The US has more clean energy projects planned than the grid can handle

Source: By Jeff St. John, Canary Media • Posted: Thursday, April 21, 2022

Without major policy reforms and grid upgrades, much of the 1.4-terawatt queue of solar, wind and battery projects may never get built, two new reports find.

And even the best-positioned projects that already have the land rights, construction financing and power-purchase contracts necessary to move forward are likely to face years of delay and potentially millions of dollars of grid upgrade costs before being able to connect to the grid. These barriers could prevent many planned projects from reaching completion — and block the country from decarbonizing fast enough to prevent the most devastating effects of global warming.

This mixed forecast comes from Lawrence Berkeley National Laboratory’s latest report on U.S. interconnection queues. The annual survey of the country’s seven transmission grid operators and 35 major utilities covers 85 percent of U.S. electricity load, making it one of the most comprehensive overviews of utility-scale clean energy development out there.

And while the data showcases a ​“revolution taking place in the type of electricity we’re seeking to install in the U.S.,” it also reveals ​“massive institutional and structural barriers that are slowing down and prohibiting a lot of that capacity from coming online,” said Joe Rand, LBNL senior scientific engineering associate and lead author of the study.

A separate Department of Energy report released alongside the LBNL study last week surveys research indicating that waning transmission construction and rising interconnection costs and wait times are holding back clean energy growth in the U.S. ​“To alleviate the growing gridlock, transmission planning and interconnection processes need reform,” the report states.

This week, the Federal Energy Regulatory Commission is set to unveil the next steps in its major revamp of U.S. transmission grid policy. That proceeding is the country’s ​“best and most immediate chance to resolve this fairly quickly,” Rand said in an interview — a view echoed by clean-energy industry groups and policymakers pushing clean-energy agendas at the state and federal levels.

“If you love solar and wind power, you have to at least like transmission,” Rand said.

The good news: A tidal wave of clean energy on the horizon

Rand highlighted the good news in LBNL’s report first: 1,300 gigawatts of wind, solar and energy storage capacity had been proposed for interconnection as of the end of 2021, representing just over $2 trillion in potential investments. That figure has risen from 750 gigawatts of wind, solar and energy storage capacity in queues at the end of 2020.

While a handful of gas power plants are still being planned, wind power, solar power and energy storage projects make up 93 percent of the projects LBNL is tracking. That includes 676 GW of solar, 247 GW of wind and 427 GW of energy storage.

This adds up to roughly the amount needed to provide 80 percent of U.S. electricity from zero-carbon resources by 2030. It also represents about 84percent of the estimated 1,100 GW of solar and wind capacity needed to reach the Biden administration’s target of 100 percent clean electricity by 2035. Just under three-quarters of the projects in interconnection queues at the end of 2021 have requests in to come online before 2025.

But it’s highly unlikely that most of these projects will be built. Only 13 percent of the projects in LBNL’s tally have already signed interconnection agreements, the vital step that cements a project’s right to connect to the transmission grid. And over the past decade, only about 23 percent of all projects in interconnection queues have successfully connected to the grid and begun operating. Those completion rates are even lower for wind power, at 20 percent, and solar power, at 16 percent.

“Entering a transmission interconnection queue is only one of many steps in the development process,” the report states. ​“Projects must also have agreements with landowners and communities, power purchasers, equipment suppliers, and financiers, and may face transmission upgrade requirements.”

And the trends on these fronts are getting worse, not better. Since 2015, the time it takes for projects to secure interconnection agreements has risen from about a year and a half to more than three and a half years in 2021, the report finds.

The bad news: Too many projects can’t cross the finish line 

LBNL’s data doesn’t reveal why any one individual project may or may not succeed in coming online. But DOE’s report notes that the increase in projects seeking to connect to the grid has coincided with a slowdown in new transmission buildout projects. Transmission deployments have fallen from an annual average of 2,000 miles between 2012 and 2016 to an annual average of just 700 miles between 2017 and 2021.

This lack of new transmission capacity combined with booming project queues has led to longer interconnection wait times, rising costs and uncertainties for projects seeking interconnection, as well as a greater proportion of projects withdrawing before they can secure interconnection agreements, according to LBNL data.

“We’re seeing so much evidence of this backlog, both in the high withdrawal rates and low completion rates, and the amount of time these projects are taking,” Rand said.

