Puerto Ricans are tired of relentless blackouts. Cash-hungry solar sales reps are knocking on their doors.

(Nota del editor: lea este artículo en español.)

BAYAMÓN, PUERTO RICO — Carmen Del Valle La Luz juggles a bunch of tasks in a typical day: she works full time at a credit union, drives her two teenage daughters to school and extracurricular activities, and cares for two dogs and a cat. 

Frequent blackouts don’t make her life any easier. Since Hurricane Maria devastated the island in 2017, the lights have gone out in her home about every other week. When that happens, she has to throw away groceries and find somewhere for her daughters to complete homework assignments, which raises tensions in her household. 

Del Valle La Luz lives in Bayamón, a suburb of Puerto Rico’s capital, San Juan. Eager for a solution to the blackouts, she signed a lease for a solar-panel and energy-storage system, which was being installed when Sherwood spoke with her in mid-October. 

“I’ve learned in the past five years that my peace is worth more,” she said. 

Del Valle La Luz is joining a growing number of Puerto Ricans turning to solar energy to stop depending on an incompetent electric grid. That’s led two publicly traded solar providers to elbow in, selling solar and essentially taking customers from the utility, which needs to raise revenue to pay off its massive debt.

Even with the influx of solar, the island is on track to fall far short of its renewable-energy goals. 

Residential solar companies have reigned during Puerto Ricans’ frustration with the island’s decrepit power grid, with billboards promoting solar-panel systems dotting the island’s highways and sales reps becoming a common sight at supermarkets. 

Almost 10% of households in Puerto Rico now have rooftop solar, accounting for more than twice the amount of solar capacity than the solar farms on the island. About 80% of them have battery storage, compared to about 13% on the mainland US. 

Del Valle La Luz used to pay Luma, the utility’s private grid operator, between $200 and $280 a month. But under her 25-year contract with residential solar provider Sunrun, she now pays $173.64 a month to lease 17 panels and Tesla battery storage, subject to a 2% increase each year. 

Luma Energy, a joint venture between Houston-based Quanta Services and Canadian Utilities Limited, began operating Puerto Rico’s grid in June 2021. Blackouts have become longer and more frequent under its management, according to data it reports to the energy bureau. Luma didn’t provide comment for this story. 

While that’s led to an explosion in residential solar, credit-score requirements and low return on investment for low-consuming households have limited access to residential solar for poorer, rural communities on the island. Blackouts in those areas are generally more severe, given the challenge of maintaining power lines in mountainous areas covered in vegetation. 

Three solar companies — Generac Holdings, Sunnova Energy, and Sunrun — were initially selected to receive a total of $400 million from the DOE’s Puerto Rico Energy Resilience Fund, a pot of money launched last year intended to improve access to solar energy for poorer Puerto Ricans. Generac didn’t respond to a request for comment. In a statement, Sunnova said it had “successfully deployed some systems” in Puerto Rico, but didn’t have “any further details to share at this time.”

Sunrun has since withdrawn from the program. The DOE declined to comment on why Sunrun pulled out from consideration for funding.

Companies like Sunrun and Sunnova are essentially finance firms

Sunrun and Sunnova tend to partner with third-party businesses to provide door-to-door marketing and sales. That has been known to lead to misleading statements to customers given the lucrative commission salespeople stand to earn, according to complaints filed with the Better Business Bureau and the Puerto Rico Department of Consumer Affairs.

The companies then buy panels from manufacturers, many of them from China, and batteries from companies like Tesla and Sunbeat. The system is then often installed by a third-party contractor. In Del Valle La Luz’s case, it was a local business, Maximo Solar. 

What’s left are the loans, leases, and tax credits. 

Over the years, solar leases have become more popular in the US, which is good for companies like Sunrun and Sunnova because leasing allows them to retain ownership of the systems and the tax credits associated with them. 

Most solar panels are manufactured in China. Few are American-made, and though currently none are made on Puerto Rico, one company recently announced it would open a factory in the northwestern corner of the island in a facility owned by Hewlett Packard, which it once used to manufacture ink cartridges. That company, SolX, is a new venture started by two former Sunnova executives. 

The Investment Tax Credit, for instance, covers 30% of the cost of a solar system and is discounted from a company’s or individual’s income tax. Companies like Sunrun and Sunnova can claim tax credits for the systems they lease, and then sell them to investors for cash. Most Puerto Ricans would not have access to these tax credits because they do not file federal income taxes. 

Sunrun and Sunnova reported selling $227.6 million and $149.1 million worth of ITC credits, respectively, in their second-quarter earnings reports for this year.

