Plan to turn to imported natural gas will cost Puerto Rico dearly

A series of recent announcements by Puerto Rican officials signals a new — and misguided — push for greater reliance on imported natural gas for electricity production.

If these plans come to fruition, they will saddle Puerto Rico with far too much expensive natural gas-generated power while crowding out cheaper renewable energy.

{mosads}The plan, which is being promoted by Jose Ortiz, the most recent CEO of the Puerto Rico Electric Power Authority (PREPA) in concert with certain politicians, would convert two units of the San Juan power plant, currently run on oil, to natural gas. It also calls for construction of two new natural gas-fired power plants, at Cataño near the capital city of San Juan, and at Yabucoa in the southeast part of the island.

Overall, the plan aims to move Puerto Rico’s electricity generation to 60 percent natural gas while promising to reduce Puerto Rican electric rates to 16 cents/kWh, although that number is suspect because it does not include service on the mountain of debt hanging over PREPA. 

In fact, the entire proposal is suspect.

First, it would overbuild natural gas generation even as demand for electricity shrivels. The federal Financial Oversight and Management Board for Puerto Rico recently lowered its sales forecast for PREPA, to 13,290 gigawatt-hours in Fiscal Year 2023. That’s a 22 percent reduction over fiscal 2017 sales and a 24 percent reduction over PREPA’s previous sales forecast for fiscal 2023.

Converting just the two units at the San Juan plant to natural gas and adding that capacity to PREPA’s existing natural gas generation would allow PREPA to reach 60 percent natural gas generation by fiscal 2023 — without the plants at Cataño and Yabucoa and without building the controversial and high-dollar proposed Aguirre Offshore Gasport. 

Second, we question whether the plan, as it says it aspires to do, would actually achieve a fuel mix of 60 percent natural gas and 40 percent renewables within five years. The proposal doesn’t mention a PREPA contract that runs through 2028 with an AES coal-fired plant on the south coast of the island. Assuming PREPA doesn’t exit this contract early, the AES plant would account for about 22 percent of PREPA’s projected generation in fiscal 2023. 

We are skeptical as well of the assertion that this proposed expanded investment in natural gas would bring PREPA’s rates down to 16 cents/kWh (excluding debt-service charges), and no substantive information has been provided to support this claim. That said, in a Puerto Rico Energy Commission proceeding on the proposed Aguirre port at which proponents contemplated retiring PREPA’s existing oil-fired units by 2024 and replacing them largely with natural gas, modeling presented by PREPA showed no reduction in rates by 2024. Indeed, PREPA argued for the gas port in part by acknowledging that rates would increase, but by less than they would otherwise rise.

PREPA cannot afford more missteps. Its financial recovery plan requires it to cut fuel expenses by $400 to $500 million, and the only sure way to meet that goal is to invest in renewable energy, specifically solar energy.

This plan goes in the opposite direction, and in so doing funnels more ratepayer-subsidized profits to off-island gas companies in a scheme endorsed unfortunately by Jenniffer González-Colón, the commonwealth’s nonvoting delegate to Congress, and Rep. Rob Bishop, an influential Republican from Utah who chairs the House Natural Resources Committee and has taken a special interest in Puerto Rico. These two members of Congress have gone even further, actually, in calling for building a regional natural gas hub in Puerto Rico that would entail construction of an import facility geared also to re-export gas to other Caribbean islands. 

This renewed rush to gas in Puerto Rico may well benefit the U.S. natural gas industry and its friends in Congress, but there’s nothing about it to suggest that it will reduce PREPA’s costs, cut electricity rates, or promote a financially healthy power system. 

Cathy Kunkel is an analyst at the Institute for Energy Economics and Financial Analysis. Tom Sanzillo is director of finance.