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DOE official promotes more gas for Puerto Rico as island pursues 100% renewables

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DOE official promotes more gas for Puerto Rico as island pursues 100% renewables

Puerto Rico's goal of transitioning to 100% renewable energy is at odds with the U.S. Department of Energy's recommendations for the island to rely more on natural gas as it recovers from devastating hurricanes in 2017.

The U.S. House of Representatives' Committee on Natural Resources on April 9 held a hearing on the status of the Puerto Rico Electric Power Authority's, or PREPA's, rebuilding following Hurricanes Irma and Maria and efforts to privatize the utility's generation assets. The hearing came shortly after Puerto Rico lawmakers sent a bill to Gov. Ricardo Rosselló that would require the island to transition its still-fragile energy system to 100% renewable power by 2050 as a means of lowering emissions and making the grid more resilient to future extreme weather.

But the DOE, which provides energy-related expertise to the Federal Emergency Management Agency following disasters, has a different perspective on Puerto Rico's grid recovery.

"Increasing natural gas generation capacity in [the Puerto Rico capital of] San Juan would be one of the single most valuable investments for PREPA's long-term recovery," Bruce Walker, assistant secretary of the DOE's Office of Electricity, said during the hearing.

The Energy Department tapped five of its national labs to help determine what a successful storm recovery would look like for Puerto Rico. One of the principal findings, according to Walker, was that adding gas-fired capacity at the defunct oil-fired Palo Seco plant near San Juan would increase reliability and improve power costs for cash-strapped PREPA, which is working to manage billions of dollars worth of debt.

Currently, a substantial amount of Puerto Rico's generating capacity is located in the southern part of the island, away from demand centers in the north around San Juan, which is home to about 70% of the commonwealth's load. During Hurricane Maria, high-speed winds pummeled south-to-north transmission lines, cutting off power to much of San Juan.

Walker said adding about 1,200 MW to 1,600 MW of new gas-fired capacity would "greatly enhance" Puerto Rico's grid reliability at a cost of about $2 billion. But he acknowledged that such a plan was "at odds" with the island's long-term energy goals.

U.S. Rep. Nydia Velázquez, D-N.Y., asked why Puerto Rico would focus on a "temporary transition" to gas-fired generation if it ultimately wants to get all of its power from renewable resources.

Walker responded that Puerto Rico's energy targets are "undoable" today and that building new renewable generation would have "slowed" Puerto Rico's recovery from the 2017 hurricanes.

PREPA Executive Director and CEO José Ortiz Vázquez reaffirmed the utility's intention to ramp up reliance on renewable energy but said the "best partner for that transition is natural gas." He also indicated that the transition to renewables will depend on how easily and affordably PREPA can make that shift.

"At the end of the day, technology will dictate how much we're going to need on natural gas and how fast we can introduce the renewables," Ortiz Vázquez said.

Privatization

The hearing also touched on PREPA's plans to privatize its existing generation assets and allow private entities to operate the utility's transmission and distribution system under a long-term lease.

In January, Puerto Rico's Public Private Partnership Authority announced that four utilities qualified to manage and operate "all aspects" of PREPA's transmission and distribution system: Duke Energy Corp.; Exelon Corp.; Public Service Enterprise Group Inc. subsidiary PSEG Services Corp.; and a consortium made up of energy solutions provider ATCO Ltd., security consulting company IEM Inc. and telecommunications and energy infrastructure solutions provider Quanta Services Inc.

In his prepared remarks, Ortiz Vázquez said the leasing plans have "progressed well" and noted that PREPA recently organized management presentations for some of the respondents. The utility expects "execution" of the power line partnerships by the end of 2019, he said.

The proposed sale of PREPA's generating assets remains in its "early stages," however, and is expected to get underway "in the coming months," Ortiz Vázquez added.

Rep. Michael San Nicolas, D-Guam, raised concerns that privatizing PREPA could raise borrowing costs because the utility no longer would be able to use comparatively cheap municipal debt to fund projects. But Ortiz Vázquez said PREPA has received bids from companies with better credit than the Puerto Rico utility and that placing the generator in private hands will avoid a constant change in priority with new governors and boards of directors.

"The privatization in a way guarantees a long-term vision and long-term consistent execution," he said.

But modernizing PREPA's grid in the near term partly depends on federal funding. Ortiz Vázquez said PREPA has requested $2.5 billion in FEMA funding for rebuilding efforts and to harden its grid against future storms. FEMA has obligated $1.88 billion so far but only disbursed $1.34 billion, with no money set aside for longer-term upgrades, he added.

"These funding delays have prolonged the period in which Puerto Ricans remain vulnerable to weather events affecting the grid," Ortiz Vázquez said. He added that the grid would not be ready to withstand another hurricane of Maria's magnitude although Puerto Rico could respond much more quickly today and fully restore power in 2-1/2 to 3 months. Following Maria, PREPA took nearly a year to return power to all its customers.