Multiple studies indicate the U.S. will need hundreds of billions of dollars’ worth of new transmission to integrate the amount of clean energy needed to decarbonize the grid. A similarly large body of research suggests that existing transmission development and interconnection policies are making it increasingly difficult for new clean energy projects to come online.

Caroline Golin, Google’s global head of energy market development and policy, summarized the views of many clean-energy developers and buyers in a press conference last week unveiling Google’s new clean-energy policy roadmap.

“The queue is backed up, at a minimum, at least two years in every market,” she said. ​“You can be a private investor and want to deploy billions of dollars in capital, and you can just sit and wait and see if your projects get online.”

“If we don’t reform how these technologies get to market,” Golin warned, the development of clean energy is ​“going to stall perpetually.”

FERC’s Advance Notice of Proposed Rulemaking, the bureaucratic moniker for the major transmission reform it launched last year, has provided a venue for energy developers and corporate buyers such as Google to lay out what they see as the key causes of this stalled-out interconnection situation and how they’d like to fix them.

The cause: Broken transmission policy, from interconnection to expansion 

One fundamental problem is that there are simply far more projects trying to interconnect to the grid than ever before. That makes it much harder for utilities and grid operators to study their potential impacts, particularly when projects are being added and are dropping out on a regular basis.

Mid-Atlantic grid operator PJM, for example, has 225 gigawatts’ worth of projects in its new services queue, 95 percent of them wind, solar, storage or a hybrid of renewables with storage. This chart from an October report by consultancy Grid Strategies shows how PJM’s volume of studies has skyrocketed from 2015 to 2020.

In February, PJM set forth a major proposal to reform its interconnection processes, designed to drive ​“a better, faster, more efficient way to integrate projects into the system and enable states to meet their renewable portfolio goals,” said Ken Seiler, PJM’s vice president of planning.

That work will concentrate on expediting more than 1,200 backlogged projects, most of them solar power, that represent more than 100 GW of capacity, or nearly half the existing generation capacity serving a grid that stretches from New Jersey to Illinois.

But in order to prioritize these backlogged projects, PJM will also have to impose a two-year delay on about 1,250 other projects in the queue and will not accept applications for new projects until late 2025.

That puts climate goals in ​“serious jeopardy,” said Bill Dugan, director of wholesale optimization services with energy market consultancy Customized Energy Solutions. ​“How are we going to fight climate change if we can’t put new projects in for two years?”

But Dugan also pointed out that PJM’s reforms may be the best way to untangle an interconnection queue that’s simply become too complex to manage. That’s because the studies that grid operators conduct on how new projects will affect the transmission system must often be redone as projects are added to or withdrawn from their interconnection queues, leading to a cascading set of studies that can’t keep up with the next set of changes. ​“If you can clear the backlog of ready-to-go projects, it does make it easier to manage the queue for at least the next two or three years.”

Wind, solar and hydropower now make up only about 6 percent of PJM’s total generation mix. Regions with far higher proportions of clean energy are facing even more stress.

California, where state policy calls for a carbon-free energy sector by 2045, has been getting record amounts of its grid power from renewable energy resources over the past few years. But the interconnection queue of state grid operator CAISO has ​“ballooned with so many projects that it exceeds CAISO’s ability to process it,” according to Grid Strategies’ October report.

Seth Hilton, a partner at law firm Stoel Rives whose practice is focused on the California energy sector, pointed out that CAISO has postponed its own deadlines for processing the 373 projects in its 2021 interconnection queue, which is more than twice the 155 projects that sought interconnection in 2020.

CAISO is studying reforms to its interconnection process, he said, both to prioritize projects that have better prospects of being completed more quickly and to provide more data to developers trying to pick ideal locations for projects. But with the state’s latest procurement orders asking for about 15 gigawatts of clean-energy projects to be brought online by summer 2021, ​“the question is [whether it’s] enough to make this process manageable and…do it in a timely manner,” he said.

California faces these challenges despite the fact that it can coordinate transmission and clean-energy planning within the confines of a single state. Multistate grid operators like PJM face a more complicated task.

Project network upgrades: Forcing grid upgrade costs onto wind, solar and battery projects 

California has also taken steps to more evenly spread the costs of upgrading the grid to accommodate new projects between project developers and the state’s utilities and their customers, the Grid Strategies report points out. But other grid operators have been assigning almost all the costs of upgrading the grid to accommodate new wind and solar projects to the project developers themselves.

That’s a problem, clean energy boosters say, because slow transmission expansion over the past half-decade has left many grids without enough capacity to absorb new generation. That, in turn, has led to new wind, solar and battery projects being saddled with the costs of grid upgrades that would benefit the system at large, including conventional forms of generation.

