The Beltway lobbying machine is nothing if not inventive. The latest evidence for this eternal truth is a new report from the Institute for Energy Economics and Financial Analysis arguing that the debt restructuring plan recently hammered out for the Puerto Rico Electric Power Authority (PREPA) will not work as intended, in substantial part because it will hinder "Puerto Rico's transition to renewable energy," undermine "energy security" by creating "over-reliance on imported natural gas," and thus contribute to electricity cost increases even greater than those already envisioned. The report argues instead that the commonwealth should "diversify Puerto Rico's energy mix by increasing investment in renewables."

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With the exception of its obsessions with wind and solar power, about which more below, the aforementioned report offers little more than nitpicking, a rather useless contribution given that the PREPA compromise is the result of a lengthy and difficult negotiation that yielded an actual solution acceptable to a broad array of groups with deeply conflicting interests. PREPA will receive billions of dollars of reduced debt service costs, as well as other significant concessions. That PREPA must undertake a painful reform process and impose rate increases reflects the reality that the restructuring is a compromise and not an utter repudiation of its debts; and PREPA's financial condition and investment needs are such that these reforms would have been unavoidable in any event. The restructuring improves PREPA's condition significantly.

A bit of background is useful. A compromise between Congress and the Obama administration early this summer allowed Puerto Rico to avoid a very likely default on its massive $72 billion debt, of which $9 billion is owed by PREPA. Electricity prices on the island for residential, commercial and industrial customers are higher than those for the U.S. as a whole by 36 percent, 84 percent and 127 percent, respectively. Only Hawaii and perhaps Alaska pay prices higher. In part this is due to a highly inefficient generation mix: Over half of the island's power is generated with oil. In part, it is due to deeply wasteful management: Electricity is given free of charge to every one of the commonwealth's 78 municipalities, to many of its government enterprises and even to some private businesses located in buildings owned by municipalities. PREPA has $1 billion or more in accounts receivable, much of which is owed by other units of the Puerto Rico government.

Moreover, PREPA will need to make large investments — about $2.4 billion — in equipment and infrastructure in order to satisfy new environmental requirements now being finalized by the Environmental Protection Agency, and to move away from the use of expensive oil. Someone will have to pay for these ongoing management problems and for needed new investment; accordingly, by early next year, electricity prices will have increased by over a quarter after having not risen in 25 years other than for increases in fuel costs.

Notwithstanding these hard realities, the aforementioned report argues strenuously that investment in renewables — wind and solar power — somehow will reduce costs and yield other advantages. Well, no. The Energy Information Administration (EIA) estimates that the "levelized" (loosely, spread evenly over the life of the generation facilities) cost of modern gas-fired generation is about $58 per megawatt hour (mWh). For wind on-shore and off-shore: respectively, $57 and $147. For rooftop and large-scale ("thermal") solar generation: respectively, $66 and $180. (Lazard, using somewhat different methodology, has published estimates that are very roughly comparable, with some important exceptions.)

Let us shunt aside the problems with the EIA cost estimates, in particular their evolution over time. Instead, consider the implications of the intermittent nature of wind and solar power: Even in Puerto Rico, renewable electricity is unreliable in the fundamental sense that wind flows and sunlight cannot predicted in ways that allow wind and solar power to be scheduled ("dispatched"). Investment in renewable generating capacity requires additional investment in conventional backup capacity so that blackouts and other important problems can be avoided. That backup capacity is not cheap, and the cost of actual backup power is high on a per-mWh basis because the backup units have to be cycled up and down as wind and sunlight conditions fluctuate. They cannot be operated efficiently. A shift away from oil-fired power to natural gas will yield large efficiencies in generation costs, and will not be afflicted with this problem of unreliability and backup cycling.

There is no single estimate of those backup costs applicable to a given power source or geographic region, in substantial part because of the need to make assumptions about the percent of the time that the backup units would be producing power (the "capacity factor"). That parameter will vary with local conditions. My own estimate (pp. 26-31), based on EIA cost data and highly conservative assumptions, is $368 per mWh. That is for all renewables as a class for the U.S. as a whole; the figures for Puerto Rico might be lower. But any plausible assumption about that backup cost reduces further the competitiveness of renewables, and the argument in the aforementioned report that wind and solar power can provide efficiencies relative to gas-fired power is, bluntly, preposterous.

The report does not define "energy security" or "over-reliance on imported natural gas" — among the asserted problems yielded by the shift to gas-fired generation — but these arguments are deeply problematic at an analytic level. "Energy security" is meaningless in the context of oil or liquefied gas deliveries to Puerto Rico, unless we hypothesize that a naval blockade of the island would be feasible for some unidentified foreign power, against deliveries from the U.S. mainland. Seriously? More plausibly, defense against threats by terrorists to attack import facilities would not be difficult to implement; and terrorists can attack renewable facilities also.

And even the environmental advantages of renewables often asserted are deeply problematic. As just noted, the need to avoid blackouts means that backup generation capacity must be cycled up and down depending on sunlight and wind conditions. But such cycling of conventional units means that they cannot be operated efficiently, the result of which is an increase in the output of conventional effluents and greenhouse gases per mWh generated; and recent analysis of Colorado and Texas shows that the cycling problem is sufficiently severe that it yields an increase in the absolute amount (not merely the amount per mWh) of conventional effluents and greenhouse gases emitted as the market share of renewables rises.

Attempting to grasp any straws that they can, the authors of the aforementioned report complain also that the "fees being charged by financial consultants and lawyers" in the negotiation and reform process "are excessive," a classic exercise in forest/trees myopia in the context of a $9 billion debt, $1 billion or more in receivables and $2.4 billion in needed investment. This complaint is so trivial as to be laughable; the fees are microscopic compared with the outrageous costs and destructiveness of renewable power, even if we agree for discussion purposes that they are "excessive" in some metaphysical sense.

What is not trivial is the larger reality that the PREPA solution provides a viable path forward for the commonwealth. The grinding tug-of-war over Puerto Rico debt proved that such agreements are rare achievements to be celebrated, notwithstanding the complaints of interest groups grandstanding for the renewable power silliness.

Zycher is the John G. Searle scholar at the American Enterprise Institute.


The views expressed by contributors are their own and not the views of The Hill.