Monday Study: New Energy’s Need To Connect

Disconnected: The Need For A New Generator Interconnection Policy

Jay Caspary, Michael Goggin, Rob Gramlich, and Jesse Schneider, January 2021 (Americans for a Clean Energy Grid/Macro Grid Initiative)

Executive Summary

America’s system for planning and paying for the nation’s transmission grid is causing a massive backlog and delay in the construction of new power projects. While locally produced electric power is gaining in popularity, most of the lowest cost new power production comes from projects which are located in rural areas and, thus, depend on new electricity lines to deliver power to the urban and suburban areas which use most of the nation’s power. Project developers must apply for interconnection to the transmission network, and until the network capacity is expanded to accommodate the resources, the projects must wait in an “interconnection queue.” At the end of 2019, 734 gigawatts of proposed generation were waiting in interconnection queues nationwide.1

This massive backlog has multiple negative impacts on the nation. First, it needlessly increases electricity costs for America’s homes and businesses in two ways: (1) it slows or prevents the adoption of new power sources which are cheaper than existing power generation; and (2) it also significantly increases the costs of each new power source. Americans for a Clean Energy Grid’s (ACEG) recent study demonstrates that a comprehensive approach to building transmission to connect remote power resources to electricity load centers in the Eastern half of the U.S. can cut consumers electric bills by $100 billion and decrease the average electric bill rate by more than one-third, from over 9 cents/kWh today to around 6 cents/kWh by 2050,

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Second, because the lowest cost proposed power projects are often located in rural areas, this backlog is blocking rural economic development and job creation. In addition, rural power projects expand the tax base of local communities and typically generate lease payments or other revenue for farmers and other landowners. New transmission in the Eastern half of the U.S. alone will unleash up to $7.8 trillion in investment in rural America and create more than 6 million net new domestic jobs. 3

Third, almost 90 percent of the backlog is for wind and solar projects, thus blocking the resources which dominate new electricity production, reflecting the changing resource mix in the power sector and America’s abundance of high-quality renewable resource areas where the sun shines bright and the wind blows strong. 4 The U.S. Energy Information Administration (EIA) projects wind and solar will account for 75 percent of new electricity generation in 2020. 5 Many states, utilities, Fortune 500 companies and other institutions have adopted large commitments or requirements to scale up their renewable energy use or reduce their carbon pollution and this backlog may delay or impede achievement of these commitments or requirements. In addition, delays in developing these projects unnecessarily exposes Americans, especially those in environmental justice communities, to the harmful impacts of smog, and nitrogen oxide, sulfur dioxide, fine particulate and carbon dioxide pollution.

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Policies governing the interconnection of generators to the grid network stand in the way of accessing these remote resources. Interconnection policies and procedures governing transmission engineering studies, queuing, and allocating transmission upgrade costs are set by the Federal Energy Regulatory Commission (FERC) and implemented in detail by all of the hundreds of transmission providers around the country including the Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs).6

Although FERC and the RTOs have undertaken worthwhile reforms to alleviate interconnection backlogs, the interconnection queues are costly, lengthy, and unpredictable. Power project developers are uncertain if their project will be approved and this risk significantly increases the cost of capital for generation developers, which increases the cost of energy for customers.

The current process also places nearly all costs of network upgrades on the energy project developer, even though many others will benefit from the construction of the project. Until a few years ago, these interconnection charges for new renewable resources would comprise under 10 percent of the total project cost for most projects. In recent years - due to the lack of sufficient large-scale transmission build - these costs have dramatically risen and interconnection charges now can comprise as much as 50 to 100 percent of the project costs. The system has reached a breaking point recently as spare transmission has been used up. Presently in most regions, new network capacity is needed for almost all of the projects in the queues.

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Participant funding for new grid connections is no longer a “just and reasonable” policy and violates FERC’s “beneficiary pays” principle and the Federal Power Act. Relying on the interconnection process to identify needed transmission leads to a piecemeal approach and inefficiently small upgrades, raising costs to consumers. The incremental reforms at the RTO-level over the past decade have only served to treat symptoms of this fundamental issue – the lack of alignment between regional planning processes and the interconnection process.

There is a better way. RTOs could conduct comprehensive transmission planning which would identify the transmission lines to connect many new energy projects to the grid and deliver the greatest benefits for consumers. It is time for FERC and RTOs to undertake a fundamental re-thinking of interconnection and transmission planning policy based on different circumstances than those that existed when these policies were developed. Full participant funding should no longer be allowed in RTO or non-RTO areas.

More broadly, FERC and RTOs should pursue planning reforms. Consumers would benefit from more efficient transmission at a scale that brings down the total delivered cost, rather than continuing the current cycle of incremental transmission built in the project-by-project or generator-only cost assignment regime. That shift will not happen in the current interconnection process. Instead, FERC should fundamentally reform the regional and inter-regional transmission planning process to require broader pro-active and multi-purpose transmission planning…

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Key Findings

» The current system for planning and paying for expansion of the transmission grid is so unworkable and inefficient it is creating a huge backlog of unbuilt energy projects. At the end of 2019, 734 gigawatts of proposed generation were waiting in interconnection queues nationwide.

» This backlog is needlessly increasing electricity costs for consumers by delaying the construction of new projects which are cheaper than existing electricity production. » Because most of these projects are located in remote rural areas, this backlog is harming rural economic development and job creation.

» Almost 90 percent of the backlog is for wind, solar, and storage projects. The backlog may delay or prevent achievement of commitments that states, utilities, and Fortune 500 companies have made to scale up their renewable energy use or reduce their pollution.

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» The risk from the uncertainty of the interconnection process significantly increases the cost of capital for generation developers, which increases the cost of energy for customers.

» Although Regional Transmission Orginizations (RTOs) and the Federal Energy Regulatory Commission (FERC) have undertaken worthwhile attempts to alleviate interconnection backlogs, the interconnection queues remain costly, lengthy, and unpredictable.

» The current “participant funding “policy that places nearly all costs of shared large network upgrades on the interconnection customer violates FERC’s “beneficiary pays” principle and is therefore no longer a “just and reasonable” policy and violates the Federal Power Act.

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Key recommendations

» FERC should discontinue the policy of participant funding for new generation. Shared network upgrades resulting from generation interconnection requests provide economic and reliability benefits to loads and reduce congestion to improve grid efficiencies and operational flexibility, and therefore should not be fully assigned to interconnection generators.

» FERC and planning authorities should expand and improve regional and inter-regional transmission planning processes to be pro-active, incorporating future generation additions and retirements and the multiple benefits, and spread costs to all beneficiaries.

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