily expanding natural gas capacity. At the same time, the local legislature passed an ambitious energy target of 40% renewable energy generation by 2025 and 100% by 2050. Currently, renewable energy resources provide just over 2% of total electricity generation in Puerto Rico.
The challenges facing Puerto Rico were further compounded by a sequence of earthquakes that began to strike the island between December 2019 and January 2020, followed by a “prolonged and terrifying series” of seismic events in early March not seen on the island since 1918. Earlier this year, the 800MW Costa Sur power plant, which meets roughly 25% of the island’s demand, was taken offline for at least a year for repairs following damage caused by the earthquakes. The centralized grid that exists in Puerto Rico today consists of high voltage transmission lines crisscrossing the island over mountainous and forested terrain. With most of the island dependent on north-south transmission, power outages following hurricanes and earthquakes were inevitable regardless of the damage to the power plants themselves.
Figure 1. Transmission system in Puerto Rico. The majority of generation occurs on the southern coast of the Island while demand is concentrated in the north, in the San Juan metro-area. Source: U.S. Energy Information Administration
The DOE has been pushing the Island to adopt 1600MW of natural gas capacity in the San Juan area, in addition to the 400MW-plus capacity currently under construction, which will reduce vulnerabilities related to north-south transmission, but as seen with the Costa Sur plant, reliance on a large centralized point of generation may be cost effective but does not represent smart policy and will cost the island at least $2bn.
More recently, COVID19 has forced the island to implement one of the country’s most stringent quarantine policies, including forced closure of most businesses and a mandatory curfew. As the outbreak has spread, energy consumption across the US has decreased by 9-13%, and 10% in Puerto Rico in March compared to the same time last year. In an ironic twist that illustrates the desperate state of the Island’s energy infrastructure, manufacturers in Puerto Rico are now experiencing greater electricity stability as a result of the drop in demand, though it means a serious loss of revenues for the already debt-ridden utility, PREPA.
PREPA has underinvested in system operations and maintenance for years, preferring instead to kick the can down the road. Saddled with mounting debt, approaching 10% of total GDP, PREPA has long been a burden for the government, local residents, and businesses. The current island administration and the federally appointed Financial Oversight and Management Board have both concluded that privatization is the only sure path forward to relieve the economic strain PREPA places on the Island.
Figure 2. a major natural gas power plant serving the San Juan metro-area. Under investment in maintenance has left this critical plan in a state of disrepair. Source NYT – Todd Heisler
PREPA owns all transmission and distribution (T&D) infrastructure and roughly 85% of generation capacity on the island. Given the average age of Puerto Rican energy infrastructure, 60% of which is about 50 years old, 28-30 years older than the average for the mainland US, PREPA will have a difficult time reforming its energy sector through privatization. Any buyers will require a significant premium on power prices in a power market or through a PPA, the costs of which will ultimately be passed onto consumers.
PREPA is stuck between a rock and a hard place in terms of operating expenses and power prices. Its $9bn worth of debt requires servicing. Last week, PREPA announced a tentative agreement which has yet to be approved by the required 67% of bondholders, bankruptcy judge, and legislature but if accepted would restructure and shed $3bn in debt service payments over the next decade. While this is good news for the utility it does mean that power prices will be raised by $0.02768 upon closing and $0.04552 over 40 years.
Figure 3. T&D on the Island is chronically under maintained. In many environments the utility would prevent the encroachment of nature on the transmission system, as seen here. Source: NYT – Todd Heisler
Renewables and distributed energy resources (DER) can help Puerto Rico to better balance the energy trilemma, (environmentally sustainable, reliable and affordable power delivery). The centralization of the current Puerto Rican grid is problematic in light of the fact that most generation takes place on the southern coast while most of the population lives along the northern coast. The mountainous and wild terrain separating them makes it logistically difficult and costly to manage T&D repairs and exposing the entire system to weather and pandemic related vulnerabilities. Greater DER near points of consumption will reduce costs and allow the grid to function more reliably and efficiently.
