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FOMB, New Fortress Energy threaten Puerto Rico resident efforts to install rooftop solar

An analysis by Tom Sanzillo, director of financial analysis at the Institute for Energy Economics and Financial Analysis (IEEFA), and Cathy Kunkel, energy consultant at IEEFA.

The good news from Puerto Rico is that rooftop solar has grown dramatically in the seven years since Hurricane María devastated the island’s electrical system. From 8,000 rooftop installations in 2017, there are now more than 117,000 (almost 10% of households on the island) with a combined total of 813 megawatts (MW) of generating capacity. New installations are being added at an average rate of more than 3,000 per month — largely accomplished without any subsidy.

The residents and community organizations of Puerto Rico have taken it upon themselves to install new solar energy systems to provide a life-saving electricity supply. These efforts are urgently needed because the vast array of federal, local and private entities supposedly responsible for Puerto Rico’s electrical system have failed; the system today is more fragile and less reliable than it was before Hurricane Maria.

The push for renewable energy in Puerto Rico is in law, certified by the Financial Oversight and Management Board (FOMB) in previous budgets and approved through a rigorous planning process by the Puerto Rico Energy Bureau. This consensus was built through painstaking efforts to bring organizations together. The island’s utility is bankrupt and continues to fail to balance its budget. Last year, fuel and purchased power (oil, diesel, coal and gas) accounted for 71% of its budget. Renewable energy is essential to stabilizing costs and producing budget balance.

The two greatest threats to renewable energy in Puerto Rico right now, however, are: (1) the FOMB’s efforts to dismantle net metering, and (2) the aggressive push by New Fortress Energy (the privatized operator of the generation system that was chosen under questionable circumstances) to sell more natural gas to the island.

Under Puerto Rico law, net metering — the policy by which residential solar can receive a credit equivalent to the retail rate for electricity exported to the grid — was set to be in place until 2024, at which point the Puerto Rico Energy Bureau was to conduct a study on the effects of the policy with the option of implementing changes. In late 2023, the legislature extended net metering through 2030; the law was signed by Gov. Pedro Pierluisi in January 2024.

The law recognized the importance of the existing net metering structure to support homeowners’ and businesses’ ability to pay for rooftop solar installations. The law made it clear that installing rooftop solar and storage is currently the only way that families and businesses can insulate themselves against a continually unreliable and fragile grid.

However, in April and then again in May, the FOMB told the Puerto Rico government that this new law was inconsistent with the approved fiscal plan. The board argued that the new law constituted political interference in the operations of the island’s utility and was not supported by sound fiscal analysis. It is clear from the board’s letters and prior fiscal plan that it would like to see net metering weakened.

But the FOMB’s letters from its general counsel and executive director miss the fundamental point of the large increase in rooftop solar in Puerto Rico. The public is putting up solar panels on their own because after almost eight years since the FOMB was established, none of the responsible powers have been able to maintain an adequate electricity supply to Puerto Rico’s residents and businesses.

The government of Puerto Rico’s official count is that 2,975 people died because of Hurricane Maria in 2017. The FOMB’s response is a wanton disregard for this fact.

It is also truly unfortunate that the FOMB sees the recent legislative action as “political interference.” This is a reflection on the inability of the FOMB to become a force for constructive change and consensus-building after eight years. Beyond the numbers, a constructive fiscal environment is the ultimate purpose of a control board, and the FOMB has failed this purpose fundamentally.

The FOMB has broad powers under the 2016 Puerto Rico Oversight, Management, and Economic Stability Act (Promesa) to challenge any commonwealth law that it deems inconsistent with an approved fiscal plan. It is likely that the FOMB will be taking Puerto Rico to court over the issue.

If the FOMB prevails in a lawsuit and net metering compensation is significantly reduced, this would likely have a devastating impact on Puerto Rico’s rooftop solar sector. California provides a useful lesson. In April 2023, California reformed its net metering compensation structure, reducing compensation by between one-third to one-half the retail rate. New installations fell by 66% to 83% across different utility service territories in the first five months after the policy took effect.

If the FOMB prevails, it will also further the interests of those who would like to see Puerto Rico’s energy future driven by natural gas, not renewable energy.

The second major threat on the horizon is natural gas supplier New Fortress Energy. In addition to supplying natural gas to the Puerto Rico Electric Power Authority’s (PREPA) San Juan power plant and to temporary generators installed after Hurricane Fiona, New Fortress’s subsidiary Genera won a contract in 2022 to operate all PREPA’s power plants for 10 years. This decision by the government of Puerto Rico to award a gas supplier with the contract to operate most of the island’s generation system — almost all of which is approaching the end of its useful life — represents a major conflict of interest. It can no longer be overlooked.

In May 2024, New Fortress announced to its investors that it sees major opportunities to sell more natural gas to Puerto Rico. It described Puerto Rico’s energy future as primarily driven by natural gas, and “supplemented“ by solar and storage.

A look at the numbers that New Fortress presented to investors is even more egregious. If one takes seriously the amount of gas that New Fortress says it has an “opportunity” to sell to Puerto Rico, the total would exceed Puerto Rico’s current power generation, which is expected to decline over time. In other words, New Fortress wants Puerto Rico’s energy future to be 100% gas. The company is already making filings with the Puerto Rico Energy Bureau to begin to convert existing power plants to gas.

In short, while rooftop solar has been an important success story in Puerto Rico over the last several years — providing resiliency to more than 100,000 households — the island’s energy future remains hotly contested.

Co-author Tom Sanzillo is the director of financial analysis for the Institute for Energy Economics and Financial Analysis (IEEFA.) He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. Comments to [email protected].

Co-author Cathy Kunkel is an energy consultant at IEEFA.

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This story was written by our staff based on a press release.

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