With Major Hurricane Vulnerability, Puerto Rico Develops Landmark Microgrid Regulations*

The cost of wind and solar energy keep falling, joined by batteries for energy storage. But while the technology of local grid power has become inexpensive, U.S. development of microgrids has lagged. Trapped by a bankrupt utility, high vulnerability to climate change, and high cost fossil-fueled electricity, Puerto Rico has been no exception. However, the island’s landmark microgrid regulations could open the small grid floodgates.

The regulations, adopted in May 2018, make clear rules for the structure, ownership, technology, and size of microgrids. In all, the regulations address three of the five major barriers to microgrids identified in ILSR’s 2015 report, Mighty Microgrids (see graphic, right). At the time, most states had outright bans or legal gray areas regarding microgrids serving multiple customers.

Read more about the state of microgrid regulations, the opportunities, and the major barriers in ILSR’s 2015 report, Mighty Microgrids.

Of course, the situation on Puerto Rico is rather unique, as expressed by its regulator, the Energy Commission, upon release of these rules:

“Given current circumstances, including continued outages, [the island’s utility] PREPA’s limited resources, and volatile fossil fuel costs, among others, the ability to receive power from a microgrid outweighs any costs that may arise from complying with these regulations.”

For more on the impacts of a colonial past (and present) for Puerto Rico’s energy system, see John Farrell’s GreenTech Media commentary,  Can Puerto Rico Overcome a Colonial Past to Build a Greener Grid?

Three Types of Microgrids

The regulations provide three structures for microgrids:

• Personal microgrids serve up to two customers that own the system;
• Cooperative microgrids serve multiple customers, with a minimum 35% ownership stake; and
• Third party microgrids serve multiple customers, with ownership other than the customers

The Commission left the door open to other ownership structures, but did not include others in the original regulation.

Three Technology Types

The microgrid regulations also offer three approved forms of microgrid technology:

• Renewable, where at least 75% of output is from renewable energy resources like solar and wind;
• Combined-heat-and-power, where at least 50% of the energy inputs are captured as usable heat or electricity; and
• A hybrid that combines the two technologies.

The following table summarizes the microgrid structures, size limitations, number of potential customers, power sales rules, and ownership limitations. Size limits only apply to third party owned microgrids, with Personal and Cooperative microgrids having no size limit (but somewhat different disclosure and reporting requirements). Power sales to non-microgrid customers was another key element in the rules, e.g. if the microgrid produces excess power. Personal and cooperative microgrids are allowed to do so incidentally, but exporting power can’t be a default feature of the microgrid. Third party microgrids are prohibited from sales to third parties.

Summary of Puerto Rico Microgrid Types

Third Party Microgrids

Since third party microgrids will by the only ones selling power (as opposed to simply serving customers that own the system), the regulations go into greater detail about the rules for rates charged by these systems. The Commission toyed with a price cap, but ultimately discarded it. Instead, it applied basic rate protections, such as uniform rates across customer classes and non-discriminatory rates. The regulators did allow for time-of-use rates and other structures to incentivize microgrid customers to shift their use accordingly. All rates must be reviewed by the Energy Commission.

Interestingly, if a third party microgrid becomes unable to serve its customers, those customers have the first right to purchase the microgrid. A promising opportunity for more local ownership!

For more on how microgrids and other distributed energy resources can make Puerto Rico more resilient, listen to the Local Energy Rules podcast with Marcel Castro Sitiriche, Professor of electrical engineering and Co-director of Cohemis at the University of Puerto Rico Mayagüez.

Two Other Key Rules, Contracts and Filing Fees

Microgrid service contracts may be as long as 20 years, but no more. Customers may be required to pay an exit fee, if they wish to decline service within five years. They may, however, transfer their service to another customer (if they move, for example) with no fee.

The Energy Commission clearly intended to keep barriers to entry low, setting filing fees for microgrids to a minimum. Small cooperative microgrids have to pay just $50, and large cooperative or third-party microgrids have a fee of $100.

*One Big Remaining Barrier: Interconnection

The regulations supporting microgrid development in Puerto Rico were finalized by the Energy Commission in May 2018. Microgrids were allowed to operate in “island mode” (exporting no power to the grid) pending release of interconnection standards by the utility, PREPA. These standards were due 120 days from the date the final microgrid regulations were released.  However, utility regulators criticized the island’s utility, PREPA, for failure to produce the necessary interconnection rules nine months later, in March 2019. The rules are still pending, with the utility blaming its failure to produce them onto  bankruptcy and short staffing.

Further Reading:

• ILSR’s 2015 report, Mighty Microgrids
• The April 2019 Local Energy Rules podcast interview with Marcel Castro Sitiriche
• John Farrell’s October 2017 commentary, Can Puerto Rico Overcome a Colonial Past to Build a Greener Grid? 

This article originally posted at ilsr.org. For timely updates, follow John Farrell or Marie Donahue on Twitter or get the Energy Democracy weekly update. Also check out over 70 episodes of the Local Energy Rules podcast!

Photo credit: Walmart via Flickr