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					DEC 2011



THE TELECOMM, ENERGY AND INFRASTRUCTURE WORKING GROUP
                       NEWS@
             QUIÑONES & ARBONA


                     Opportunities in energy projects: PPAs and
                            new legislation on ESPCs
                  Electricity costs in Puerto Rico are among the highest of any U.S.
                  territory. Not only are such prices high but they are also very volatile, as
                  almost 70% of Puerto Rico’s energy production depends on oil-based
                  fuels. Multinational corporations’ local campuses compete constantly
                  with their continental U.S. counterparts in terms of lowering operational
                  costs, hence the need for implementing aggressive energy cost-cutting
                  measures. Additionally, electricity costs present a dilemma to local
                  producers when choosing between maintaining their local operations or
                  moving them overseas, in order to survive in an increasingly competitive
                  environment.

                  On top of the aforementioned issues, on these days of tighter financial
                  restrictions, businesses are reluctant to invest their valuable cash on
                  energy efficiency or renewable energy projects. This had led to the
                  development of innovative energy-related financing models, such as
                  power purchase agreements (PPA) and energy savings performance
                  contracts (ESPC), to flourish in Puerto Rico.              Experience from
                  proponents of such schemes show that at least half of businesses who are
                  offered energy solutions that do not require up-front capital are eager to
                  consider them. In Puerto Rico there are about 400 locally owned
                  companies with revenues of more than $10 million annually, therefore a
                  great potential exists for developers of these type of projects.




                                                Doral Bank Plaza
                                          33 Resolución St. Suite 701-A
                                              San Juan, PR 00920
                                     787-620-6776 office • 787-620-6777 fax
                                               www.qalawpr.com
DEC 2011
PAGE 2-




 According to the Office of Energy Efficiency and            The ESCO then designs and constructs a project that
 Renewable Energy (EERE) of the U.S. Department              meets the customer's needs and arranges the necessary
 of Energy, a PPA is a contract where the customer           funding. The ESCO guarantees that the improvements
 agrees with the developer to purchase the power             will generate energy cost savings sufficient to pay for
 generated by a renewable energy system installed by         the project over the term of the contract. After the
 the latter in the former’s premises. In this agreement      contract ends, all additional cost savings accrue to the
 the developer owns, operates and maintains the              customer. The federal government allows for contract
 system for the life of the contract. Puerto Rico,           terms of up to 25 years. In practice, each ESPC is
 according to the Database of State Incentives for           negotiated individually depending on measures to be
 Renewables and Efficiency (DSIRE), is one of only           implemented, the amount of savings and the proportion
     U.S. jurisdictions that authorize or allow third-
 19 Write captions for the selected photos.                  of such savings assigned to the customer and the ESCO.
 party solar photovoltaic PPAs (as of January 2011).
                                                             The Puerto Rico legislature recently approved SB 2372
 We are aware that some multinational corporations           regarding ESPCs for state government units. In order
   SPECIAL POINTS OF INTEREST
 located in the island, mainly life-sciences related, are
   AND/OR CALL-OUTS                                          for a government unit to be approved to enter into a
 limited in entering long-term contracts, such as those      contract with a qualified ESCO, several requirements
 required for PPAs to yield the expected return to           must be met:
 investors. These multinationals are subject to sudden
 changes in location according to many market                (1)     The investment in implementing efficiency and
 factors, hence their limitation to contract in the long             conservation measures shall not exceed the
 term. However, many local businesses that have                      savings accumulated during a fifteen (15) year
 been in operation for decades, along with hospitals,                period, starting from the date of the ESPC.
 university campuses, resorts and other institutions,        (2)     The qualified ESCO shall provide a written
 have been overlooked as opportunities to develop                    warranty stating that savings from the
 renewable energy PPAs.                                              implemented measures will exceed the
                                                                     implementation costs.
 On the other side of energy management, ESPCs
 focus on energy efficiency instead of on-site energy        (3)     The measures to be implemented, as provided
 production. According to EERE, an ESPC is a                         by the ESPC, will be for a building that exists at
 partnership between a customer and an energy                        the moment of the agreement.
 service company (ESCO) that conducts a                      Prior to the enactment of this law the government had
 comprehensive energy audit for the facility and             been taking steps in the direction of ESPCs. It has
 identifies improvements to save energy.                     invested millions of dollars in the renovation of its




                                                     Doral Bank Plaza
                                               33 Resolución St. Suite 701-A
                                                   San Juan, PR 00920
                                          787-620-6776 office • 787-620-6777 fax
                                                    www.qalawpr.com
 DEC 2011
 PAGE 3-




flagship Minillas Government Center, including more        SB 2732 was sent to La Fortaleza to be signed into law
than $10 million being invested in an ESPC.                by Gov. Luis Fortuño on December 26, 2011. Since
Additionally, the Energy Affairs Administration            the Puerto Rico Legislature is currently not in session,
(EAA) began a Request for Qualifications process for       the bill has to be considered and signed within 30 days
pre-qualifying ESCOs which, according to the new           of the aforementioned date. We expect the bill to be
legislation, is the first step towards signing an ESPC     signed into law in early January 2012.
with a government entity or agency. EAA is using
model documents from the Energy Services Coalition         For more details, comment or inquiries please contact:
(www.energyservicescoalition.org) as reference for                       equinones@qalawpr.com
their ESPC Program. As with the federal government,                        cnieves@qalawpr.com
ESPCs are limited to 15-year contracts.                                    jmaeso@qalawpr.com

ESCOs will be able to provide the full financing of the                         Q&A News
project or even financing through a third party, though
the government unit shall seek advice from the             We are pleased to announce that engineer José Maeso
Government Development Bank (GDB) before                   has joined our Firm as an in-house advisor to our
selecting the most convenient financing alternative.       recently organized        Telecomm, Energy and
                                                           Infrastructure Working Group. Mr. Maeso holds a
Both ESPCs and PPAs offer customers the ability to         Master’s degree in Public Policy and Urban Planning
manage their electricity prices over the long term. If     from the John F. Kennedy School of Government at
customers believe their business is mainly in need of      Harvard University (2007), and a Master’s of
efficiency improvements or space limitations do not        Electrical Engineering from the University of Puerto
allow for a renewable energy system, an ESPC might         Rico, Mayaguez Campus (2005). For almost five
be the better alternative. If the focus is on fixing the   years Mr. Maeso has worked as a consultant in green
price of electricity for the long term or if efficiency    building technologies and energy matters, focused in
measures have been implemented, then a PPA might           operations and maintenance and different aspects of
work best. Either way, both instruments provide a          energy policy. His past experience has been in
better control over electricity prices which allows for    telecommunications infrastructure including wireless,
operating costs to be reasonably budgeted, while           telephone circuit switching (PABX) and outside
reducing businesses’ carbon emissions into the             telephone plant, both in Puerto Rico and U.S. markets.
environment; all this without incurring in up-front
capital costs.




                                                  Doral Bank Plaza
                                            33 Resolución St. Suite 701-A
                                                San Juan, PR 00920
                                       787-620-6776 office • 787-620-6777 fax
                                                 www.qalawpr.com

				
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