Puerto Rico regulators push PREPA to embrace renewable energy

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The Puerto Rico Electric Power Authority would save around $600 million by using renewable energy, according to a regulatory proposal suggesting the switch from the utility’s preferred plan focusing on natural gas.

The Puerto Rico Energy Bureau rejected natural gas expansion proposals included in PREPA’s integrated resource plan in an order issued Monday, instead calling for an aggressive build-up of renewables. The proposal would cost PREPA an estimated $13.8 billion compared to around $14.4 billion projected under the utility’s plan.

Regulators want the Puerto Rico Electric Power Authority to focus more on renewable energy infrastructure in the utility's future capital plans.

While $600 million of savings on PREPA’s capital program would be “significant,” Howard Cure, director of municipal bond research at Evercore Wealth Management, said, future reliability of the utility’s grid needs to take precedence. Cure noted a recent push toward clean energy in California that removed traditional power plants has created challenges this summer as the state confronts a heatwave.

“The issue with Puerto Rico is that it is an island with no access to a grid and power off of the island,” Cure said. “Therefore you need a certain amount of redundancy so you better be sure renewable energy is reliable and provide excess power in case of a malfunction.”

The PREB rejected PREPA’s plan to spend $5.9 billion on a minigrid transmission system and bureau also urged the utility to hold off on proceeding with natural gas additions and called for a “limited replacement” of aging infrastructure.

A modified plan presented by the PREB would involve a mix of energy sources with an increased percentage of renewables. The regulators proposed at least 3,500 megawatts of solar and more than 1,300 megawatts of battery storage by 2025.

The PREPA press office did not immediately respond to queries about the alternative energy proposal.

PREPA CEO Jose Ortiz told the House Natural Resources Committee last month the utility has encountered delays rebuilding its grid after it suffered extensive damage from Hurricanes Irma and Maria in 2017. The authority is slated to receive $1.9 billion in federal funding to help repair damage caused by the storms.

PREPA filed for bankruptcy three years ago under the Puerto Rico Oversight Management, and Economic Stability Act of 2016. Efforts to restructure PREPA’s $9 billion of debt have been on hold due to the COVID-19 pandemic.

Municipal Market Analytics Partner Matt Fabian said while disagreements over PREPA’s future capital plans will likely further slow debt restructuring plans, the process may prove to be positive.

“These kinds of agreements were going to have to be made anyway so it is better to try and iron out the disagreements now,” he said. “Any future plan will be much more sustainable if the involved parties feel their needs are being met.”

Fitch Ratings downgraded PREPA to D, its lowest rating, from C in 2017, following the bankruptcy filing. Moody’s lowered PREPA to its second lowest rating of Ca from Caa3 in July 2017 also citing its decision to commence bankruptcy proceedings.

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