PPA is All That’s Needed for Puerto Rico to Secure Construction of the Power Plant With Most New Energy in the Least Time (2031)

Puerto Rico risks losing the largest and fastest new source of firm power in its pipeline if the signing of the pending power purchase and operating agreement (PPOA) with Proyecto Hostos runs into next year.

“It’s hard to say exactly when that must be, but to play it safe and not miss the production and funding windows that will most benefit Puerto Rico, we’re thinking we should sign in the coming months, hopefully end of the year,” Hostos developer Rafael Vélez Domínguez told Caribbean Business.

At 700 megawatts (MW), the privately financed natural gas plant to be built in San Pedro de Macoris in the Dominican Republic would add more new firm generation than any other single source expected within the next five years, practically matching the structural generation deficit LUMA Energy has told regulators that the island faces.

One of the windows of opportunity Vélez refers to is industrial, a place in the production line at Siemens Energy. The other is financial, a group of investors waiting for the signed contract. Neither will stay open indefinitely, assures the founder and CEO of Caribbean Transmission Development Company (CTDC).

The Siemens manufacturing window

The first window comes from Siemens Energy, which has committed to securing Hostos’ position in its production queue so that the plant’s gas turbines and other equipment arrive in time for the planned 2031 opening.

That position has become unusually and suddenly valuable. The rush to power artificial intelligence data centers has swamped the handful of companies that build large gas turbines, Siemens Energy being one of them.

Siemens reported a gas turbine backlog of 69 gigawatts (GW) in August, with lead times of three years or more, and told investors in June that it was booked out through fiscal 2028 and that slots for 2029 and 2030 were filling up very quickly, according to S&P Global.

GE Vernova, another of the few large builders, reported 116 GW under contract or reserved at midyear against annual production capacity of roughly 10 GW, according to published reports, and industry analysts put waits for the largest turbine classes at five to seven years.

The squeeze is already delaying projects elsewhere. Data-center developers are paying nonrefundable deposits to reserve slots, often outbidding utilities, and BloombergNEF estimates that the cost of a new combined-cycle gas plant rose 66% in two years, to $2,157 per kilowatt in 2025.

In the U.S., Engie withdrew a proposed Texas plant after turbine delays, and the developer of a 1.3 GW Ohio plant could not obtain the equipment its design required, according to published reports.

“Siemens has committed to securing our position in the queue so that the turbines and the rest of the equipment are ready for 2031,” Vélez said. “But Siemens won’t wait forever. To keep that position, they need a signed PPOA and initial payments.”

“Siemens has committed to securing our position so that the turbines and the rest of the equipment are ready for 2031. But Siemens won’t wait forever. To keep that position, they need a signed PPOA and initial payments.”

Vélez did not specify how long the slot can be held. Siemens Energy also told investors on a June 29 pre-close call, as reported by S&P Global, that it aims to convert reservation agreements into firm orders within six to 12 months on average. If Hostos lost its place, that is, the wait times now common in the market suggest that its hope for a 2031 opening would be lost.

The financing window

The second window is financial. Hostos is designed to be financed entirely with private capital, about $2.5 billion, without federal recovery funds or the Puerto Rico Electric Power Authority’s (PREPA) balance sheet.

But because PREPA’s bankruptcy remains unresolved, part of that capital will require a credit enhancement, Vélez told an audience at Georgetown University’s McCourt School of Public Policy earlier this month, during the event “Sparks of Change: Energy Reform and Economic Policy in the Caribbean.”

“This applies to practically all of the private cogeneration projects being tendered in Puerto Rico for the new generation that is urgently needed,” he said.

Vélez added that Hostos has been in talks with the U.S. Department of Energy and feels confident it can obtain the enhancement through the agency, “but before that, and to take advantage of that opportunity, the first requirement is to sign the PPOA with the local government.”

The two windows are linked, as Vélez told the Georgetown audience. The PPOA unlocks the financing, and the financing pays for the equipment that keeps the manufacturing slot.

Hostos submitted its proposal to Puerto Rico’s Public-Private Partnerships Authority (P3A) in May, according to Metro Puerto Rico, a Caribbean Business sister newspaper. As Vélez described the process, P3A sent CTDC a second request for information on Oct. 14, adding to one it sent in July, after preliminarily concluding that the offer met the parameters required of unsolicited proposals.

The two windows are linked, Vélez told the Georgetown audience. The PPOA unlocks the financing, and the financing pays for the equipment that keeps the manufacturing slot.

Next come meetings to begin discussing and negotiating the PPOA, with the aim of reaching an agreement at the end of this year or early next year, he said. Hostos maintains that the second request does not alter its timetable. The authority must still decide whether the project is needed and whether it can be negotiated directly with the developer or must be opened to competition.

A roster of big-name partners

Siemens Energy and the engineering firm Jacobs are two of several major energy companies Hostos is signing to help develop and build the project. Vélez expects to announce others in the coming weeks.

“Jacobs is our technical and engineering advisor and Siemens is a key partner, and they are two of several firms we are signing with. We expect to announce more in the coming weeks,” Vélez said. “Together they will show that Hostos has the world-class team it takes to execute a project of this magnitude and complexity on time and on budget.”

The project already carries federal backing: a Presidential Permit with the Department of Energy, needed to build the project’s cross-border submarine cable across the Mona Channel.

The urgency extends beyond the developer’s schedule. LUMA Energy has told the Energy Bureau that Puerto Rico faces a structural generation shortfall of 700 to 850 MW, the cause of most shortfall events every month.

As CB reported in September, of the projects that could add firm, dispatchable capacity within about five years, Hostos carries the fewest unresolved dependencies: the 3,000 MW flexible generation procurement and the 600 MW Costa Sur replacement are frozen at the Financial Oversight and Management Board, the 400 MW temporary power contract collapsed, and AES’ planned gas plant is largely a replacement for its retiring coal units, for a net gain of at most 190 MW.

Gov. Jenniffer González Colón’s Oct. 23 energy address outlined the administration’s own pipeline: 530 MW of battery storage under construction, 244 MW of new peaking and reserve units, five solar projects totaling 350 MW and about 2,000 MW of renewable and storage projects in development.

Storage shifts energy rather than adding firm supply, and solar is intermittent. Among new firm generation, Hostos’ 700 MW would be the largest single net addition on the horizon.

That puts the spotlight on the PPOA process. Hostos does not depend on a new LNG terminal or pipeline in Puerto Rico, and it is not financed through PREPA’s balance sheet. What it needs is a signed contract while the manufacturing slot and the investors are still in place. That process is off and running, and the clock is ticking. The only question now is whether it crosses the finish line on time.