PREPA renegotiates 23 renewable energy contracts

PREPA renegotiates 23 renewable energy contracts

They improve the terms of seven projects in operation and agree on another 16 that would add 593 megawatts to the power grid.

Thursday, May 21, 2020 – 9:48 AM

By Gerardo E. Alvarado León

Governor Wanda Vázquez highlighted that renegotiating these seven projects represents a saving of 10 percent or $200 million during the remaining term of the contracts. (GFR Media)

Humacao – The Electric Power Authority (PREPA) renegotiated 23 renewable energy contracts with private companies to obtain more favorable costs and advance the goal -imposed by law- of achieving 100 percent generation with alternative sources by 2050.

Seven of those 23 contracts are for solar and wind energy projects already operating, while the remaining 16 date back eight years and had not been executed due to economic reasons. Now, they expect these 16 projects – all solar – will be on track within 24 to 36 months.

In revealing this information exclusively to El Nuevo Día yesterday, Governor Wanda Vázquez highlighted that renegotiating these seven projects represents a saving of 10 percent or $200 million during the remaining term of the contracts.

She added that in the case of the 16 projects that must be executed, the renegotiation leads to savings of 35 percent or $1 billion during the term of the contracts.

Once in operation, these 16 projects will result in a reduction of 1.1 million pounds of carbon dioxide (CO2) to the environment, Vázquez said.

Today (yesterday) is an extremely important day for Puerto Rico because we showed that we have put word and action in the same place. We have stressed that developing, promoting, and advancing renewable energy projects is a priority for the benefit of the people of Puerto Rico,” said the governor, who visited the Humacao Solar Project in this municipality, along with PREPA Executive Director José Ortiz and Department of Natural & Environmental Resources Secretary Rafael Machargo.

“These are projects that were precisely started by engineer Ortiz (when he was president of PREPA’s governing board during the administration of Luis Fortuño) and then, they were not a priority, but now they are. We are going to have different projects throughout Puerto Rico using our best resources, which are the sun and the wind, as a source of energy for all citizens,” she added.

Five more years

Ortiz indicated that to renegotiate the contracts, they sought to benefit both those private companies and PREPA.

Among those things, he mentioned reducing the costs of interconnection to the power grid, allowing extensions – years and scope – of the projects in exchange for lowering the price of generation, and the acquisition of solar panels and cheaper backup batteries. According to Ortiz, in the last five years, the cost of the panels has dropped by 80 percent and the cost of the batteries by 22 percent.

The seven current contracts renegotiated included AES Ilumina, Humacao Solar Project, Pattern Santa Isabel, San Fermin Solar Farm, Punta Lima, Horizon Energy, and Oriana Energy. The total generation capacity of these projects is 290.5 megawatts.

The life of the current contracts was extended up to five years,” said Ortiz. When they were signed two terms ago, it was between 20 and 30 years.

One of the most criticized clauses in these contracts is the annual escalation rate, which increases operating costs by 1 percent to 2 percent to allow private companies to recover their investment. Questioned on this issue, PREPA executive director acknowledged that the renegotiated contracts maintain the annual escalation rate, but said it was capped at 14.1 percent.

Ortiz said there are two other renewable energy projects on the island – Windmar Coto Laurel and Windmar Cantera Martinó – but “it was impossible to reach agreements with them.” He attributed this to the fact that they are “small projects”, and it was unfeasible for them to comply with PREPA’s new requirements. Both generate, together, 12 megawatts.

10 cents or less

On the other hand, the 16 contracts renegotiated for new projects included Xzerta-Tec, SolarBlue, Blue Beetle, Montalva Solar Farm, Ciro One, Guayama Solar Energy, Solar Project San Juan, Vega Baja Solar Project, REA Vega Baja, REA Hatillo (North), Caracol, Sierra, Atenas, ReSun, Solaner, and Morovis.

These 16 projects represent a total capacity of 593 megawatts.

“In addition to the environmental benefit, the best thing about this renegotiation is the cost per kilowatt-hour for producing energy. Last year, the cost of generation in the Authority was 14.28 cents per kilowatt-hour and these projects were negotiated at 10 cents or less, and we will continue to lower it,” said Ortiz.

El costo negociado de 10 centavos por kilovatio-hora corresponde únicamente al primer año de operación, ya que los 16 contratos también incluyen un escalador anual, en este caso, de 2%. Los contratos son a 25 años.

The negotiated cost of 10 cents per kilowatt-hour only applies to the first year of operation since the 16 contracts also include an annual escalation rate, in this case, of 2 percent. These are 25 year long contracts.

