Good news for Interconnection Customers in FERC Order 1920
This new rule mandates that transmission providers evaluate regional transmission facilities to address specific interconnection-related transmission needs.
The Federal Energy Regulatory Commission (FERC) has recently implemented a significant rule change, as articulated in Order No. 1920, that has far-reaching implications for interconnection customers.
This new rule mandates that transmission providers evaluate regional transmission facilities to address specific interconnection-related transmission needs.
This reform, which requires transmission providers to incorporate these evaluations into their existing Order No. 1000 regional transmission planning and cost allocation processes, is a crucial step toward a more efficient, cost-effective, and competitive energy market. Here's why this rule is a positive development for interconnection customers.
Addressing High Interconnection Costs
One of the primary reasons this rule is beneficial for interconnection customers is its potential to alleviate the high costs associated with network upgrades. In recent years, the cost burden of interconnection-related network upgrades has significantly increased, leading to a higher rate of withdrawals from the interconnection queue. These costs often become a prohibitive barrier for many generators, particularly smaller and newer entrants, preventing them from bringing new energy resources online.
Look at the chart below. For ISO-NE, in the first 8-year period (2010-2017), projects withdrew when the interconnect cost was $200-300 /kW. But in the recent 4-year period (2018-2021), projects are withdrawing when the interconnection cost is $600/kW. Interconnection costs have jumped three times in the ISO-NE area.
Source - Berkley Lab.
What does this interconnection cost mean? A $100/kW interconnection cost means that the 100 MW solar project (hypothetically) must pay $10 million in transmission upgrades to connect to the grid. If the interconnection cost is $300/kW, then that same 100 MW solar project must pay $30 million in upgrade costs.
By requiring regional transmission planning processes to evaluate interconnection-related needs, this rule aims to distribute these costs more broadly and equitably. This approach can help reduce the financial burden on individual interconnection customers, making it more feasible for them to proceed with their projects. Consequently, this can lead to a more diverse and robust energy market, with increased participation from various types of energy generators.
MISO interconnection costs appear a bit reasonable compared to ISO-NE-
Source - Berkley Lab.
Enhancing Competition and Market Efficiency
The rule is also poised to enhance competition in wholesale electricity markets. By removing barriers to entry, such as the prohibitive costs of interconnection-related upgrades, new and smaller players can compete more effectively with established entities. This increased competition can drive innovation, reduce prices, and improve service quality for consumers.
Furthermore, by integrating interconnection-related transmission needs into regional planning, the rule promotes a more systematic and strategic approach to transmission development. This can lead to more efficient use of resources and better alignment of transmission investments with the overall needs of the grid. Over time, this can result in a more resilient and reliable transmission network, which benefits all market participants.
Facilitating Access to Lower-Cost Generation
Another significant advantage of this rule is its potential to facilitate access to lower-cost generation resources. Often, the most cost-effective generation resources are located in areas with limited transmission capacity.
The high costs of necessary network upgrades can deter these resources from being developed.
The rule can help bring these lower-cost generation resources to market by ensuring that these interconnection-related transmission needs are evaluated as part of regional planning processes. This can lower overall electricity costs for consumers and help integrate renewable energy sources, supporting broader environmental and sustainability goals.
Ensuring Just and Reasonable Rates
A core objective of FERC's mandate is to ensure that rates for Commission-jurisdictional services are just and reasonable and not unduly discriminatory or preferential. FERC states this rule supports this objective by addressing inefficiencies in the current system, where interconnection-related network upgrades are planned and funded piecemeal. By moving these upgrades into a regional planning context, the rule ensures that the costs are allocated more fairly and that the benefits of these upgrades are maximized.
The question in my mind is, does this rule delay interconnection studies more or reduce the current delays? Would renewable developers be fine with some delay if they get a fair cost allocation? I think so.
This approach also aligns with FERC's broader goals of fostering transparency and predictability in the energy market. Interconnection customers can have greater confidence that their investments will be supported by a robust and fair regulatory framework, encouraging more long-term planning and investment.
Source - Unsplash
Flexibility and Adaptability
The rule also offers transmission providers flexibility in evaluating and selecting transmission facilities to address interconnection-related needs. FERC states that this flexibility is crucial because it allows transmission providers to tailor their approaches to their specific regional contexts and existing processes.
I am not sure if giving transmission providers flexibility is a good thing. Renewable developers need a standard process. If MISO evaluates transmission facilities to address interconnection needs but PJM doesn’t, then it defeats the purpose of this rule.
This adaptability can help ensure that the rule is implemented in a way that maximizes its benefits without imposing undue burdens on transmission providers. It also encourages innovation and best practices, as transmission providers can learn from each other and adopt the most effective methods for addressing interconnection-related transmission needs.
However, transmission providers learning from each other could be another pitfall. From a renewable developer perspective, how is it beneficial if most transmission providers credit solar less using the marginal ELCC method?
Addressing Criticisms and Misconceptions
While some stakeholders have raised concerns that the rule might shift costs from interconnection customers to load-serving entities or lead to interconnection customers gaming the system, FERC has addressed these points comprehensively. The rule is designed to evaluate only certain interconnection-related needs that meet specific criteria, reducing the likelihood of cost-shifting or gaming.
Moreover, the financial commitments required for interconnection requests, including application fees, study deposits, and site control requirements, are substantial enough to deter frivolous or speculative requests. This ensures that only serious and viable projects benefit from the new evaluation process.
Conclusion
In conclusion, FERC's new rule represents a positive and forward-thinking shift in the way interconnection-related transmission needs are addressed.
By integrating these needs into regional transmission planning processes, the rule can help reduce costs for interconnection customers, enhance competition, facilitate access to lower-cost generation, and ensure just and reasonable rates.
It offers a balanced and flexible approach that addresses many of the inefficiencies and barriers present in the current system, paving the way for a more efficient, equitable, and sustainable energy market.
Interconnection customers, from small renewable energy developers to large-scale power producers, stand to gain significantly from these changes. As the energy market continues to evolve, such regulatory reforms are essential to fostering a dynamic and competitive environment that can meet the growing demand for clean, reliable, and affordable energy.