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Standing in Line: How Congested Interconnection Queues Are Slowing Renewable Build-Out

Market Insights
November 2, 2021

The renewable industry has made remarkable progress over the past decade, and now moves with a momentum that can feel unstoppable. Renewables are the new normal when it comes to powering our grid; in 2021, wind and solar comprised 70% of new U.S. generating capacity additions, with natural gas accounting for a mere 16%. This is undeniably good news for the climate, and for our industry. But some very real obstacles are still slowing renewable additions, and if left unaddressed, threaten to undermine the continued growth of our sector. Principal among these concerns for many developers is the growing trend of long, inefficient grid connection (or interconnection) processes. 

When planning a project, developers must have the transmission system owner and/or the regional grid operator study and approve the impact the project’s added capacity will have on the grid. To determine this impact, the transmission owner and system operator conduct a series of sequential, technical studies to quantify the cost and timeline for building out any required grid enhancements to accommodate the new renewable energy project. This process takes time, and developers must wait in an “interconnection queue” until study findings are delivered. Increasingly, the time it takes for developers to receive this critical information has been growing longer — much longer. What’s more, the financial burdens for system upgrades are growing, and, with few exceptions, fall on the shoulders of developers. 

Slow Interconnection Approvals a Near-Universal Hurdle for Developers 

For the vast majority of renewable developers, a lack of clarity around interconnection timelines and cost expectations has become a significant pain point in their development process. In our Q3 survey of developers on LevelTen’s Platform, we asked what they thought the biggest barriers were to achieving the DOE’s goal of 40% solar by 2035. 89% of respondents answered “interconnection timelines and costs” — the most common answer by far. Incorporating the massive amounts of new renewable capacity needed to achieve climate and policy goals requires substantial additions of high-voltage transmission lines in order to connect often remote wind and solar farms to population centers where energy demand is high. Coordination and leadership from governments, utilities, and system operators is needed to ensure this critical infrastructure build-out is efficient and effective. 

Crawling Queues in PJM 

In PJM, the interconnection bottleneck is growing to unprecedented levels. PJM staff simply cannot keep up with the massive influx of requests as the renewable project pipeline expands, and reports of interconnection study results coming in more than a year late are not uncommon. This opaque and prolonged stage of the development process creates a lack of clarity around responsibility and cost allocation for any interconnection facility upgrades a project may — or may not — require. For developers with projects early in the development process, waiting in limbo for interconnection study results impedes their ability to commit to a binding PPA price and to estimate COD timelines. 

These conditions are impacting the already intricate dynamics of PPA negotiations. Developers in PJM are increasingly requiring PPA termination rights if the project does not receive necessary interconnection or permitting approvals, meaning buyers often need to accept a greater level of development risk. Buyers may also need to provide a developer with an PPA exit ramp, and reopening PPA price negotiations may be necessary on occasion to maximize the likelihood of successful execution. In an already highly competitive and intricate market, PJM’s interconnection backlog is adding further complexity and uncertainty to the PPA contracting process. 

In Midwest, Grid Worries a Common Concern 

In MISO and SPP, a recent study found that developers are paying for more than 90% of grid upgrade costs, even though such upgrades bring system-wide benefits for ratepayers and other generators. With approximately 150 GW of combined renewable capacity waiting in MISO’s and SPP’s interconnection queues, real changes in the interconnection approval processes are clearly necessary for these regions to continue accelerated renewable build-out. 

In Texas, developers also face unique uncertainties with regards to how their projects interface with the larger grid. Though ERCOT socializes grid upgrade costs, Texas Governor Greg Abbott and his political allies have been working to encumber renewable developers through other means. Using February’s historic winter storm and resulting ERCOT blackouts as pretext, and falsely accusing renewables as the “unreliable” culprit behind the outages, Abbott has sought to have renewable generators pay for ancillary services (services that ensure the reliability of the grid) because of the intermittent nature of renewable generation — even though multiple analyses have shown natural gas outages to be the primary driver behind the blackouts. Though an initial attempt to pass these measures into law failed in June, Abbott and his allies are still intent on making life difficult for renewable developers through the imposition of unjust grid costs. The ever-present threat of hostile regulatory action adds significant uncertainty for developers in ERCOT. 

The Bottom Line: Today’s Status Quo Threatens Clean Energy Progress 

Whether it’s underwater interconnection queues causing development slowdowns or regional political headwinds, a host of regulatory issues beset the renewable development landscape. Developers are doing all they can to combat these challenges — as well as other supply chain and logistical issues — to help achieve a decarbonized grid. But until grid interconnection reforms are resolved and begin to take effect, the status quo will continue to pose a very real threat to the clean energy progress we simply must make. 

It’s past time the inefficiencies in these processes were addressed to allow for a cleaner and more reliable grid that will facilitate the renewables revolution our planet needs. LevelTen Energy will continue to support our expansive developer community in any way we can, and will act as a central hub where developers can connect, collaborate, and innovate on these and other critical issues. There are solutions to these challenges, and LevelTen, our partners, and our network are committed to achieving them. 

To learn more about the interconnection difficulties developers are facing, download LevelTen's Q3 PPA Price Index Reports.

Rob Collier

Rob leads LevelTen’s engagement with buyers, advisors, and project developers on the LevelTen Energy Marketplace. Prior to joining LevelTen, Rob spent four years in various capacities, most recently as a director of development, with OneEnergy Renewables, a utility-scale solar developer. While at OneEnergy, Rob managed portfolios of pre-construction solar assets in the New York and the Mid-Atlantic markets. His development experience includes offtake origination, project sales, state and local permitting, interconnection management, land contracting and landowner relationships, and policy advocacy. Rob received a MBA from Cornell University.

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