Wednesday, January 13, 2021

New Report Finds Current Transmission Interconnection Process Unworkable and Inefficient, Raising Energy Costs for Customers and Stifling Job Creation

On January 12, 2021 a report was released that shows that the current system for interconnecting generators to the transmission grid is unworkable and inefficient, creating a backlog of unbuilt energy projects. These lengthy interconnection queues have resulted in increased electricity costs for consumers, delayed rural economic development and job creation, and an added difficulty for clean energy projects looking to be connected to the nation’s grid.

Sponsored by Americans for a Clean Energy Grid as part of the Macro Grid Initiative, Disconnected: The Need for a New Generator Interconnection Policy examines the current interconnection process and finds that current policies governing queues are excessively costly, slow, and unpredictable. At the end of 2019, 734 gigawatts of proposed generation — 90 percent of which are new wind, solar, and storage projects — were waiting in interconnection queues nationwide.

“Connecting to the transmission grid is like spending four years at the Department of Motor Vehicles, except the costs are much less predictable. FERC’s interconnection policy was created in a different era and it no longer works,” said Rob Gramlich, co-author and Executive Director of Americans for a Clean Energy Grid.

The report finds that the current interconnection backlog is:
  • Increasing electricity costs for American homes and businesses by delaying the construction of new energy projects, which are cheaper than existing electricity production.
  • Harming rural economic development and job creation as most new energy projects are located in remote, rural areas.
  • Delaying or preventing state, utility, and Fortune 500 companies from reaching their decarbonization commitments by backlogging the development of new renewable energy projects.
  • Continuing to expose Americans, especially those in marginalized communities, to the harmful impacts of smog, nitrogen oxide, sulfur oxide, fine particulate matter, and carbon dioxide pollution, which are usually associated with older forms of energy production.
“This report further demonstrates the urgency in which we need to upgrade and reform our transmission system,” says Jay Caspary, co-author and Vice President at Grid Strategies LLC. “We won’t be able to access the benefits of new, clean energy projects by relying on incremental, evolutionary reforms to generator interconnection processes.”

Currently, large transmission upgrades rely on participant funding and network planning, creating a situation in which project developers are charged with paying for transmission upgrades despite the fact that there are broad-based, regional benefits. To address this problem, the report argues that FERC and other planning authorities should discontinue the policy of participant funding for new generation and implement an up-front planning system that expands and improves regional and interregional transmission planning to be proactive, incorporate future generation additions and retirements, and spread costs to all beneficiaries.

“Backlogs in interconnection queues have emerged as a significant challenge to the growth of renewable energy, even as consumer demand increases for low-cost wind and solar projects,” said Gregory Wetstone, President and CEO of the American Council on Renewable Energy (ACORE). “This important new report highlights the shortcomings of current interconnection policies and proposes sensible solutions for substantive reform. The renewable energy growth enabled by these policy changes is essential to efforts to address the climate challenge.”

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.

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 cents/kWh  today to around 6 cents/kWh by 2050, saving a typical household more than $300 per year.

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.

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. 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.

IV. Evidence of a Broken Interconnection Policy
a) Upgrade costs assigned to customers are high
Analysis by Lawrence Berkeley National Laboratory, shown in tables 1 and 2 below, indicates that the costs to integrate new resources, not just renewable projects, have reached levels that are unreasonably high for a developer to proceed in MISO and PJM. As expected, the costs for integrating new resources in MISO are rising substantially relative to previous years, indicating that the large-scale network has reached its capacity and needs to expand to connect more generation. In other words, much more than “driveway” type facilities are needed; larger roads and highways are required to alleviate the traffic. Table 137 below shows that historically, interconnecting wind projects have incurred interconnection costs of $0.85 per megawatt hour (MWh) or $66 per kilowatt (kW). However, newly proposed wind projects now face interconnection costs that are nearly five times higher, at $4.05/MWh or $317/kW. For reference, this is about 23 percent of the capital cost of building a wind project.

New solar projects in MISO South have much higher upgrade costs. The most recent 2019 system impact study for solar projects in MISO South estimated upgrade costs to total $307/kW, with upgrade costs for individual interconnection requests as high as $677/kW.