That money doesn’t necessarily bring down the cost for those who lease the systems, Lauren Rosenblatt, cofounder of Barrio Eléctrico, said. Her organization, based in the coastal town of Isabela, provides affordable solar systems in part by setting up an entity that can capture the tax credits and passing them on to residents.

“When Sunrun and Sunnova come and they provide systems to people with means, they charge the same prices and profit margins without the tax credit, and then they bring in the tax credit, and that’s gravy for them,” Rosenblatt said.

Before the Inflation Reduction Act of 2022, the only way for solar companies to monetize their tax credits was to sell an ownership stake in the systems to tax-equity investors, often large banks. Such agreements are still common.

This model is what made it difficult for Sunrun to qualify for DOE money, because the DOE is required to have an ownership stake in the projects as well. Houston-based Sunnova declined to answer questions about the ownership structure of its DOE-funded projects. 

Total renewable-energy tax-credit monetization for 2024 is on track to exceed $40 billion, according to Crux, a financial-services company that facilitates tax-credit deals.

Sunrun and Sunnova also package leases and loans and sell them to investors as asset-backed securities. Sunnova’s next batch of asset-backed securities consists of 11,643 rooftop systems in Puerto Rico, according to a recent filing.

Last year, solar ABS transactions reached a record high of $4.3 billion in total and are set to reach another record in 2024, according to research firm Wood Mackenzie. 

Solar loans are considered “prime” because they typically require a high credit score, making them a safe bet for investors. Del Valle La Luz needed to get her score up to a 650 — taking out new credit cards and making sure to make her payments on time — before getting approved for a Sunrun lease.

A bankrupt utility scraping for cash

The island’s utility, the Puerto Rico Electric Power Authority, or PREPA, has been in bankruptcy since 2017, a few months before Maria hit. It has about $10 billion in creditor claims, of which $8.5 billion is owed to bondholders, who include deep-pocketed Wall Street trading firms.

Among them are hedge funds, like Angelo Gordon and BlueMountain Capital Management, who bought PREPA’s debt at a low price and are now asking for a bigger return. Puerto Rican municipal bonds are tax-exempt, which made them enticing for investors and easy for the island to take on debt.

PREPA proposed a $2.6 billion payout to creditors, based on its calculations of how much it could reasonably raise electricity prices for Puerto Rican households. 

“Every dollar we pay creditors, PREPA will have to raise electricity rates,” said Matthias Rieker, a spokesman for the oversight board managing PREPA’s bankruptcy.

According to PREPA, a Puerto Rican household can’t afford to spend more than 6% of its income on energy, so its payout plan is based on that maximum rate increase. But given that the median household income on the island is $25,621, the revenue of a “reasonable” price hike didn’t cut it for bondholders, who have launched a legal battle to try to secure a bigger payout. 

Residents in Puerto Rico already pay about 25 cents per kWh, compared to 16.41 cents per kWh on the mainland, meaning Puerto Ricans generally pay about 50% more for power than those on the mainland.

Judge Laura Taylor Swain, who is presiding over the bankruptcy, said in a July hearing that bondholders are “expansively aggressive in their attack” and are “likely delusional” because the revenue is simply not there to satisfy their demands. 

PREPA said in its most recent annual report that it expected revenue of $3.9 billion for fiscal year 2024, about $1 billion less than the previous year, in part because of the adoption of rooftop solar. 

The financial-oversight board sued in July to overturn a bill passed by the state legislature that extends net metering for residential solar customers through 2031. Net metering allows Puerto Ricans to get credits from the utility for excess energy they put into the system, and it’s one of the government subsidies for solar energy that average residents have access to.

The program promotes residential solar, which means less revenue for the utility, and that “may impact the feasibility” of its plan to pay its debts, the financial-oversight board said in its lawsuit. If there are fewer ratepayers, that means PREPA will have to raise prices for energy from the grid by a higher percentage to pay its debts, Rieker said. 

The oversight board said the island’s energy regulator, not the legislature, should study and decide what happens with the island’s net-metering program. 

The truth of the matter is the oversight board wants to make sure the bondholders get paid, said David Ortiz, Puerto Rico program director for Solar United Neighbors, a nonprofit that promotes solar co-ops. “They’ve seen 120,000 people go solar and they’re afraid they’re not going to be able to pay the bondholders.”

Sharon Cedeño Natal lives in Adjuntas, a town nestled in the island’s mountainous interior. She owns Colmado Alto de Cuba, a “chinchorro,” or a convenience store that also serves as a neighborhood watering hole.

Her customers are mostly older gentlemen from the neighborhood who sip Coors Light or Medalla beer over rounds of domino. “In this job you have to be a therapist, doctor, everything,” she said. 