Take the example of the Midcontinent Independent System Operator (MISO) and Southwest Power Pool (SPP), the country’s two Midwestern grid operators, which require new projects to pay between 90 to 100 percent of the cost of grid upgrades needed to interconnect them. Those upgrade costs have risen dramatically for recent interconnection queues, to $4.6 billion in upgrades for 10.4 GW of transmission in SPP and nearly $2.5billion of upgrades in MISO South, according to September report by consultancy ICF on behalf of the American Council on Renewable Energy trade group.

Rob Gramlich, founder and president of consultancy Grid Strategies and co-author of a series of studies on this problem, has likened this process to forcing ​“the whole cost of the highway lane extension on the next car on the road,” rather than spreading the cost of expanding highways among all users. Over the past five years, these network-upgrade costs have accounted for as much as 50 to 100 percent of total renewable energy project costs, compared to about 10 percent of total project costs a few years ago, according to a 2021 Grid Strategies analysis.

That’s a contrast to how MISO and SPP have dealt with grid expansion in the past. Both SPP and MISO managed to get utilities, state regulators and other stakeholders to agree on sharing the costs of major grid expansions that enabled large-scale renewable energy growth over the previous decade, yielding benefits that outweigh the costs.

ICF’s analysis found that two-thirds of the upgrades that projects are being asked to pay for in today’s interconnection queues offer similarly significant economic and reliability benefits. But as long as individual projects are forced to pay for those upgrades, ​“other users of the shared system are receiving [them] at little to no cost,” the report states.

To make matters worse, project developers can’t predict how big those grid upgrade costs will be until far along in the interconnection-study process, Gizelle Wray, senior director of regulatory affairs for the Solar Energy Industries Association, said in a February interview.

“You get to the end of your study, and you get a price tag,” she said. ​“And because in many cases our transmission system hasn’t been upgraded, the generator community is having to pay an astronomical price.”

Nor is it always clear exactly how these grid-upgrade costs are being determined, Dugan said. He cited several cases of projects that were initially assigned very high grid-upgrade costs, only to have those costs reduced on further study years later. For example, one 320-megawatt solar project in Virginia was originally assigned $10.1 million in grid upgrade costs in late 2017, only to see those costs fall to $3.3 million in a second study completed in late 2019.

“Many millions of dollars can be revised in each estimate,” Dugan said.

Getting down to fundamentals: Reforming the way transmission is planned, built and paid for 

Clean-energy groups have petitioned FERC to reform these ​“participant funding” structures that force large and uncertain grid-upgrade costs onto project developers. In a February FERC filing, the American Clean Power Association, Advanced Energy Economy and Solar Energy Industries Association trade groups asked FERC to ​“take immediate steps” to launch an ​“accelerated, stand-alone interconnection rulemaking,” one that could be conducted at the same time that FERC continues to work on the broader and more complex issues it has taken on in its transmission reform proposal.

Other groups have asked FERC to consider asking grid operators and the utilities that operate transmission grids to use more advanced technologies that could expand the capacity of the existing grid. These grid-enhancing technologies — dynamic line rating systems, advanced power flow controls, topology optimization and advanced conductors — could potentially double the amount of wind and solar power that can be brought online across the country in the coming years, according to recent studies.

Nevertheless, there’s a growing consensus among policymakers and regulators that the sheer scope of the clean energy buildout needed to reduce the carbon emissions from the U.S. electricity sector will require much more new transmission, no matter what.

As DOE’s new interconnection report notes, multiple independent studies have estimated that existing transmission systems will need to be expanded by 60 percent by 2030 and to double or triple their existing capacity by 2050.

How much this expansion could cost is very hard to predict, given all the variables involved. DOE’s report cites various studies that put the price of reaching a carbon emissions-free grid at between hundreds of billions of dollars and more than $1 trillion.

At the same time, numerous studies have shown that this transmission expansion could yield far greater benefits than costs in the form of bringing cheaper clean power to markets and increasing grid reliability and resiliency.

“The most important thing to do for interconnection is to improve transmission planning and cost allocation,” Grid Strategies’ Gramlich told Canary Media. FERC’s upcoming transmission reform proposal could set the stage for grid operators, state regulators, utilities, and independent transmission and clean-energy developers to take on this massive challenge.

Jeff St. John is director of news and special projects at Canary Media.