The Transformation of the Energy System

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Around the world, the electric energy sector is undergoing rapid change as new technologies incompatible with the century-old model of centralized generation come on line. We should seize this critical juncture to bring Puerto Rico’s obsolete electrical system into the twenty-first century.

To successfully bring about the transition to a new model of generating and selling electricity, there are a number of tasks before us. We must develop a new vision of the system; amend laws and regulations; modernize the transmission and distribution networks; and encourage the efficient use of energy by consumers.

The first step is to develop a long-term vision that will establish the objectives to be achieved through the public energy policy and regulatory framework—a process that has been stuck in the legislature’s conference committee on S.B. 1121.

Developing this vision requires that we think beyond the confines of Puerto Rico while at the same time fully understanding and considering the limitations and challenges the island faces. To implement the vision, we will need enlightened, forward-thinking public policies and regulations. We will have to establish guidelines with respect to our environmental objectives as well as renewable-energy, energy efficiency, and demand management standards.

The vision should also include from three to five strategic objectives and an ambitious yet realistic long-term goal based on the premise that the model by which electrical-generation companies have traditionally done business, known as “build and grow”—that is, building ever-larger generating plants, using cheap fossil fuels, and supplying ever-increasing demands for electrical power—is no longer feasible, due to limitations on the efficiency obtainable in electric generation, the increase in the price of fossil fuels, new environmental regulations, a decline in the demand for electricity, and the entry into the field of new generating technologies using renewable sources of energy.

In terms of generation, the new public energy policy should maximize integration into the system of renewable generation and storage technologies that can provide reserves, other auxiliary services, and additional load at peak hours. This design is not only efficient, but can also help provide cost-efficient service with fewer interruptions.

It is important that in comparing the cost of traditional generation alternatives to the cost of renewable-energy alternatives, all the costs associated with traditional generation be taken into account—not simply the cost of fossil fuels but also such social costs as the cost of environmental pollution; the cost of medical treatment for asthma and other respiratory problems and eye and skin problems; and the cost of premature deaths from cancer and other diseases caused directly or indirectly by the emission of pollutants. Methodologies already exist, such as that developed by William Nordhaus, Yale professor and winner of the Nobel Prize for Economics in 2018, for doing these calculations.

Unfortunately, with the technology available at the moment it is not possible to fulfill all the demand for electricity in Puerto Rico with renewable sources of energy. Therefore, it will be necessary to add new generation capacity using natural gas.

We should emphasize, however, that new natural-gas infrastructure should be as limited as possible, so as to allow the maximum use  of renewable resources. This means ensuring that high-efficiency, relatively small generation units are built and distributed all around the island and integrated into the system in a manner consistent with the redesign of the transmission and distribution network. Investment in these new generating plants should be limited to those whose investment cost can be recouped in twenty years or less. Finally, in order to encourage the transition to renewable energy and achieve the objective of generating 100% of our electricity with renewable sources by 2050, the construction of new generating units using fossil fuels should be prohibited after 2030.

With regard to transmission and distribution, the public energy policy should encourage the evolution of the network toward efficiently and reliably incorporating distributed generation and the use of battery storage at both the individual and network level, in order to allow storage of electricity when it is not immediately needed and thus encourage and increase the value of intermittent-generation resources.

In addition, given the foreseeable effects of rapid climate change, the twenty-first-century network must be sufficiently flexible to incorporate micro- and mini-networks that can be connected and disconnected from the main network as needed, in order to ensure that critical infrastructure facilities (hospitals, water pumping stations, telecommunications, etc.) have adequate backup in case of a disaster in order to protect isolated communities from prolonged interruptions of these services and limit the impacts on health and the environment.

In summary, the transformation of Puerto Rico’s energy system must be well-thought-out, strategic, and follow a logical sequence, especially as PREPA is simultaneously facing the challenges of rebuilding its electrical system after Hurricane Maria, restructuring its debt under Title III of PROMESA, a substantial decline in demand for its services, and the total or partial privatization of an electrical system that has been administered and operated as a monopoly for more than seven decades.

This is a complex and difficult task, but we cannot postpone it or allow the process to be taken over by private-interest groups and carried out in back rooms. Join the CNE in this effort by taking part in the Black Start Conference, to be held on March 21 in the Puerto Rico Convention Center.

By Sergio M. Marxuach

Public Policy Director

Center for a New Economy

This column was originally published in El Nuevo Día on March 3, 2019