Before getting a solar-energy system with the help of a local nonprofit, she was subject to frequent outages that would cost her sometimes $2,000 in lost refrigerated goods like meat, eggs, or ice cream. She would spend about $40 a day on gas that powered her backup generator. 

“Now we don’t even notice” when the power is out, she said. That is until neighbors, some of them with perishable medications like insulin, walk over to use her refrigerators or power outlets. 

She used to pay about $500 a month to the utility. Now that she owns the solar system outright, the utility owes her credits for the energy she puts back into the system. Without net metering, Cedeño Natal would have to pay to be connected to the grid, even if she gets nothing from it. 

“The incentives are given to companies but not to our communities,” said Arturo Massol, executive director of Casa Pueblo, the nonprofit that helped Cedeño Natal get a solar-energy system.

The island is far behind on its clean-energy goals 

Three days after Hurricane Maria, New York-based natural-gas company New Fortress Energy approached PREPA to begin talking about how it could be a part of the island’s energy recovery, CEO Wes Edens said in a May earnings call. 

Last year, a subsidiary of New Fortress — Genera PR — was awarded a 10-year contract to manage PREPA’s power plants. 

Genera has been pushing for more power plants to be converted to natural gas, which benefits its parent company, said Tom Sanzillo, director of finance for the Institute for Energy Economics and Financial Analysis, a US-based think tank that describes itself as nonpartisan.

“They have a direct and clear conflict of interest and should never have been chosen,” said Sanzillo, a former deputy comptroller for the State of New York.

This comes as Puerto Rico is falling way behind on its ambitious renewable-energy goals. In 2019, the island’s legislature passed a law, Act 17, declaring the island would be 100% reliant on renewable energy by 2050, with an interim goal of 40% by 2025. 

The island’s renewable-energy consumption is at 9% today, up from 6% in 2022, according to an estimate by IEEFA. That breaks down to 7% residential and commercial solar, and 2% utility-scale renewable energy.

Still, the DOE released a report earlier this year that found the island can reach that goal. The report takes into account rooftop solar adoption, but also assumes an increase in utility-scale renewable energy. 

While residential solar has soared, Puerto Rico’s grid has yet to generate any additional utility-scale solar since Maria, though some plans have been proposed. Utility-scale solar farms also face opposition from some environmentalists and farmers, who say they take up land that could be used for agriculture.

Wood Mackenzie, the renewable-energy research firm, forecasts that 5 GW of solar capacity will be added in Puerto Rico in the next decade, but only 440 MW will come from utility-scale solar. 

“Low investment in transmission infrastructure, slow permitting processes, challenged site availability, and limited grid resiliency limit the expected growth of the utility-scale segment,” a Wood Mackenzie analyst wrote. 

Brannen G. McElmurray, chief development officer at New Fortress, told analysts in May that the company expected “the island to be powered simply by natural gas supplemented with solar and battery.”

“And that is going to be Puerto Rico’s future,” McElmurray said. “Our business is perfectly positioned to capture this growth, and our job is to drive that transition as fast as possible. 

“What is unique about Puerto Rico is, there is complete alignment between our strategy, public policy, and just the sheer economics of what will happen.”

Puerto Rico does not produce any natural gas, petroleum, or coal. It’s also subject to the Jones Act, which requires that goods moved between US ports are on ships that are US-flagged, US-built, and staffed by US personnel. There are no LNG tankers compliant with that law, effectively shutting out the island from the US domestic natural-gas supply and forcing it to pay for more expensive foreign gas, mainly from Trinidad and Tobago. 

PREPA struck a $1.5 billion contract with New Fortress Energy in 2019 to convert a diesel plant to natural gas, which it would provide through an import terminal it constructed in San Juan Harbor. Without regulatory approval, New Fortress about a year ago built and opened an LNG terminal in San Juan to receive shipments. 

Earlier this year, PREPA used funding from the Federal Emergency Management Agency to purchase 350 MW of gas-fired temporary generators from New Fortress for a maximum payable amount of $306.6 million.

Genera is seeking regulatory approval to burn natural gas at its power plants in Mayagüez and Palo Seco. New Fortress’ natural-gas terminal in San Juan is near Palo Seco. 

Not only does the utility’s push toward natural gas set back the island’s renewable-energy goals, it also keeps the economy reliant on outside companies, Massol of Casa Pueblo said. 

Many say Puerto Rico’s economy suffers from the fact that much of the money spent on the island doesn’t stay there. That’s true whether somebody pays their power bill to the island’s privatized utility or to private solar providers. 

“Within the colonial context of Puerto Rico,” Massol said, “there are those who aspire simply for an energy transition where we pay Texans for the sun.

“That would be the same model, just different technology.”