The rapidly increasing cost of interconnection in recent years shows that the breaking point has been reached. MISO, for example, has reported that “...interconnection studies for new generation resources in MISO’s West sub-region have indicated the need for network upgrades exceeding $3 billion to accommodate the initial queue volume, and a similar trend is expected to occur in other areas with high wind and solar potential, including MISO’s Central and South sub-regions.” Figure 2 below illustrates the large increase in assigned network upgrade costs to generators in MISO West, from approximately $300/kW in 2016 to nearly $1,000/kW in 2017. The costs to build proposed wind projects will likely result in developers abandoning those resources as project integration costs exceed $100/kW.

The same trend of rising network upgrade cost assignments is occurring in PJM. Historically, the levelized costs for constructed wind and solar projects were $0.25/MWh and $1.72/MWh, respectively, or $19.07 kW and $61.83/kW, respectively. As shown in Table 2,41 upgrade costs for newly proposed wind and solar projects, however, have now risen to $0.69/MWh and $3.66/MWh, respectively, or $54/kW and $131.90/kW, respectively – more than a 100 percent increase.

In 2019, one 120 MW solar plus storage project in southern Virginia was informed it could be required to pay as much as $1.5 billion, or $12,086/kW, in system upgrades in order to connect to the PJM grid  Among the many upgrade costs associated with the GI request includes the demolition and rebuilding of a handful of 500kV lines. The construction of large transmission lines required by some interconnection studies which leads to such high network upgrade costs are not isolated incidents. A number of offshore wind projects in PJM, for example, are expected to build long, 500kV lines that are clearly network elements that benefit the entire region and should be planned and paid for through the regional planning process.

This trend of rising network upgrade costs is happening across RTOs as the ratio of location constrained generation rises and the existing network in the renewable resource areas becomes constrained. The typical increase in costs over time associated with GI studies, as shown in Figure 345 below, are indicative that the assigned network upgrades are high enough that most projects will not proceed.

In SPP, GI-assigned network upgrade costs from the 2013 interconnection queue were roughly $89/kW while the most recent 2017 study costs approached $600/kW. Put differently, network upgrade costs increase from composing around 8 percent of the capital cost of wind generation, to over 43 percent. The most recent 2017 SPP study upgrade costs included massive 765kV lines up to 165 miles long.

NYISO has also experienced an increase in upgrade costs from $67/kW in 2013 to $124/kW in 2019. Experience in ISO-NE on the other hand, while not a linear display of upgrade cost increases, demonstrates how high the network upgrade costs can get in any given year with 2015 upgrade costs reaching $566/kWs. Upgrade costs for ISO-NE also increased by 160 percent from 2018 to 2019.

b) Paying for transmission through the interconnection process fails to capture efficiencies that benefit all users

The system of funding major transmission upgrades through the generation interconnection process is ineffective and violates the beneficiaries pays principle. Large new transmission additions create broadbased regional benefits by providing customers with more affordable and reliable power, so charging only interconnecting generators for this equipment requires them to fund infrastructure that benefits others. MISO, for example, has estimated that its 17 Multi-Value Projects (MVPs) approved in 2011 will generate between $7.3 to $39 billion in net benefits over the next 20 to 40 years, producing cost-to-benefit ratios ranging from 1.8 to 3.1. Additionally, SPP’s portfolio of transmission projects constructed between 2012 and 2014 is estimated to generate upwards of $12 billion in net benefits over the next 40 years, with a cost-to-benefit ratio of 3.5. Charging only interconnecting generators for the construction of transmission additions that generate benefits similar to those found in MISO and SPP is a classic example of the “free rider” problem. This type of market failure found in various other economic sectors involving networks, such as water and sewage systems and highways, signals why it is more efficient to broadly allocate the cost of “public goods.” If required to pay for upgrades that mostly benefit others, interconnecting generators tend to balk and drop out of the interconnection queue.

c) Interconnection queue project cancellations are rising
As of December of 2019, all but 250 MW of the 5,000 MWs had withdrawn from the queue. The remaining 250 MW was comprised of a 200 MW wind project and a 50 MW solar project; it is unlikely that the wind project will move forward as its engineering study showed the project would require transmission upgrades totaling $500 million. This leaves the success rate at 1 percent for the MW in that queue study group.

d) Queue backlogs are large and growing
e) Interconnection challenges exist for offshore as well as onshore projects

