INTERVIEW: Round Trip Energy Executive Director breaks down state of development in Puerto Rico

With aggressive renewable energy goals and an ongoing RFP for over 3.5 GW of renewables and 1.5 GW of storage, the Puerto Rico market should be on the verge of a development boom. However, island regulatory and financing issues are leading to a challenging environment to pencil projects, according to Benjamin Levy, an executive director with Round Trip Energy.

The Washington DC-based Round Trip is bidding two utility-scale projects into the ongoing RFP amongst a number of other projects it has under development in the island. This includes reaching financial close on its first project, a 2.3 MW behind-the-meter system in the metro area and is developing others of a similar size range in partnership with offtakers including universities.

The utility scale projects are on sites of over 200 acres. Each site will include two projects with solar and storage components. While the company has not received zoning approval for the projects yet, they have been environmentally vetted and have interconnection plans in place.

PREPA RFP

Round Trip is bidding both utility-scale projects in the ongoing PREPA RFP, which calls for 3.5 GW of renewables and 1.5 GW of storage over six tranches. The utility is in the process of selecting bids for Tranche 2 now but have stayed tight-lipped on projects and companies selected from Tranche 1. As previously reported by NPM, this has led to significant pushback from stakeholders in Puerto Rico.

In addition to this lack of transparency, Levy says the RFP’s requirements have also led to development challenges. The RFP asks developers to separate the solar and storage components and file them as different projects, but the projects need to be connected for developers to secure ITC credits for the storage component. This has resulted in Round Trip designing projects that walk the thin line of achieving both.

However, PREPA has also worked to ensure developers do not have to complete lengthy interconnection studies for their projects, which has expedited part of the pre-development process for both of Round Trip’s utility-scale projects.

“During the RFP process, PREPA actually estimated the capacity available at each of their substations, so while we don’t have to do an interconnection study, you just need to show that you’re under their number for each station,” Levy said.

Regulatory and Financing Challenges

Levy has a lengthy history of working at Puerto Rico. Before joining the Round Trip team, Levy previously worked for Sonnedix Solar Puerto Rico, where he was the head of engineering and construction. During this time, Levy gained experience working with the island’s regulatory environment which he calls “one of the most stringent in the world.”

While Puerto Rico law allows developers wide freedom to site solar “basically anywhere,” according to Levy, it does have a stringent review process. It also requires any project over 1 MW to have battery components for frequency regulation, and requires projects over 5 MW to include a voltage regulation component.

This, along with the current financial state of PREPA, leads to challenges securing financing for projects on the island. PREPA filed for bankruptcy back in 2017 and has remained in that state for the last four years, requiring developers to sell power to a bankrupt entity.

“That’s going to make it a little tricky on the credit side,” Levy said.

And unlike in many mainland states markets and RTOs, Levy says other options large scale offtaker options are questionable since Puerto Rico has no wholesale market. As a result, Levy says “very few financiers” are interested in financing there, and the ones that are expect to see a higher return on investment.

“It’s a small market with its share of issues and people aren’t familiar with it,” Levy said. “Things are half in Spanish, and everything is done a bit differently. And those that are willing to invest expect a bigger return, resulting in higher prices.”

The other major issue developers face in Puerto Rico is insurance. Levy estimates the cost of insurance in Puerto Rico is 7 to 10 times higher per MW than it would be on the mainland.

“It’s nice that you can actually get insurance, which makes the market financeable,” Levy said. “But the uncertainty about the future of insurance prices results in merchant risk.”

A Changing Environment

Levy notes that many of the island’s challenges can be traced back to the lack of regulatory oversight PREPA has had over the years. As the only entity allowed to sell power in PR, it is legally defined as a regulated utility. However, until two years ago, there was no regulatory body overseeing the utility, which has led to little progress on the renewable front.

“Without a regulator, there were fewer checks and balances on meeting deadlines or following rules,” Levy said. “And when you work with oil and coal companies, which are there providing 97 percent of the energy on the island, the relatively new and few renewable energy projects struggle to garner the correct attention.”

But now, Levy says, things are starting to change. In 2019, the Puerto Rico government implemented a new regulator called the Puerto Rico Energy Bureau (PREB) that is working to ensure the utility starts meeting its renewable energy goals. And with a goal of reaching 20 percent renewable energy by the end of next year and 100 percent renewable energy by 2050, Levy is hopeful Puerto Rico will soon become a better place to do business.

“The PREB have good intentions in theory,” Levy said. “They have a lot of stuff to do, but they have shown they’re willing to play hardball and press PREPA to meet their deadlines.”*

*This story was originally published exclusively for NPM subscribers late last month.