By The Star Staff
New Fortress Energy (NFE), the parent company of Genera PR, revealed plans this week to increase the volume of natural gas supplied to Puerto Rico to about 300 TBtus (trillion British thermal units), and established a goal to have the island powered by natural gas supplemented with solar and battery systems.
Using natural gas will save the island government about $1 billion per year, the equivalent of the Education Department’s budget, the firm said.
“Simply switching fuel from distillate fuels to gas will save them billions at no capital cost to the island and cut emissions dramatically,” said Wes Edens, NFE’s chairman and chief executive officer. “And this then paves the way for the next leg of this, which is exactly what we expect [the government] to do now, which is now to go out and build new efficient generation plants to replace the old power plants. This will increase the reliability of the system dramatically; it’ll extend the term of our contracts and save even more money for Puerto Ricans.”
“What’s left for us in Puerto Rico in our business is simply long duration, highly sustainable, highly predictable gas contracts for us all, which is amazing,” he added. “That’s the outcome that we’re looking for. And with this today, we can see the path to getting there exactly as we predicted.”
The plans were revealed during the firm’s first quarter investor presentation on Wednesday. The company reported an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $340 million in the first quarter of 2024 and a net income of $57 million.
Puerto Rico must draw all of its energy from renewable sources by 2050, according to the law.
Brannen McElmurray, the managing director for NFE in Puerto Rico, said the firm increased the amount of gas supplied to Puerto Rico’s power plants to 105 TBtus after signing a contract to supply 80 TBtus of additional natural gas in March. However, the plan is to eventually supply 300TBtus of natural gas. NFE is the parent company of Genera PR, which is the private operator of the power plants owned by the Puerto Rico Electric Power Authority.
McElmurray said the company’s plan is to make minor modifications to the Aguirre and Mayagüez power plants, which provide about 600 megawatts (MW) of energy, to run on natural gas.
“Then there are additional conversion opportunities which roll up to about 1 gigawatt [1,000 MW],” he said. “There are plans on the board and active steps being taken on the procurement side to build new generation. Genera’s responsible for about half and then partly responsible for the P3 [public-private partnership] and an ongoing procurement. But altogether, this will roll up eventually to be about 1 gigawatt of additional power that will be there long term.”
There are plans to build 450 MW of combined cycle power plants and peaker units.
“The end state of this is, we expect, all oil and heavy fuel oil power on the island to be retired and the island to be powered simply by natural gas supplemented with solar and battery, and that is going to be Puerto Rico’s future. Our business is perfectly positioned to capture this growth and our job is to drive that transition as fast as possible,” McElmurray said. “And so this is simply a question of time and our job is to accelerate that time as fast as possible and to convert these cash flows into long-term durable earnings that further increase the value of our franchise.”
NFE arrived in Puerto Rico in 2017 and opened up a natural gas terminal in June 2020, right in the middle of the COVID pandemic, and entered into a contract to provide about 25 TBtus of gas to San Juan.
In 2023, in response to a Federal Emergency Management Agency (FEMA) process, the company was awarded the contracts to build two additional power plants, comprising 425 million MW of power in total.
“When FEMA decided to end the contract, the decision that was made was to not only keep the power plants on and keep them using gas but to also greatly expand the use of natural gas around the island,” Edens said. “The goal from the Puerto Rican government is very simple. First, replace distillate fuels, diesel and fuel oil, with gas. It’s much cheaper, it’s much cleaner and could be done throughout the island with our extensive logistics chain.”
“So when the government terminated the agreement, they also put out for the bid a contract to provide gas for roughly twice as much fuel as what is being used by FEMA,” he continued. “The 40 TBtus that they were using previously now goes to 80. And the term that they are using it for, it extends from one year to four, twice as much fuel, much longer duration. What we said before is exactly what we expected to happen, sell more fuel at a lower price, so we make less money on the margin but we make it up on volume.”