The Interconnection Problem in North America
Over the past two decades, the increasing number of non-traditional generation projects, mainly wind and solar, are pushing the limits of traditional grid planning. This large increase in non-traditional project requests has disrupted the interconnection planning process, not only causing a longer wait for interconnection approval, but exposing flaws and incompatibilities within the study and approval process.
The longer approval process for new power generation resources has the potential to stunt the transition to renewable energy as well as leading to resource adequacy problems “if new resource entry does not occur rapidly enough to match the pace of resource retirements” according to a July 28, 2023 concurrence writing by FERC Commissioner Clements.
Current State of Affairs
Currently, the review and approval of new generation projects and existing plant improvements is primarily accomplished through a serial study process. This process is tailored for large, centralized power generation projects which rely on interconnection customers to pay for network upgrades.
These practices were designed to process a low number of project requests at one time and to accommodate projects that would each service a relatively large geographic area or customer base.
Interconnection customer requests are mainly reviewed and approved through the well-established “Serial Study Process” which adopts an “invest and connect” approach. The exception to this is the Electric Reliability Council of Texas (ERCOT), which has implemented a novel and somewhat controversial “connect and manage” approach.
Within the “invest and connect” approach, there are two avenues for submitting interconnection requests.:
Network Resource Interconnection Service (NRIS)
Energy Resource Interconnection Service (ERIS)
These two processes are typically applied in Non-Energy-Only Markets, in which pricing and compensation structures go beyond just paying for the electricity consumed:
NRIS requires proposed generators to serve as capacity resources that will contribute to resource adequacy requirements during severe grid conditions. In turn, generators are provided with capacity compensation and power dispatch priority. To achieve full deliverability, NRIS studies often identify the need for significant grid upgrades to relieve foreseeable constraints brought on by proposed projects, known as network upgrades. Instead of proactive transmission planning, the NRIS process has demonstrated a tendency to prioritize reliability, resulting in an overbuilt transmission system and inefficient allocation of resources. These excessive reliability requirements, coupled with stringent regulatory approval and compliance requirements, can lead to financially unviable projects and cause delays in the interconnection process.
ERIS does not require full deliverability during severe grid conditions, and therefore is less likely to require network upgrades. Consequently, generators are ineligible for capacity compensation and may have their power dispatch curtailed before NRIS resources during emergency conditions. Although this introduces greater uncertainty for project revenues, these projects can avoid the excessive requirements and restrictive assumptions associated with NRIS.
The "connect and manage" approach, unique to ERCOT, emphasizes the efficient interconnect of new generation resources while continuing to actively manage the grid.
This approach aims to balance the integration of new resources with the reliability and stability of the electric grid, often sacrificing reliability for efficiency in quickly adding a broad range of generation resources.
There are two notable characteristics of this approach’s economics. The first is the absence of capacity compensation which leads to decreased economic certainty. The other is the way electricity is priced, which is based on an open market in which generators are compensated for the electricity they produce and are able to sell into the market.
Perspectives on ERCOT’s operational approach vary but there are some apparent tradeoffs. ERCOT’s approach allows interconnection customers to more quickly connect to the grid. During 2021, ERCOT was able to interconnect five times more total capacity than PJM, adjusting for differences in peak load. While there are reduced upfront interconnection costs, rate payers are required to pay for network upgrades, which allow for a broader range of viable project types and sizes. Infrastructure investment is market-driven which promotes efficient allocation of resources, capacity, and investment.
The tradeoff for market-driven infrastructure investment is that grid bottlenecks are met with economic curtailment and congestion pricing which is reflected in the open market. Although this is helpful to identify the next round of network upgrades, the risk of curtailment leads to uncertainty in project economics. Furthermore, in eliminating project deliverability requirements, there is a trend toward resource inadequacy. This curtails ERCOT’s ability to effectively manage grid congestion, inhibits delivery of the lowest cost power to load, and contributes to volatile customer rates.
Balancing Interconnection Processes and Grid Management
In summary, the surge in non-traditional energy projects has exposed shortcomings in traditional grid planning models, leading to prolonged approval processes. The prevalent "invest and connect" model which relies on NRIS and ERIS often results in overbuilt transmission systems and financially untenable projects. Conversely, ERCOT's "connect and manage" approach emphasizes rapid integration but can lead to economic uncertainties and inadequate resources. Striking a balance between efficient interconnection processes and prudent grid management is crucial to address current shortcomings and propel the energy transition toward reliability, economic viability, and environmental sustainability.
This post was written by Evan Heryet, Program Manager at THAMPICO LLC, a consulting firm that provides program and project management support for utilities and cooperatives. We help our clients align people, process, and technology to produce optimal outcomes for energy project development. Our goal is to help our clients deliver more reliable, affordable, and clean energy, which is what the world wants and needs.