The turnaround required for Puerto Rico

The turnaround required for Puerto Rico

Paul Sullivan | Professor, NDU. Georgetown NCUSAR
The island may have multiple problems, but there are opportunities for development and renewal as well. The focus needs to be put on renewable sources, on a more dynamic electricity infrastructure and on modernizing the concept of "management" in the energy sector

The entire energy system of Puerto Rico was shattered when Hurricane Maria crashed its way through the country with a direct hit. This article will focus on the electricity system. The electricity system of the island relies almost entirely on imported oil, LNG, and coal to run its generation facilities. Many of the oil, gas and coal systems were also damaged by the storm. Only a tiny percentage of the electricity produced is from wind and solar, even though Puerto Rico is a brilliant place for both of those renewable energies. It also has massive potential in ocean energy, biomass energy sources and could develop a serious waste-to-energy system using waste produced on the island that would normally go to landfills.

The safe bet of alternative sources

Puerto Rico’s reliance on imported fuels could drop considerably if more focus was put on such renewables. Electricity reliability and resilience could also be improved with renewables, most particularly when they are connected with energy storage and demand management systems. And even more so when they are part of a series of microgrids that can be both connected with an overall grid, but also separable when needed in times of storms, earthquakes, and other risks. As the various hurricanes that ripped through the southern U.S. and the Caribbean wind farms fared well. Some solar facilities were damaged, but the reparation costs for them are surely going to be less than the reparation for the massive gas, coal and coal facilities that were damaged – and not just because these renewable facilities were small. Importantly, the renewable systems rely much less on subsidiary and connected infrastructure that is so important for oil, gas, and coal-based electricity systems. Solar, wind, biomass, and ocean energy facilities do not rely much on expensive shipping, ports, storage, regasification facilities, and pipeline systems to make them work. Oil, gas, and coal electricity systems could not work without these systems within systems connected with systems and nested in other systems.

Light infrastructure and lower costs

The sun is processed in a solar panel or in concentrated solar devices and the like where mirrors are pointed, for examples. Biomass would be sourced from the fertile soils of the island. There is a lot of biomass now rotting on the ground on the island after being damaged by the hurricane that could be converted into natural gas or other biomass-related resources. There is also a lot of potential for converting municipal and town waste into electricity.  Ocean energy would come from the sea that surrounds Puerto Rico. Why have expensive floating regas and storage ships on lease or purchased when onshore solar, biomass and wind facilities can be deployed more quickly and cheaply? Microgrids with renewables facilities and energy storage reduce the chances of single point failures that are potentially inherent in large, bulky fossil fuel-based electricity investments. The costs of solar and wind electricity production have been in steep decline in recent years, and are expected to be in steep decline for many years to come. Solar and wind are not the best technologies for all places, but for a tropical island with lots of sun and trade winds this should really be an easy decision. This is not based on ideology or some pie-in-the-sky philosophizing, but on the hard and cold facts of costs and benefits from the short to the medium run in a place like Puerto Rico. Ocean energy systems have some time to go to bring their per KWH costs down, but what better places to test these and gain from these than on an island. Advanced biomass systems, and even not so advanced ones could make huge costs strides in fairly short time periods. Waste-to-energy could be a real winner on the island. When overall costs and benefits are calculated in, including risks from storms and other events, environmental and health costs, etc. renewables will look a lot better than many may think right now.

A different concept of energy

The transmission system of the island brings electricity mostly from south of the island to the north, where most of the electricity is needed. Most of this transmission network crisscrosses across mountainous and remote areas, rather than following the population and electricity needs, which mostly can be found in a circle near the coast of the island with the heaviest pockets of demand in the north. The highest demand areas are often far from the generation, and this island is subject to not only powerful storms, but also earthquakes. It would make sense to have a series of microgrids set up with hybrid oil-gas-wind-solar-wind networks in the beginning and the medium term. I recommend the hybrids given the already extant oil, gas, and coal infrastructures to be around for some years to come. Let them amortize over time until they can be replaced. Eventually the island could rather smartly switch to renewables in combination with much better demand management, non-wire efficiency improvements, energy storage, and less electricity losses and theft. Puerto Rico could be the next Iceland. Iceland moved to geothermal given its natural resource endowments in that energy source. Puerto Rico is rich in wind and solar potential, and also ocean energy and biomass potential. The time to think hard about these is now. The microgrids would be connected to an overall more logistically logical transmission and distribution grid, but would have the ability to disconnect from the larger grid when natural and other disruptions occur. A combination of a transition to hybrid systems, and then to mostly renewable energy-energy storage-demand management-microgrid systems would require a complete overhaul of the industrial and management structure of electricity on the island. It would also require a different sort of governance of energy for Puerto Rico. It would also require the development of better training and education in energy systems. And all of this could help human development on the island – and create jobs. So far, the old systems have done just the opposite.

A lost paradise?

