PREPA Places Hold on Signing New Renewable Energy Contracts

The Puerto Rico Electric Power Authority (PREPA) has stopped granting new contracts for renewable energy projects pending the results of an evaluation of the costs that PREPA would incur to purchase electricity under 63 of those contracts negotiated under the previous administration. Collaborating with PREPA in this review are the Permit Management Office, the Planning Board, the Energy Affairs Administration, the Department of Agriculture and the Department of Natural and Environmental Resources.

Every renewable energy project requires a contract between PREPA and the project owner called a power purchase agreement (PPA). The PPA includes a price per kilowatt hour that PREPA would have to pay for energy generated by that project. The Executive Director of PREPA has stated that those prices are too high, and are well above what electric utilities are paying outside of Puerto Rico. He noted that PPAs for solar photovoltaic projects (46 of the 63 under review) have been negotiated at 15 cents per kilowatt hour, plus a renewable energy credit of 3.5 cents per kilowatt hour. The 17 wind projects are at 12.5 cents per kwh, rising to 15 cents with the renewable energy credit. The energy credits were awarded in the absence of government guidelines (which are not yet established), although the mechanism was created by Act 82-2010.

The bottom line for the Executive Director is that while PREPA remains committed to increasing renewable energy sources, the terms of the agreements governing how these projects will proceed must be fair for Puerto Rico.

Additional contract provisions that will be examined include an annual price increase of between 1.5% and 2.5% depending on the technology, a monetary penalty imposed on PREPA if PREPA fails to restore lines damaged by a storm within five days, and the lack of provisions requiring installation of equipment necessary to protect the infrastructure from damage caused by large fluctuations in the amount of energy generated by these enterprises.

Lawrence Diamond is a partner in the Newark office of Duane Morris LLP and co-chair of the Duane Morris Puerto Rico Practice and Cuba Business Groups

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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