Puerto Rico Aggressively Pursuing wind Energy

Today, Puerto Rico’s Governor, Luis G. Fortuno, signed into law several measures that clearly define Puerto Rico’s public policy regarding renewable energy. The newly enacted Act for a Public Policy for Energy Diversification Through Sustainable and Alternative Renewable Energy ("Energy Diversification Act") and Green Energy Incentives Act ("Incentives Act") set specific renewable energy production goals and create economic incentives to facilitate the investments required to meet those goals.

"We need to aggressively encourage the development of renewable energy sources for the benefit of all that reside and work in Puerto Rico. Establishing the right public policy will be the anchor to make it happen," said Governor Fortuno.

Firstly, the new law establishes public policy rules to increase and diversify energy generation by requiring the purchase and sale of sustainable and alternative renewable energy. Specifically, it gives way to a Renewable Portfolio Standard ("RPS"), which will require retail energy providers in the Island to produce or purchase a specified percentage of their electricity from renewable energy sources. These portfolio standards set a hard target of 15 percent renewable energy production by 2020 and require retail energy providers to prepare a plan to reach 20 percent renewable energy production by 2028.

In addition, the measure establishes Renewable Energy Certificates ("RECs") as the main financial mechanisms to achieve these goals and validates them as legally-recognized assets that can be purchased, sold, traded, and transferred separately from electric power. It also provides for the creation of a permanent Renewable Energy Commission, comprised of five members ex officio and two named by the Governor for a four year term, one of which must come from academia.

"RECs validate the value of renewable energy over conventional methods of producing electricity and in many jurisdictions have helped incentivize the cost-effective establishment of renewable energy facilities," said Jose Ramon Perez-Riera, Secretary for Economic Development and Commerce, who, along with other public officials, will have a seat in the newly created Commission. The Department of Economic Development and Commerce is the public entity spearheading the Government’s energy reform efforts.

Furthermore, the Governor signed a second law that provides a series of short, medium and long-term economic incentives to encourage the creation of a new and solid renewable energy industry. This second law creates a Green Energy Fund ("GEF"), to be established by the Department of the Treasury as a special, independently administrated fund. Through this mechanism the Government of Puerto Rico will co-invest $290 million in renewable energy projects and other initiatives over the next 10 years. The GEF initiates with a $20 million injection in 2011. Through the GEF, the Puerto Rico Energy Affairs Administration will offer cash rebates of up to 60 percent for individuals, and 50 percent for companies, on the cost of installing residential and industrial projects not exceeding 1 MW of capacity. The GEF also provides flexibility for the Government to establish new investment or incentive programs in the future.

For companies dedicated to the production of renewable energy on a commercial scale, the new Incentive Act also provides tax benefits in the form of significant partial exemptions from income taxes, property taxes, and municipal taxes; super-depreciation of buildings, structures, machinery, and equipment; and eligibility for tax-credits related to the use of locally-manufactured products, job creation, and research and development.

"Renewable energy policies and sound economic incentives are key to attract players of all sizes that can contribute to the creation of a renewable energy industry in Puerto Rico, jumpstart competition and be an active part of the solution. This can lead to innovation-based development and new job creation, while attending concerns over high energy prices and environmental effects of petroleum-based generation emissions. It is a win-win for all," added Perez-Riera.

The Fortuno Administration has a mandate of reducing the cost of energy and ensuring that electric power is affordable, reliable and sustainable for all residents. Currently, electricity prices in Puerto Rico are approximately twice the United States average. This is due in large part to the Island’s current dependence on oil for approximately 70 percent of electricity production.

The Island’s overall energy reform banks on the diversification of the energy generation mix. Currently, petroleum comprises 69 percent of the mix, followed by natural gas at 16 percent, coal at 15 percent and renewable sources at 1 percent. The goals forecasted by the Administration for 2015 contemplate reducing the use of petroleum to 48 percent and keeping coal use constant, while increasing the use of natural gas to 24 percent and renewable sources to 12 percent.

"Diversification of our energy sources can not wait any longer. The cost of electricity is undoubtedly the number one obstacle to Puerto Rico’s competitiveness and one of the main concerns of our people. We will be relentless in our efforts to reduce the cost of electricity for all and we are confident that our energy reform legislation will have a profound influence across the board," concluded the Governor.

Already recognized renewable energy players, such as Pattern Energy Group LP, have announced plans to be part of the action. Secretary Perez-Riera confirmed that just last month one of Pattern’s subsidiaries entered into a 20-year power purchase agreement (PPA) with the Puerto Rico Electric Power Authority (PREPA) for the sale of 75 megawatts (MW) of wind energy that will be produced at their proposed Pattern Santa Isabel Wind Power Project.