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PREPA, LUMA, and Puerto Rico’s Energy Future: Project Updates and Challenges

The world has officially woken up from a holiday season full of political changes and February has now come and gone. At the Puerto Rico Energy Forum, we have had an unusually optimistic streak of conversations, starting with Ignacio Díaz (Glenn International) and Agustín Carbó (DOE), and followed this month with Heather Reams (CRES) and Crystal Allen (LUMA). We also spoke with Ricardo Ramos at February’s General Forum meeting where we discussed the importance of PREPA’s bankruptcy as a barrier to energy progress in Puerto Rico, as well as the newly formed Alianza Pro Desarrollo Energético (ADE) and their mission to sound some alarm bells related to the current crisis. For PREF members, these episodes are available to join live. Everyone else will have to check out our content on YouTube or LinkedIn when it gets published.

Here’s the link to our conversation with Ricardo Ramos: https://youtu.be/kJT38CP-a9w

As we announced last month, accompanying our Puerto Rico Energy in 60 Minutes conversation is our monthly news roundup, where we dissect key happenings in the Puerto Rico energy sector. We are also finalizing our website and will have Puerto Rico Energy Forum emails that you’ll be receiving content from.

This past month we have made progress in our two working groups. For Microgrid Development, we have a roadmap that will produce regulatory policy recommendations as well as a comprehensive guide to microgrid project development in Puerto Rico. For circular economy activity, we are focusing our efforts on an end-of-life solar panel management project plan that includes industry and supply chain mapping, and key recommendations on how Puerto Rico can capitalize on this potential sector (and avoid a brewing environmental crisis).

Now for the news…

In the wake of political changes, Gov. González’s-led government in Puerto Rico has put energy policy front and center. For a highly cogent overview of the legislative proposals and their implications, our friend Angel R. Rivera de la Cruz has this to share:

 

Contracting Woes and Wins

At the Energy Forum, we are preparing a series of articles called Shoot, Aim, Ready that focuses on the process of contracting power projects in Puerto Rico. The series will outline the goals, the processes, the delays, costs, and outcomes of procuring independently produced energy. However, despite the challenges, there are some wins to celebrate and credit where credit is due, we let’s cherish the victories.

First, the challenges. The Puerto Rico Energy Bureau has published its first report on the First Tranche of renewable energy procurement, indicating what they call a serious pattern of delays, intransigence and sabotage of the process on the part of PREPA. We have seen similar issues in Tranche 2, Tranche 3, which was ultimately canceled, and Tranche 4, which received just one bid.

Some wins include Energiza’s contracting (see last month’s Roundup), even though that took 21 months to complete. Government and PREPA officials have since made it clear that additional large-scale power plants need to come online in the coming years to ensure base operations, changing demand, and the transition to more renewable energy sources at the inverter and utility levels. These proposals include as second LNG-H2 plant

San Juan has begun a process for multiple microgrid projects in the capital municipality. And storage plans to add 430 MW of BESS at three different

Genera-operated PREPA plants continues underway. Normally, one would expect the decommissioning of old plants, design, construction, and operation to be done under a single RFP. Due to challenges related to bonding capacity of bidders, Genera has split these different aspects up.

 

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LUMA

LUMA has been in hot water since before the elections, with nearly all candidates vowing to remove, replace, or penalize the utility operator if successfully elected. The new head of the Public-Private Partnership Authority (P3A) and the new Energy Tzar Josue Colón issued a series of letters highlighting LUMA’s alleged noncompliance with FEMA and other financial matters, with auditing measures from the Comptroller’s office, and with general insufficient. LUMA President Juan Saca responded in a published letter defending the GridCo with evidence to its compliance with all requests since their inception in 2021.

In other progress, LUMA has published their most recent progress report showing 9,900 residential solar client connections, improved client services and reduced outages times. LUMA has signed agreements with Linxon and AtkinsRéalis Caribe to build nine interconnection points, enabling 990MW of generation capacity and 700MW of BESS into the grid. This project represents close to $4B in private investment and is slated to create over 4,200 construction jobs. Interconnection costs and times have been a major bottleneck for getting new projects on-line.

Meanwhile, LUMA continues to announce projected outages, mostly due to lack of sufficient generation capacity.

 

 

PREPA Fiscal Plan and Bankruptcy

PREPA’s bankruptcy continues amid two major events: the mediation deadline was extended to April 30, 2025; and the FOMB certified PREPA’s latest fiscal plan. The core challenge between PREPA and its bondholders is the sheer deficit of net revenues projected moving forward. Repairs have been much more costly than projected and given the state of the grid and the enormity of the effort to upgrade the infrastructure, net revenues will be scarce.

As the FOMB has stated, this plan is an x-ray of the operations and financial situation that PREPA finds itself in. One key finding is that the projected costs in 2040 of running the system are 60% higher than accounted for in the 2023 fiscal plan. These discrepancies feed into the first problem: operating expenses are far higher than revenues and there isn’t a clear plan for paying them, let alone paying bond holders; at the same time that the grid is deteriorating faster than ever. The FOMB has indicated that it would be willing to pay all non-settling bondholder claims, but that doesn’t treat the bulk of the issue at hand.

Another key finding is that the grid repairs and broader stabilization strategy will go on through 2035, most likely. This is refreshing, albeit disconcerting. Proper expectation management is critical through this process. LUMA estimates that this process will cost up to $24B and federal funding will be essential to getting the work they need done.

Additionally, the fiscal plan rejects the idea of rate increases to pay for the debt. Are we to suppose that grid efficiencies alone will get us there? If PREPA is to pay bondholders the $2.6B that is noted in the fiscal plan without rate increases, another source is yet to be identified.

A bit of drama surrounded this release. This fiscal plan was submitted and certified apparently without the governor’s office being notified, indicating a rift between the FOMB and Fortaleza.

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AES Extension?

With the official shutdown date of Dec. 31, 2028 right around the corner (considering what is required to replace nearly 500MW of cost-effective and reliable base-loadpower), AES signaled to the island’s legislature that it was committed to the shutdown. This was echoed by several members of the Chamber, suggesting AES is not a viable energy option for Puerto Rico moving forward.

Nevertheless, at the end of February, law makers passed legislation (30 to 16) to extend the island’s only coal-fired operation until 2032. This opens the door to yet further changes to the energy public policy that focused on the transition to renewable energies with intermediary timelines and the mandated closure of any coal operation in PR.

Importantly, it also signals fundamental recognition that Puerto Rico is not ready to replace AES’ coal operation, let alone take it offline. The legal extension of AES’ Guayama plant, in short, gives Puerto Rico some breathing room regarding electrical rates, grid stability, and future project development.

 

IRP

The IRP process in underway and there is a renewed debate over the role of renewables. You can read LUMA’s filing from January. We’ll be publishing a full series of articles about this process.

 

Economic Development

As long as energy woes continue, Puerto Rico’s economic development prospects will suffer. There have been some recent reports on the economic effects of climate change in PR and what that means for new companies interested in entering the market. The shift to focus on gas-powered plants and the extension of AES’ coal operation also marks a significant change in what energy investments will look like. The large tranches were not particularly competitive, and now we will likely see utility scale solar take a backseat.

All eyes on grid stabilization, how private capital is treated, and whether RFPs are competitive. The road to credibility (and creditability) is slow and long, we have to take one step at a time.

-puerto

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