Figure 4. The spidery web of transmission and distribution lines crisscrossing the island are difficult to maintain and increase the grid’s vulnerability to disruption as in the case of hurricane Maria whose aftermath is pictured here. Source: NYT – Todd Heisler
The transition to a more distributed system requires active coordination between PREPA and communities on the Island. As a result of high power prices and unreliable service, there is said to be long standing mistrust between Puerto Ricans and PREPA. This mistrust was exacerbated by the long outages following hurricane Maria, leading those who could afford it to defect from the grid and install their own DG solar and storage. In the year following Hurricane Maria, 10,000 new rooftop solar plus battery systems were installed nearly doubling the amount from the previous year. PREPA is left with fewer revenues with which to meet its debt obligations and O&M expenditures but remains obligated to maintain enough T&D and generation capacity to meet all existing and potential customers. This phenomenon, known as the Utility Death Spiral, represents an existential threat to PREPA and by extension to the Puerto Rican economy.
Recent events in Puerto have highlighted the need for a more robust, resilient and secure energy system. Traditionally, resilient power systems have relied on diesel generation and other fossil fuels. However, logistical issues in the aftermath of the hurricanes, associated with transportation of diesel fuel and the “epidemic of broken generators” illustrate additional risks associated with relying on diesel as the only backup power option.
Puerto Rico faces demographic and economic problems which it is under-equipped to manage without greater Federal assistance. Washington has not only short-changed the island but has been pressuring Puerto Rico to go all in on large-scale natural gas fired power plants. The development of LNG import and storage facilities, and construction of new power plants will be costly, inefficient, and set the island up for continued energy catastrophes as earthquakes and hurricanes will likely damage infrastructure in the future.
Furthermore, the Coronavirus outbreak has shown that we need to expand our current definition of resilience to include events like pandemics and oil market volatility. Utilities across the world are trying to figure out how to maintain and manage their grid keeping in mind the safety of their employees. Decentralization can provide a crucial safety mechanism for critical services.
There is no clear prescription per se. The problems facing the Island are numerous and complex and will require a series of interventions across different areas. What is clear however, is that Puerto Rico’s focus on costly, large-scale, centralized thermal generation is short-sighted and will ultimately burden the Island’s shrinking population and weak economy. Puerto Rico’s old and under-maintained infrastructure requires improvement at the bare minimum. A return to business as usual, in this case with large, centralized energy systems, dooms the Island to continued power vulnerability in the face of extreme weather events like Hurricane Maria or the 6.4 magnitude January 2020 earthquake. These events damaged generators and T&D leaving Island households, businesses, and industry without power and rippled throughout the economy, furthering capital and population flight to the mainland. As climate change increases the severity and frequency of extreme weather events, the island is pursuing an energy development policy that fails to adapt to this new normal with adequate resilience and flexibility for consumers.
Additionally, the inherent volatility of the oil and natural gas market means that consumers on an island with no viable fossil fuel resources will be exposed to continued uncertainty, albeit a relatively small degree of volatility for natural gas. Puerto Rico can ill afford any degree of uncertainty or insecurity. Electricity demand on the island is unlikely to grow and our own projections built off of population growth, seasonal temperature, and economic growth projections, predict gradual decline from 2017 levels in both peak demand and consumption over the next decade.
The aggressive renewable mandate established by the Island legislature means that any investment in natural gas import, storage, and generation infrastructure imposes unnecessary costs on an already economically stressed population. While there are significant savings and emissions reductions to be had from the diesel to gas fuel switch currently underway, those benefits will be short lived.
The island’s best option is to publicly manage the reconfiguration of an island-able series of microgrids powered primarily by distributed energy generators that can consist of a range of technologies. While the status quo may appear attractive in light of low oil and natural gas prices, the cost of development of large natural gas generators and their eventual decommission (as required by the 2050 renewables mandate) will exacerbate the island’s already tenuous financial state and may encourage continued capital and population flight to the mainland. Puerto Rico’s unique opportunity to leapfrog over standard energy development practice in the US is an opportunity it can ill-afford to miss.
