Puerto Rico Has a Way Out of Its Energy Crisis, power expert says
Ex-PREPA, LUMA and Genera executive Daniel Hernández says the island lacks options, not fuel; his six-point plan faces a costly gas contract, stalled financing, a frozen procurement and a deficit of up to 850 MW
Puerto Rico is not on the verge of running out of fuel. It is, rather, on the verge of running out of options.
That according to Daniel Hernández Morales, whose career spans 35 years as a senior executive at the Puerto Rico Electric Power Authority (PREPA), LUMA and most recently Genera PR. He ran the generation fleet for PREPA at the end of his tenure (2018-2021), directed market transformation and renewables at LUMA (2021-2023), and returned to run the fleet as head of operations at Genera (2023-2025).
The island, along with the rest of the world, faces a global energy crisis fueled by geopolitical conflict and disruptions at maritime chokepoints, including the U.S.-Israel war with Iran and the subsequent blockades of the Strait of Hormuz.
But the island’s energy crisis, argues Hernández, is driven not by scarcity but by structural fragility, contractual missteps, and years of deferred maintenance that now carry a steep price. He is proposing a six-strategy path out of the local crisis.
“We need to move decisively. If we don’t execute now, the next crisis will be worse than the one we’re trying to solve.”
Daniel Hernández, ex PREPA, LUMA and Genera executive
The price and supply shock began Feb. 28, when military action among the U.S., Israel and Iran shut most tanker traffic through Hormuz, the passage for roughly a fifth of the world’s oil and liquefied natural gas. Brent crude, which started the year near $61 a barrel, peaked at $126 in March. The World Bank estimates global oil supply fell by 10.1 million barrels per day that month. Renewed restrictions after a brief June reopening keep Brent above $102.
Puerto Rico, which imports all of its oil and generates the bulk of its electricity from fossil fuels, is especially exposed. The cost is already on customers’ bills. The Energy Bureau approved a record 33.86 cents per kilowatt-hour for October through December, 18% above the prior quarter, adding $42.27 a month for unsubsidized residential customers.
The problem is cost, not supply
Hernández, who has published the energy newsletter Puerto Rico Energy Transformation (PRET) since January 2025, explains that the island’s two main conventional fuels, diesel and Bunker C, continue to arrive without interruption.
Together, they account for roughly 40% of the energy used to produce electricity in Puerto Rico, and the fuel stored in PREPA’s tanks is sufficient to sustain generation for weeks at a time, he told Caribbean Business.
In terms of the fuel, he explains, the problem is not availability but cost, in turn driven by two forces. On the one hand, global conflict has driven diesel and Bunker C prices sharply upward, and Puerto Rico is absorbing the full impact.
On the other, natural gas remains the cheapest conventional fuel available to Puerto Rico, costing roughly one-third of diesel, but the island cannot fully benefit from it because the San Juan natural gas terminal, operated by New Fortress Energy, has become the system’s most vulnerable entry point.
A gas terminal with no backup
Every two weeks, the tanker supplying gas must be removed and replaced, forcing the plant to switch to diesel for nearly 20 hours. Hernández notes this recurring “fuel swap” adds millions of dollars in extra costs each month, and the Energy Bureau has already identified it as a major contributor to recent rate increases.
The situation is worsened by PREPA’s take-or-pay contract with New Fortress for the supply of natural gas. The agreement requires PREPA to pay for a minimum volume of natural gas whether it is consumed or not. Because several natural gas units in San Juan and Palo Seco are out of service, with Hernández estimating that seven were recently offline at one point, Puerto Rico is paying for gas it cannot use.
According to the Energy Bureau’s filings, New Fortress has billed approximately $74 million for unused fuel over 12 months.
Hernández argues that the minimum purchase requirement should have been tied to the availability of the units that consume the gas. Instead, Puerto Rico is locked into a contract that charges for fuel even when the generation fleet is unable to burn it.
“I really don’t see any short-term problem that would prevent fuel from reaching Puerto Rico,” Hernández said. “There is no risk that the island will run out of petroleum products.”
“You cannot obligate yourself to buy enormous quantities of natural gas,” he said, “and then allow the units that consume it to remain out of service. The customer ends up paying for fuel that never enters the system.”
New reserve tank, gas pipeline
The system’s fragility is further compromised by the absence of north-coast land-based natural gas storage at the San Juan terminal.
EcoEléctrica, in the south, has a tank capable of supplying more than a month of gas, but the San Juan terminal has no such reserve. When the tanker is removed, whether for storms, disputes, or routine operations, there is no backup supply.
Hernández believes Puerto Rico urgently needs a smaller reserve tank in the north, enough to sustain operations for five to seven days, and ultimately a gas pipeline connecting the north and south, similar to the cancelled Vía Verde project, a proposed 92-mile pipeline intended to carry natural gas from the southern coast in Peñuelas to power plants in the north, which the administration of former Gov. Luis Fortuño pushed unsuccessfully.
Without that connection, the island cannot rely on the ample gas stored in the south when the north terminal is offline, he said.
The consequences extend beyond fuel costs. Several small generators installed with FEMA funds are certified only to run on natural gas. When gas supply is disrupted, those units must be shut down entirely, reducing available generation capacity and increasing the likelihood of outages.
Fuel supply is not the risk
Hernández stresses that Puerto Rico is not facing a catastrophic fuel shortage, as diesel and Bunker C remain available, but the island is paying a premium for every hour it is forced to rely on them.
He also dismissed concerns that the declining U.S. Strategic Petroleum Reserve could leave Puerto Rico without access to oil. Washington has committed 172 million barrels to a 32-nation International Energy Agency release since the Iran war began, lowering the reserve to about 285 million barrels, its smallest level since 1982.
