With passage of Puerto Rico microgrid regulations, electricity system’s transformation will take 20+ years
Although energy regulators issued final microgrid rules in record time to help boost economic development, the construction of microgrids must overcome a big hurdle: The federal law Promesa’s bankruptcy process.
Unplug from Prepa
The Puerto Rico Energy Commission (PREC) in May issued final microgrid regulations, which are the first in the entire United States, to establish ground rules for their construction, but energy-sector officials contend there are still challenges.
“Every electric pole, all outside cables and underground cables, every transmission and distribution infrastructure have one true owner: the Puerto Rico Electric Power Authority [Prepa]. If a microgrid is going to have an impact on Prepa’s infrastructure as it does, Prepa is in a Title III process similar to bankruptcy, and those assets are guaranteeing a bond. Because they are guaranteeing a piece of paper, what can be done in terms of a microgrid is limited…. We can build a microgrid within a parcel of land but when we try to connect it to another parcel, we are going to find an electric pole and Prepa is not going to give you a permit to impact it unless it is an emergency, and then you are not going to be able to monetize it,” said Néstor Rivera, chief executive officer for ESI Energy.
Through personal experience, Rivera said other hurdles hindering the construction of microgrids are the obtaining of insurance coverage and finding a repayment source to be able to recuperate the costs to build it because Prepa has yet to draft wheeling regulations. Insurance companies are reluctant to cover microgrids with insurance policies, when the core economic task of the owner of the microgrid is not to produce energy.
The other big problem is repayment sources. “By personal experience, we submitted proposals for a microgrid and the response of the beneficiary of the microgrid is that it had to be free. And you have to recuperate the cost. He urged the need to pass the wheeling regulations. But in the end, it is up to Title III,” he said.
There is also uncertainty with insurance coverage. Insurers do not want to insure microgrids because it is not the owner’s core economic task, as would be the case of a manufacturing firm operating from a Pridco (Puerto Rico Industrial Development Co.) facility.
Rivera made his remarks as he talked about the challenges and opportunities for microgrids and cogeneration projects on the island during the recent Puerto Rico Manufacturers Association convention.
Microgrids and cogeneration projects are more environmentally friendly than projects whose power is generated by fossil fuels because 63.9 percent of the energy generated by fossil fuels, when converted into energy, is released to the environment as carbon dioxide.
He made a distinction between microgrids and cogeneration projects, with each having advantages. However, he said cogeneration plants are the most efficient way to produce energy for industries. Cogeneration, or combined heat and power (CHP), is a form of distributed generation located at or near a facility. Cogeneration uses a heat engine or power station to generate electricity and useful heat at the same time. Trigeneration, or combined cooling, heat and power, refers to the simultaneous generation of electricity and useful heating and cooling from the combustion of a fuel or a solar heat collector.
The energy efficiency of a CHP goes from 70 percent to 96 percent.
“At the industrial level, we use a lot of steam, a lot of hot water and power. Cogeneration, which is not new and has existed since the 1960s, is a very robust and trustworthy technology. All it seeks is to recuperate all that heat and convert it into warm water, hot water or steam…. We can take a fuel barrel and use 96 percent of it and convert it into something manufacturing can use. Hospitals also use a lot of steam and hot water,” he said.
Cogeneration can be integrated with renewable sources and “is the key foundation” for distributed energy, which is the source of power that is near the consumer that uses it. CHP also uses various fuels, such as propane, diesel or liquefied natural gas. A typical cogeneration project for a manufacturing firm, which is about 5 megawatts can cost $1,500 per kilowatt-hour (kWh) to $3,000 per kWh once installed.
“This is not a project for one or two years, but for 20 years. This does not have a two-year return on investment. It cannot be paid in two years,” he said. He noted, however, that cogeneration made the difference in two manufacturing firms deciding to stay in Puerto Rico.
Microgrids, which have been in existence for more than 30 years, are small projects that include energy generation, energy consumption systems and sometimes energy storage devices. Distributed energy does not have to be a component. They serve a small geographical area.
“Because the energy system in Puerto Rico has low trustworthiness, or 75 percent, they [microgrids] help keep the power flowing when the grid is down, without sacrificing the system’s security,” he said.
The new PREC microgrid regulations, issued in early May following numerous hearings, divide these projects based on ownership type. In terms of ownership, the rules divide microgrids into three types. These are personal microgrids, which will provide power to one or two consumers and can, with PREC permission, provide excess energy and grid services to neighboring customers; cooperative microgrids, which have two subcategories, small co-op microgrids of less than 250 kilowatts (kWs) or large co-op microgrids of more than 250 kWs. Like personal microgrids, co-op microgrids can sell excess energy and services to others; third-party microgrids, which have owners or operators, sell energy services to customers under rates approved by PREC. Owners can earn a reasonable rate of return for the first three years of operation.
The rules also classify microgrids based on their technology as renewable microgrids, CHP microgrids or hybrids. A renewable-energy microgrid refers to a system in which 75 percent of total energy output during a 12-month period is derived from renewables. CHPs are those in which the thermal energy output it not less than 50 percent of the total energy output.
Roberto D. Acosta, president of Accurate Solutions, had a problem with the concept of cooperative microgrids because it would cause problems similar to the operation of a “condominium board.” “I think the rules still fall short of what Puerto Rico’s public policy should be. The rules use the concept of cooperatives, which is not bad, but power generation requires someone to establish and guarantee certain ancillary services related to voltage and certain costs…. Who is going to do that? And who is going to charge for it? The rules are not going to deter service interruptions. These rules should have been broad enough to ensure there is efficient and continuous service for a person who does not want to belong to the cooperative,” he said.