REIMAGINING GRID SOLUTIONS A Better Way Forward for Puerto Rico Prepared for: Global Collaboratory Panel Prepared by: Mac Farrell, Lindsay Cherry, Jeffrey Lepley, Astha Ummat, and Giovanni Pagan May 8, 2018 Global Collaboratory Final Report Reimagining Grid Solutions: A Better Way Forward May 8, 2018 THE TEAM Mac Farrell has worked in environmental advocacy at Environment California with a focus on renewable energy policy. He has analyzed energy efficiency technology for the startup company MyDomino and most recently worked at the NYC Mayor’s Office of Sustainability on the Carbon Challenge program. Lindsay Cherry has expertise in New York energy and environmental policy, having worked at Natural Resources Defense Council (NRDC) for several years before attending SIPA, and most recently working on energy policy at the NY-based nonprofit, Urban Green Council. Jeffrey Lepley brings years of work experience in waste-to-energy and solar. He hopes to provide an understanding of distributed generation technologies, knowledge of U.S. environmental and global energy policies and project management experience. Astha Ummat has over three years of experience working with the Indian federal government in the energy sector. At SIPA she has continued her focus on energy and climate change issues as an Environmental Defense Fund Climate Corps Fellow. She hopes to contribute by tapping on her previous experience in energy policy, energy modelling and stakeholder consultation. Giovanni Emmanuel Pagan Velez is a Puerto Rico native and has policy-making experience on the island. He has interned at Puerto Rico’s House of Representatives’ Budget Committee and worked with San Juan municipal officials to draft the Rio Piedras 2016 Urban Redevelopment bill. He hopes to provide insight on stakeholders, existing legislation, and opportunities for energy policy in Puerto Rico. THE PARNTERS INESI was founded in 2014 to insert the academic community into Puerto Rico’s long-term energy policy. INESI is an interdisciplinary team of professors committed to creating sustainable, community-based renewable energy projects in Puerto Rico. They currently consist of 70 resources distributed among the 11 campuses of the University of Puerto Rico. The mission of INESI is to improve the quality of life of the Puerto Rican society by promoting inter and transdisciplinary energy research and effectively inserting the research, application, training and service resources of the Puerto Rican academic community into public energy policy. The Global Collaboratory, hosted by the Energy and Environment concentration at SIPA, is a curricular enhancement designed to expand participating students’ professional networks and experience in the global energy and environment (E&E) field. The Global Collaboratory Global Fieldwork Projects challenge - 2 - students to design and implement semester-long consulting assignments with energy and environment partners around the world. THE ADVISORS David Sandalow is the Inaugural Fellow at the Center on Global Energy Policy and co-Director of the Energy and Environment Concentration at the School of International and Public Affairs at Columbia University. He launched and directs the Center’s U.S.-China Program and has written, most recently, on topics including energy diplomacy and energy finance. Prof. Sandalow has served in senior positions at the White House, State Department and U.S. Department of Energy. Wolfram Schlenker is the co-Director of the Energy and Environment Concentration and a Professor at the School of International and Public Affairs and the Earth Institute at Columbia University. He is also a Research Associate at the National Bureau of Economic Research (NBER), where he also serves on the steering committee for the Environmental and Energy Economics Program. He has studied, among other things, the effect of weather and climate on agricultural yields, how climate trends and the US biofuel mandate influences agricultural commodity prices, and how pollution impacts both agricultural yields and human morbidity. AJ Goulding (Faculty Advisor) is the president of London Economics International, LLC., an international consulting firm focused on finance, economic, and strategic consulting. He is an expert in electricity and gas markets and has experience advising major global electric utilities on development strategies. His expertise in the field will be critical to our project’s objective. Elora Ditton is the Manager of the Energy and Environment Concentration at SIPA. Her background is in US education and anti-poverty program evaluation, Federal grant and project administration, and Great Lakes conservation. Elora holds a Master’s in Public Policy and Administration from Northwestern University. Cover photography Photograph of Puerto Rico: Hola!, 2016 Wind turbines: ConsumersUnion, 2016 Solar Panels: Clean Technica, 2015 - 3 - Table of Contents I. Introduction………………………………………………………………………………….....