Limitations of the current interconnection process hinder offshore wind development and state clean energy goals. Interconnection studies for offshore wind illustrate that most interconnection sites have a finite amount of capacity for new power injection before upgrade costs increase considerably, as the supply curve of available injection capacity among sites and at individual sites slopes steeply upward. According to upgrade costs estimated in PJM offshore wind interconnection studies and as shown in Appendix A, one can see that the first tranche of 605 MWs can be accommodated for an upgrade cost of around $275/kW at an interconnection site. The second tranche of 605 MW, however, incurs a marginal upgrade cost of over $1,100/kW, and the third tranche of 300 MWs incurs a marginal upgrade cost of over $1,300/kW. In this case, costs quadruple for projects later in the queue. The upgrades required for the later tranches involve rebuilding large segments of the transmission system. These investments benefit all interconnecting generators and consumers, who receive lower-cost and more reliable electricity from a stronger grid.

Appendix A also demonstrates that onshore transmission upgrade costs for interconnecting offshore generators tend to be very large. A review of 24 interconnection studies comprising 15,582 MWs of offshore wind capacity that have proposed to interconnect to PJM reveals $6.4 billion in total onshore grid upgrade costs for those projects, with an average of $413 per kW of offshore wind capacity. Onshore grid upgrade costs for these offshore projects range from $10 per kW to $1,850 per kW.

f) The problems occur mainly where participant funding is allowed—in RTOs and ISOs
Additional Notable Quotes on the Release of the Report:
Amy Farrell, Senior Vice President for Government and Public Affairs, American Clean Power Association (ACP) “As this report makes clear, the current generation interconnection process is broken, preventing abundant renewable resources from connecting to the grid and providing the reliable, low-cost, clean energy consumers and businesses are demanding. A robust transmission system simply cannot be planned and paid for one interconnection at a time; rather we need a holistic, long-range planning process that optimizes transmission spending to meet economic, reliability, public policy and interconnection goals, and spreads the costs of upgrading the grid to all beneficiaries. ACP looks forward to working with its members, ACEG, other allies and all interested parties to apply this report’s analysis to implement these necessary transmission planning reforms.”
United States Representative Kathy Castor (D-FL), Chair of the House Select Committee on the Climate Crisis “As we strive to rebuild our economy and protect public health amid the COVID-19 pandemic, we must make it easier for more households in America to access affordable, renewable energy. I commend the Macro Grid Initiative for highlighting important steps we can take to fight the climate crisis and alleviate air pollution, including initiatives to fix backlogs and connect more emissions-free power to the grid as we recommended in our Climate Crisis Action Plan.”
Georgios Papadimitriou, Head of Enel Green Power North America “We agree with the report’s conclusion that the current interconnection process is obsolete to address today’s electricity generation mix and dynamics and as such requires a major overhaul. As a global renewables developer, new investments in transmission are critical for delivering power from areas where renewable energy is abundant to where the power is ultimately consumed. New transmission investment – especially inter-regional transmission – would significantly benefit rural America by opening up new areas for economic development, while simultaneously benefiting U.S. consumers by increasing the supply of lower cost, clean renewable energy. We urge U.S. policymakers to support a comprehensive, long-range transmission planning process that optimizes new regional and inter-regional transmission investment across North America.
Bill Menner, Executive Director of the Iowa Rural Development Council “Attracting new private sector investment to rural Iowa is critical to the state’s economic vitality. This report clearly demonstrates that the current process for connecting new wind and solar energy projects to the power grid has room for improvement, as it is inhibiting investment that could provide substantial economic benefits to our communities.”

Press Release dated January 12, 2021
American Council on Renewable Energy, the only non-profit broad-based public interest advocacy coalition focused on the need to expand, integrate, and modernize the North American high-voltage grid. ACEG brings together the diverse support for an expanded and modernized grid from business, labor, consumer and environmental groups, and other transmission supporters to support policy which recognizes the benefits of a robust transmission grid. The Macro Grid Initiative is a joint effort of the American Council on Renewable Energy and Americans for a Clean Energy Grid to promote investment in a 21st century transmission infrastructure that enhances reliability, improves efficiency and delivers more low-cost clean energy. The Initiative works closely with the American Wind Energy Association, the Solar Energy Industries Association, the Advanced Power Alliance and the Clean Grid Alliance to advance our shared goals.

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