Hostos is the one large project now seen as likely to arrive on schedule, in 2031, and produce net new energy of up to 700 MW. It pairs a natural gas combined-cycle plant in San Pedro de Macorís, Dominican Republic, with a submarine cable of about 146 kilometers that would deliver electricity to LUMA’s grid at Mayagüez.
Hernández says fears of a supply cutoff are misplaced. The U.S. typically activates its reserves during global conflicts to stabilize markets, and Puerto Rico has historically continued receiving fuel without interruption.
He notes that the return of Venezuelan crude to U.S. markets further strengthens supply. Venezuela now produces about 1.25 million barrels per day, and U.S. refineries take more than 500,000 of them.
“I really don’t see any short-term problem that would prevent fuel from reaching Puerto Rico,” he said. “There is no risk that the island will run out of petroleum products.”
A stalled transition and an aging fleet
The crisis is not limited to conventional fuels. Puerto Rico’s renewable-energy transition has stalled. Large-scale solar and battery projects once benefited from federal investment tax credits, but those incentives were weakened under the Trump administration, making financing more difficult.
PREPA’s bankruptcy further complicates matters. Every new project ultimately requires PREPA as the off-taker, and lenders are wary of financing tied to a bankrupt utility.
Hernández notes that more than 50 renewable and battery projects have been approved, but most remain stuck in the financing stage.
The Financial Oversight and Management Board (FOMB) requested updates from PREPA and the Public-Private Partnerships Authority in August, but there has yet to be a public response.
The island’s generation fleet, meanwhile, continues to deteriorate. Units in San Juan, Aguirre, and other plants remain out of service, forcing the system to rely on expensive diesel units that were never intended to run continuously. The fleet averages 50 to 70 years of age.
An 800 MW hole, procurement in limbo
Hernández recalls presenting a repair plan to the governor during his tenure at PREPA, warning that even with repairs, Puerto Rico would still face a capacity shortfall. He recommended adding at least 800 megawatts of temporary generation, a figure later matched by LUMA’s own assessment.
In a September filing with the Energy Bureau, LUMA described a persistent deficit of 700 to 850 MW driven by an aging thermal fleet. Although the island has 6,500 MW of installed capacity, real-time availability often drops to about 3,200 MW. August demand peaked at roughly 3,234 MW, the highest in four years.
LUMA’s base case projects eight days of load shedding between May and October, rising to 47 days, and 230 hours of outages, if demand grows 10% and a baseload unit is lost. Adding 800 MW of firm temporary generation, it said, would bring the system near industry standards.
Those temporary units have yet to be fully deployed. The main attempt, a $5.9 billion, 10-year contract with Power Expectations for 400 MW, collapsed after Enchanted Rock, said its name and signature had been used without authorization. The Oversight Board revoked its approval on Aug. 14 and referred the matter to law enforcement.
The fallout has been broader. The Board has frozen two larger procurements, up to 3,000 MW of flexible generation and 600 MW to replace Costa Sur’s oldest units, which date to 1972-73, until the Public-Private Partnerships Authority answers questions on feasibility, cost and governance. No major new generation is expected before 2031, well short of the roughly 5,500 MW experts say the island needs.
The six-point plan, and Hostos
In a recent briefing published through PRET, Hernández outlined a six-point strategy to stabilize Puerto Rico’s energy system:
Repair the baseload units
Add temporary generation
Accelerate large-scale battery installations
Secure continuous natural-gas supply
Develop new efficient plants
Advance the Hostos interconnection project
Hostos is the one large project now seen as likely to arrive on schedule, in 2031, and produce net new energy of up to 700 MW. It pairs a natural gas combined-cycle plant in San Pedro de Macorís, Dominican Republic, with a submarine cable of about 146 kilometers that would deliver electricity to LUMA’s grid at Mayagüez.
The project is entirely privately financed and has secured the needed U.S. Department of Energy Presidential Permit for cross-border interconnection. Siemens Energy is supplying key equipment, a key advantage given today’s five-to-seven-year gas-turbine lead times for most projects around the world.
Hernández estimates that his suggested measures could reduce electricity costs by up to nine cents per kilowatt-hour and save more than $100 million annually once battery storage is fully integrated.
The 700 MW Project Hostos power plant, to be built in San Pedro de Macoris in the Dominican Republic (pictured), will import LNG from U.S. sources, ensuring a steady supply to Puerto Rico via the over-land and submarine cable system.
Policy consistency, investor confidence
Hernández said policy consistency and investor confidence are essential in dealing with the energy crisis. Puerto Rico has not built a new power plant in nearly two decades, while neighboring countries such as the Dominican Republic have added thousands of megawatts of modern generation.
Under Puerto Rico’s privatization laws, all new plants must be private-sector cogenerators, like EcoEléctrica and AES today. For that to happen, the government must act as a facilitator, ensuring stable contracts, predictable regulation, and clear long-term planning.
“The real problem,” he concludes, “is that we haven’t fixed the system.” He added that Puerto Rico can no longer afford incremental or symbolic reforms.
“We need to move decisively. If we don’t execute now, the next crisis will be worse than the one we’re trying to solve.”
Puerto Rico’s energy crisis, in his view, is not a mystery. It is the predictable result of a grid that has been allowed to age without replacement or maintenance, a fuel supply chain built on fragile infrastructure, and a transition to renewables slowed by financial and political uncertainty.
The solutions exist. What Puerto Rico lacks is the urgency to execute them before the next interruption becomes the next emergency.