…5 a. Energy Landscape Prior to Hurricanes Irma & Maria…………………………………………..5 b. Definition of a Microgrid…………………………………………………………………….….6 c. Distinction Between Microgrid and Distributed Energy Resources……………………….……6 d. Resiliency of Microgrids……………………………………………………………….………..6 e. Other benefits of Microgrids……………………………………………………………….…....7 f. Microgrids as a Platform, Not a Cure-All…………………………………………………….....7 g. Types of Microgrids……………...……………………………………………………….……..8 II. State of Microgrids in Puerto Rico…………….…………………………………….…………..8 III. Federal Regulatory and Policy Barriers and Drivers………..…………………….…………...9 a. Energy Investment Tax Credit (ITC) …………………………………………………………...9 b. Public Utilities Regulatory Policies Act (PURPA)………...…… ………………………..…...11 c. DOE Resources and Demonstration Projects………………………………………………..…11 d. HUD Community Development Block Grants Disaster Recovery Program (CDBG-DR)………………………………………………….……………….………...12 e. Rural Energy for America Program (REAP) …………………………………………….……12 f. The Stafford Act and FEMA Section 428……………………………………………….……..13 IV. Puerto Rico’s Regulatory and Policy Barriers and Drivers……………………..……...…… 14 a. Net Metering……………………………………………………………….…………………..14 b. Interconnection Standards……………………………………………………………………...14 c. Economic Incentives for the Development of Puerto Rico Act………………….…………….15 d. Public Policy on Energy Diversification using Sustainable and Alternative Renewable Energy in Puerto Rico Act & Green Energy Incentives Act of Puerto Rico……………………………...15 e. Green Energy Fund (GEF) …………………………………………………………….………16 f. Puerto Rico Energy Transformation and Relief Act………………………………………..…..16 g. Public Policy on Energy Diversification by Means of Sustainable and Alternative Renewable Energy in Puerto Rico Act………………….……………………….……………………………16 h. Puerto Rico Oversight Management and Stability Act (PROMESA) ………………….……..17 V. Other State Policy & Regulatory Barriers & Drivers.…………..…………….………..…….18 a. Easements for Interconnection….…………………………………………………….………..18 b. Valuing Microgrids.………………………………………………………………….………...18 c. Uncertainty in the Relationship with the Incumbent Utility, PREPA…………………….……20 VI. Financial Models, Barriers, and Drivers for Microgrids…………………………………..... 21 a. Financial Structures…..………………………………………………....……………………..21 b. Microgrid Economics - Cost and Revenues…………………………………………………...25 c. Financial Models Already used in Puerto Rico - Success Stories & Barriers..………….…….25 d. Existing and Potential Sources of Financing…………………………………………………..26 VII. University of Puerto Rico Mayagüez Microgrid Feasibility Analysis…..…………………..…26 a. Energy Audit: UPRM Campus Consumption Characteristics………………………………....27 b. Identification of Energy Efficiency Retrofits and Equipment Upgrades…………….………...27 c. Solar Array………………………………………………………………………………….….29 d. Analysis of all Improvements……………………………………………………………….…29 e. Classification Under PREC “Regulation on Microgrid Development (Proposed Rules)” ……………………………....………………………………………………..30 f. Potential Barriers………………………………………………………………………….……30 VIII. Case Studies…………………………………………………………………..………..………......32 - 4 - I. Introduction a. Energy Landscape Prior to Hurricanes Irma & Maria Hurricane Maria caused billions worth of damage and decimated the island’s electrical grid, destroying 85% of its transmission lines.1 Before the devastation brought on by Hurricane Maria, Puerto Rico was in deep financial straits, owing upwards of $72 billion in debt. The largest portion of island’s debt, totaling around $9 billion, is owed by the Puerto Rican Electric Power Authority (PREPA).2 PREPA is a vertically integrated utility that suffers from mismanagement, corruption, and an overall antiquated business model. Before the hurricane hit, PREPA estimated that it would need $4 billion to update, improve and replace its outdated power plants and reduce its dependence on imported petroleum products.3 High electricity costs are a major issue for Puerto Ricans, who pay more than twice the average American for electricity, although energy use per capita is one-third of the energy use of the rest of America. Puerto Ricans pay 22.70 cents per kWh compared to the national average of 12.30 cents per kWh.4 In addition, Puerto Rico’s mean income of the island is $19,000, which is almost half the U.S. average. Puerto Ricans are being charged more to use less energy than the rest of America, and overall, earn less to pay for it. Close to one-third of PREPA’s customers receive substantial subsidies so they pay little or nothing. Part of the problem is that PREPA supplies free electricity to all of its 78 municipalities,