Study: Clean energy developers are unfairly burdened with transmission upgrade costs

As the Federal Energy Regulatory Commission (FERC) begins to study transmission reform, a new report out today from ICF Resources and the American Council on Renewable Energy (ACORE) highlights the problem with transmission cost allocation today.

The study essentially found that while the entire power system typically benefits from significant transmission upgrades, new wind and solar projects are being asked to foot nearly the entire bill when they want to connect to the grid. The analysis, Just and Reasonable? Transmission Upgrades Charged to Interconnecting Generators Are Delivering System-Wide Benefits, focused on a representative sample of network upgrades in the Midcontinent Independent System Operator (MISO) and Southwest Power Pool (SPP) regions. Even with conservative assumptions, ICF found significant system-wide benefits in two-thirds of the upgrades evaluated — benefits that other users of the shared system are receiving at little to no cost.

“Regional power grids are like highway systems, moving power to where it’s needed and keeping electrons flowing to homes and businesses around the clock,” said ACORE President and CEO Gregory Wetstone.

Indeed when the rules were first developed they were reasonable, said Himali Parmar Vice President, Energy Markets with ICF in a webcast about the report. She likened them to the cost of adding a driveway to a road. The costs would be around $10-50 per kW. But with so much demand for renewable energy, developers today are being asked to pay around $250-450 per kW, said Parmar, akin to asking them to add a new lane to the highway or even build an entirely new highway altogether.

“Right now, new wind and solar projects are essentially asked to shoulder the financial burden of adding new lanes to that electron highway, lanes that benefit everyone,” Wetstone said in a statement.

Building an entirely new transmission line benefits the entire system, and ACORE points out that such improvements should be addressed in long-term planning by grid operators like MISO and SPP. Without careful long-term planning, low-cost renewable resources that are needed to meet climate goals will end up stuck in lengthy interconnection queues.

Caroline Golin, Global Head, Energy Markets & Policy, Google, explained in a panel discussion about the report that “buyers across the U.S. are looking to invest and grow the clean energy market and we are being foolish if we don’t recognize the need to massively overhaul the interconnection process.”

Chair Ted Thomas with the Arkansas Public Service Commission who is also a member of the FERC-led Federal-State Electric Transmission Task Force, said that “cost allocation issues will be before the Task Force” and added that “while the study does not focus on the length of time for interconnection studies, reducing the time for studies to be completed in the interconnection queue is an urgent issue.” The Task Force will begin by addressing the issues laid out in the ANOPR that FERC put out in July, he said.

According to FERC’s “beneficiary pays” principle, regional transmission organizations are required to ensure that transmission costs are assigned at least “roughly commensurate with estimated benefits.” Under current rules, new generators in MISO pay for 90 percent of the cost of significant upgrades (345 kilovolts and larger), while others on the system pay 10 percent. In SPP, new generation pays the total cost of any upgrades necessary to interconnect, and other users of the system receive the resulting benefits for free.

Matt Pawlowski, Executive Director, Business Management and Regulatory Affairs, NextEra Energy, one of the largest developers of renewable energy in the country, explained as a builder of renewable energy, that the lack of clarity on cost and timing for a transmission interconnect is really problematic and can “kill” projects.

“If we have a better planning process, we’ll have better visibility on cost and more certainty on schedule,” he said. Lower costs for developers ultimately leads to lower costs for end-users of the energy, he added.

There are currently over 150 gigawatts of active solar, wind, and hybrid resources stuck in interconnection queues across both MISO and SPP, all while the demand for renewable generation is expected to significantly grow in the coming years.

It’s that increased demand for interconnection coupled with an increasing amount of roadblocks in front of renewable energy developers that has really pushed the problem with transmission interconnection front and center said Pawlowski. “We are very excited that this issue is being recognized,” he said.

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