The need for a workable, efficient, reliable, and resilient electricity system for the island is as clear as some of the waters off this beautiful place. Electricity is needed for lighting, cooling, heating, refrigeration, communications, education, transportation, ATMs, fuel pumps at gas stations, and more. If one has ever lived without electricity for some time, or has lived in a place with unreliable electricity, one feels, not just sees, the frustration, pain and health effects, economic losses and more. Modern societies need electricity. Puerto Ricans have a declining economy, declining population and historical declining quality of energy and other governance. They deserve better. Many people have been voting with their feet and leaving the island in droves, especially after some large U.S. corporation tax breaks were canceled in 2006. After 2006 employment on the island tumbled. Labor force participation rates collapsed. Many gave up hope, and left to mostly the US, where they have every right to be given that they are American citizens and hold American passports. Unfortunately for many, the “Great Recession” hammered the U.S. economy starting in 2007-2008. So, jobs became scarce even on the mainland, and sending remittances back to Puerto Rico were much harder to do. Puerto Ricans have not only been hit with by natural storms, like Irma and Maria, but also economic storms. The country is holding a massive $70 billion in debt – with a declining economy and declining tax base. Not only that, tens of billions of investment dividends flow out of the country to keep large corporations there. Some years those dividend flows are as much as 30-50% of the GDP. Oddly, even with its ailing economy Puerto Rico has an historically growing current account surplus. It seems clear that the big investors and multinationals on the island are doing much better than the average folks (and 45 percent are in poverty) and the middle class. Puerto Rico is not just a place with a highly distorted and dysfunctional electricity system. It has a distorted and dysfunctional economic system that also must change.

An electricity system that must evolve

PREPA, the The Puerto Rican Electric Power Authority, calls itself a “natural monopoly”. It is a government company, but it is not a NATURAL monopoly. It was handed complete control over the electricity system of the country. Non-PREPA electricity generators, and there are very few, must sell to PREPA. The entire network has been run, and mismanaged, by PREPA for decades without much oversight until 2014, when the Puerto Rico Energy Commission (PREC) was imposed upon them – and for good reason. For a very long time PREPA was accountable to no entity and nobody until PREC was established. The results were disastrous for Puerto Rico and its people. Puerto Rico’s failed electricity system should be privatized, and incentives for competition should be developed. The levels of corruption and mismanagement showed themselves to the disinfecting light after hurricane Maria. An emergency management system has been set up to run the PREPA better. The last straw that pushed this to this happen seems to have been PREPA’s handing out of a $300 million contract to rebuild a large part of the grid to a tiny, two-person, company from Montana. But there are many reasons such changes are needed. The bond rating for Puerto Rico is at junk grade. Citibank cut back on PREPA’s line of credit in 2014, which put so much stress on the finances of PREPA that they had to take money out of its maintenance, investment, and improvement funds to pay for fuels delivered by Petrobras, its major source of oil, for example. Maintenance has been slim to none for many years. Regular blackouts and declining reliability were the expected, and actual, results. And with all that Puerto Ricans pay much higher electricity rates than almost all other states and territories of the U.S. PREPA’s reliance on oil for 75 percent of its electricity generation also put regular pressures on its finances and electricity prices as the oil prices spiked upwards at times. There is also no working oil refinery on the island. Natural gas for electricity production is, another oddity, imported via two different sets of contracts, one at a bit over $3 per MMBTU and another at over $6 per MMBTU. PREPA wants to move more towards natural gas, which in the case of the island be LNG, for environmental and other reasons, but the costs of doing this seem unaffordable for PREPA, and they seem in a parastatal dream world about what they can accomplish with their perilous finances. And it gets even stranger and more worrisome. A huge amount of the most competent and experienced engineers and managers left PREPA, mostly to the mainland US, given that they could make more in the mainland U.S. – and in much less frustrating circumstances. Puerto Rican government entities do not pay for their electricity. Many of PREPA’s customers are people with strained financial circumstances, about 45 percent of the island is in poverty, and often get their electricity subsidized or as part of what is called "uneconomic electricity" --- otherwise known as stolen. PREPA has very large electricity losses. None of these helps make the electricity system and PREPA solvent, viable or reliable. All but 2 percent of its electricity is generated from imported fossil fuels: oil, gas, and coal. And Puerto Rico has no indigenous sources of these fossil fuels. It makes little sense to continue this. But the dinosaur-like PREPA has kept this absurdity going for decades beyond after it has made no sense. Most of the generating facilities on the island are over 40 years old.

Combating emigration

PREPA, the US Army Corp of Engineers, FEMA, DOE, and others are in the process of replacing 50,000 ruined electricity poles and the considerable number of high-voltage lines destroyed in the storm. And they are likely to be destroyed in the next storm, and the next storm and on and on. Most of the electricity infrastructure of the island is above ground. Why continue with the same mistakes repeatedly? Again, the people of Puerto Rico deserve better. A better and more reliable electricity grid may also bring in more jobs, better health, and more effective education, and health systems and much more. It may help stem the hemorrhaging of people and skills from the island. One could say that Puerto Rico’s electricity system has kept the island away from its potential for decades. So, what may be concluded from all of this? Puerto Rico needs a radical overhaul of its electricity system, the business model of that structure, its governance, its technologies, its incentives, and just about everything else. Just rebuilding what was already there will not solve the major problems the island will face in the future. Simple rebuilding will be Band-Aid moves for a place that needs serious operations and recovery. Importantly, the financing of these changes cannot come from the Puerto Rican government or from increasing prices of electricity to the Puerto Rican people. It must come from outside investors, aid from various sources and more. However, as stipulations to any contracts for this aid and investments the restructuring of the electricity system and its governance are required. Some possible angel investors include renewable energy companies, energy storage groups, and microgrids developers. Some of these may see this as a potentially very successful example of what their technologies and business plans could do for islands, states in risky situations and others. Another set of sources might be the pharmaceutical and other companies that are making bundles of money in Puerto Rico. These companies could also benefit directly from a better electricity system. We cannot just throw up our hands and say, "it is too difficult, and the island is bankrupt". New and creative thinking and finance are required. As Einstein most aptly and brilliantly, yet simply stated: "We can’t solve problems by using the same kind of thinking that we used when we created them."