The cost of 10 cents per kilowatt-hour is what PREPA will pay to private companies to buy the energy. PREPA customers will pay a higher price -unknown right now- since there are other components of the electricity rates included, such as the adjustment for fuel purchase and subsidies, among others.

Still, Ortiz and the governor insisted that the 16 renewable energy projects will have a positive impact on the rates.

“Those savings of up to 4.5 cents in the cost of what we pay now will be reflected in the bill, and it is expected that the cost of renewable technology will continue to drop. By 2015, what now costs 10 cents per kilowatt-hour was 15 cents then. The trend is for it to continue to drop,” said PREPA’s executive director.

Ortiz said he is confident that the 16 projects will be operating in 24 to 36 months, because “some are well advanced with their permits and others only have to renew them.”

He even predicted that “five or six” of the 16 projects will begin construction this year. “These projects have been around for about eight years, but the door was never closed on them. The difficulty was getting financing from a bankrupt entity, like PREPA. But now there is will and confidence in the administration to do them. It’s a matter of updating the permits and getting started,” Ortiz said.

In this line, Vázquez said she gave instructions “so that every renewable energy project is given an expedited process” at the relevant agencies and public corporations.

As with the current projects, PREPA could not reach agreements with three non-operational projects: Windmar (Sabana Seca), M Solar, and YFN Yabucoa Solar, with a total generation capacity of 165 megawatts.

“They did not enter into renegotiation due to financial considerations. We decided on the terms we needed to benefit consumers and these companies could not meet them, either because the project was expensive or the interconnection was too high. If they didn’t have the financial model to reach the 10 cents per kilowatt-hour cost, they couldn’t enter the negotiation,” explained Ortiz.

Distributed generation

He also said that “soon” PREPA will publish a Request for Proposals (RFP) to “further increase renewable projects” in the grid.

“There will be more solar farms, and we are going to tie that to the Integrated Resources Plan, which should be very close to reaching the approval by the Energy Department (of Puerto Rico),” he said, admitting, however, that there is not much open space on the island to place thousands of panels.

That is why, Ortiz said, they will also promote the distributed generation, that is, the installation of solar panels on the roofs of residences, businesses, and industries. “The current technology allows us to take advantage of those spaces already affected so that we don’t cover the green footprint with solar panels,” he said.

He said the agreement “to be reached” with the Federal Emergency Management Agency (FEMA) to rebuild the grid devastated by Hurricane María in 2017, “focuses” on distributed generation.

This is complemented by Puerto Rico’s Energy Public Policy Act (Act 17-2019), which created a trust to help citizens build their own renewable energy systems.

“Puerto Rico’s grid was built for centralized energy, in large plants, but the new grid is going to be for distributed and mainly renewable energy,” Ortiz said.

Currently, renewable energy produced on private (distributed) rooftops totals 210 megawatts. Considering that amount plus that of large projects – operational and to be implemented – generation with alternative sources totals 1,105.5 megawatts.

Business opportunity

Vázquez, Ortiz, Machargo, and Manuel Laboy, Secretary of the Department of Economic Development & Commerce (DDEC), who also participated in the interview, agreed that the renegotiation of renewable energy contracts increases investors’ confidence to do business on the island.

They even mentioned that Puerto Rico has the opportunity to become a “hub” or manufacturing, assembly, and export center for solar panels and backup batteries.

Laboy referred to an executive order by President Donald Trump, signed in March, which limits the import of foreign-built electricity generation equipment, mainly from China. In his opinion, that order could favor Puerto Rico commercially.

“We have a skilled workforce, a robust labor development program, and the incentives that Puerto Rico offers under Law 60-2019 (Puerto Rico Incentives Code) are very attractive and provide a good return on investment,” he said.

He added that the island could export panels and batteries in those cargo containers that currently return empty to Jacksonville, Florida.

Laboy explained that, throughout the island, there are five million square feet of industrial space available in which manufacturing, assembly, and export industries of energy equipment could establish.

This is going to create a lot of jobs, a new industry, over the next two or three years. We are going to build new solar farms and expand existing ones, so there will be a lot of work in the industry,” Ortiz said.

For the governor, yesterday’s announcement is “an example of coordinated public policy.”

Once the renegotiation with these private companies is completed, it is up to PREPA to get the contracts approved by the Energy Bureau, the Board, and the Federal Court where bankruptcy cases under PROMESA Title III are discussed.

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