Solving Puerto Rico’s Energy Puzzle

Years of experience have positioned CNE as a leading authority in this complex and ever-evolving sector. Puerto Rico’s energy landscape is like an intricate puzzle—complicated and multifaceted, with moving pieces that must fit together to achieve a sustainable, affordable, and reliable system.

A Complex Landscape

CNE has been analyzing the six critical large-scale efforts that are currently underway in the energy sector. Our team of experts is uniquely positioned to view these efforts as part of a comprehensive whole, recognizing the interconnectedness of each project and their collective impact on Puerto Rico’s energy future.

Keep scrolling or click on the titles below for a look at each of the following pieces of the puzzle:

With so many players in the field, the local energy sector is far more convoluted than when the Puerto Rico Electric Power Authority was the sole entity in charge. 

In addition to the 14 organizations shown above, dozens of consultants, suppliers, rooftop solar systems vendors, investors and developers of utility-scale renewable generation sites, trade organizations, NGOs, and other community-based organizations are involved in the transformation of Puerto Rico’s energy sector. 

Click the dropdown button below to understand the roles each of these organizations play.

The U.S. Department of Energy (“DOE”) – Carried out the PR100 Study and was also allocated $1 billion by Congress to finance distributed energy projects at the community level in Puerto Rico.

Federal Emergency Management Agency (“FEMA”) – Administers and oversees the use of $13.7 billion allocated to rebuild the electric grid.

The U.S. Department of Housing and Urban Development (“HUD”) – Is in charge of administering approximately $1.9 billion in CDBG funds to upgrade Puerto Rico’s energy system.

Central Office for Recovery, Reconstruction, and Resiliency (“COR3”) – The main liaison between the government of Puerto Rico and FEMA. The COR3 is technically the grantee for most federal reconstruction funding.

Puerto Rico Department of Housing (“DOH”) – Administers and oversees the use of CDBG funds in Puerto Rico.

Puerto Rico Energy Bureau (“PREB”) – The independent regulator of Puerto Rico’s electric system. It has a statutory mandate to regulate the generation and sale of electricity in the island; to set rates; and to plan for the efficient long-term operation of the electric system, among other important matters.

Puerto Rico Electric Power Authority (“PREPA”) – Puerto Rico’s legacy utility, currently in bankruptcy and the nominal owner of the assets of Puerto Rico’s electric system.

LUMA – Private manager and operator of Puerto Rico’s electric grid. In charge of authorizing interconnections to the grid and dispatching electricity.

Genera – Private manager and operator of PREPA’s legacy generation assets. In charge of decommissioning existing fossil-fuel generation and coordinating the ramp-up of new renewable generation resources.

AES and Ecoeléctrica – Independent power producers with an aggregate generation capacity of approximately 900 MW using coal and natural gas, respectively. The AES plant is statutorily required to be shut down in 2028.

Public Private Partnership Administration (“P3A”) – Executes limited oversight functions pursuant to the operation and management agreements executed with each LUMA and Genera, respectively.

Fiscal Oversight and Management Board (“FOMB”) – Represents PREPA in its bankruptcy process. Has oversight powers over PREPA pursuant to PROMESA. Certifies PREPA’s annual Fiscal Plan and its operating budget. Exercises authority under PROMESA to review certain contracts covered by that law. In the case of PREPA, it has been in charge of reviewing the terms and conditions of the power purchase agreements between developers of utility-scale renewable generation and PREPA.

The United States District Court for the District of Puerto Rico (“Federal Court”) – Has jurisdiction over PREPA’s bankruptcy under Title III of PROMESA. It will eventually determine how much PREPA’s creditors can recover from the bankrupt utility and certify a Plan of Adjustment (“POA”). The POA will affect electricity rates in so far as it provides for the imposition of a special charge to repay bondholders and PREPA is otherwise unable to generate offsetting cost savings.

The restructuring of PREPA’s operations is at a fairly advanced stage after the execution of two agreements to outsource the operation and management of PREPA’s (1) transmission and distribution (T&D) grid and (2) legacy generation assets (LGA). 

LUMA, a Canadian/American consortium, has been in charge of energy dispatch operations and maintaining the stability of the T&D system since July 2021. Early in 2023, the government of Puerto Rico selected Genera PR, a subsidiary of New Fortress Energy (a natural gas company), to manage and operate PREPA’s aging fleet of LGAs. 

Both contracts have recently come into question.

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Set to be achieved by 2050 under the energy law passed in 2019, this complex and challenging multi-year goal involves many potential moving parts. Several pathways require making difficult tradeoffs and significant investments. As expected, there are both economic costs and benefits.

What are the different scenarios presented by the U.S. Department of Energy in its PR100 Study? What are the tradeoffs and expected effects?

Find out by reading our analyses of the PR100 Summary Report and the Final Report. 

The system is functional but fragile. Both LUMA, the grid operator, and Genera, which manages PREPA’s legacy generation fleet, need to undertake substantial remedial actions even as the system is transitioning to renewable sources of energy. 

Click here to read more on why priority number one should be stabilizing the grid.

The Grid Modernization Plan prepared by PREPA and submitted to the Central Office of Recovery, Reconstruction, and Resiliency estimates that approximately $21 billion in capital expenditures are necessary to bring the Puerto Rico power system to “industry standard levels.” 

Recovery-related investments total $15.441 billion, which includes spending on generation, transmission, and distribution system repairs and replacements, as well as on the Tranche 1 transmission network upgrades to connect the first group of utility-scale renewable generation providers. 

These large-scale projects are estimated to require over $30 billion in capital investment.

Act 57 of 2014 requires PREPA, now LUMA as its agent, to prepare an Integrated Resource Plan (IRP) for a 20-year planning period and to update it every three years. The law defines an IRP as “a resource plan that shall consider all reasonable resources, including both energy supply (e.g. utility-scale generation) and energy demand (e.g. energy efficiency, demand response, and distributed generation), to satisfy the current and projected future needs of Puerto Rico’s energy system and its customers at the lowest reasonable cost.” (PREPA 2023 Fiscal Plan, p. 26)

In April 2022, the Puerto Rico Energy Bureau extended the deadline for the next IRP filing, resolving that LUMA shall file the next IRP by March 1, 2024. We understand that this deadline has been extended until mid-2025 at LUMA’s request.

The IRP is a key document that could integrate in one place the planning for almost all the ongoing processes in the Puerto Rico Electric Power sector (with the exception of the Title III court case).

Click here for more details.

In July 2017, at the request of the Government of Puerto Rico, the Oversight Board filed a voluntary petition on behalf of PREPA for protection under Title III of PROMESA with the U.S. District Court. However, seven years of tough on-and-off litigation have not yet yielded a court-certified plan of adjustment of PREPA’s liabilities. 

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In conclusion

  • It is complicated: We are facing a cluster of complex multi-year, multi-billion dollar projects, each with many moving parts. The successful completion is probably beyond the current execution capability of the Puerto Rico government.
  • Who is in charge?: Coordination and execution problems remain with no real solution in sight.
  • There are many tradeoffs: But it is unclear who makes the decisions and the criteria upon which they should be made.
  • Cost: It is expensive and we are still missing about $5 billion to finish the reconstruction of the grid and an additional $8 to $10 billion for the transition to 100% renewable generation.

 

Click here for a look at our entire library of analyses regarding the topic of energy.

For over 20 years, CNE has been meticulously working to solve Puerto Rico’s energy puzzle, consistently identifying and addressing critical flaws in the energy sector and offering solutions that have proven accurate and effective time and time again.

Our comprehensive policy papers and expert analysis have not only shaped local legislative decisions, but have also guided stakeholders in navigating the legal, bureaucratic, environmental, and administrative complexities of Puerto Rico’s energy challenges. We have been repeatedly called upon to testify before key legislative committees, both locally and in Washington, D.C., offering crucial insights into this labyrinthine sector.

Solving this puzzle is not just important—it is essential for our future.

CNE is committed to ensuring that Puerto Rico achieves the energy sector it deserves, where constant outages are a thing of the past and clean, affordable, and reliable energy becomes the new norm.

Your support helps CNE provide critical research on the intricacies of Puerto Rico’s electricity landscape and a comprehensive understanding of the sector to all stakeholders. Join us in piecing together a sustainable and prosperous future for all.