Project Finance Blog

Potential “game-changing” interconnection and transmission developments underway

Posted in Blog article Power Infrastructure Renewable energy Oil and gas Solar Wind

FERC is addressing transmission reform for the first time in roughly a decade, and Congress is helping to relieve legal congestion.

On July 15, 2021, the Federal Energy Regulatory Commission issued an Advance Notice of Proposed Rulemaking (ANOPR) soliciting comments on prospective modifications to improve the electric regional transmission planning and cost allocation procedures and generator interconnection process.

Transmission development is ripe for review. Although transmission providers have a formal planning process designed to forecast and address transmission needs, much of the actual transmission build-out is reactionary because it is based on individual generator interconnection requests. The two processes are largely uncoordinated. Developers in many regions have lamented recently that the cost and time for completing interconnection is unreasonable. It sounds like FERC agrees.

The ANOPR acknowledges that the generator interconnection process is likely not the most efficient or cost-effective method to plan a transmission grid that will support future generation. The process focuses on one (or a cluster) of proposed generators in a planning bubble based on technology, location, and other specific factors without taking a broader view of system requirements that could support multiple future generators. The objective of the ANOPR is to better plan for the increased interconnection demand while still maintaining just and reasonable rates for customers. The numerous specific questions posed in the ANOPR suggest a major shake-up in generator interconnection procedures may be in the queue.

For example, FERC is seeking comments on:

1. Cost allocation

FERC found in Order 1000 that the cost of transmission infrastructure must be allocated in a manner that is approximately commensurate with the benefits an entity derives from the infrastructure. The ANOPR admits that the current cost allocation that occurs through interconnection procedures may not satisfy this standard. The current approach might also lead to speculative interconnection requests that waste resources because cost allocation is so dependent on timing and location that some developers may submit "feelers" to assess multiple options for a single project. FERC welcomes proposed revisions. Proposals should address reliability impacts, if any.

2. Future transmission needs

The ANOPR also asks for comments as to whether transmission providers should amend their regional transmission planning processes to incorporate plans to address transmission needs of anticipated future resources. This includes changing technologies and projects that are not in existing interconnection queues, with an express focus on how the role of future federal, state and local climate and clean energy regulations and goals should be considered. Currently, with a few exceptions, regional transmission planning is based on generators in the interconnection queue that have a completed facilities study. This results in a narrow, short-term view of future transmission needs. Among the specific questions FERC poses is how far into the future the process should look and what inputs and assumptions should be modeled. The responses should be interesting given how unpredictable the future generation mix may be in light of the recent meteoric rise in new technologies.

3. Interregional coordination

Transmission planning based on interconnection requests also results in locationally-constrained view of transmission planning. FERC suggests this approach may impede the development of efficient, cost-effective interregional projects and asks for suggestions.

4. Coordination between interconnection and transmission planning

FERC asks whether it should require transmission providers to coordinate regional transmission planning and cost allocation procedures and generator interconnection processes on concurrent, coordinated timeframes. This has the potential to significantly reduce costs that are allocated to a single project.

Anyone interested in providing comments to the ANOPR is invited to do so in FERC Docket No. RM21-17. Comments are due Monday, October 10, 2021 and reply comments are due Tuesday, November 9, 2021.

The ANOPR repeatedly asks commenters to address whether FERC has the authority to implement suggested changes. Congress is trying to answer that question in part by extending FERC's authority over transmission.

On August 10, 2021 the Senate approved a "once-in-a-generation" bipartisan infrastructure package that includes a US$73 billion investment in transmission infrastructure to facilitate growth of the renewable energy industry. Perhaps more impactful than money, the deal would also augment FERC's transmission siting authority. Currently a single state can block a regional transmission project, even if adjacent states support the project. The bill proposes to change that if the project is sited along a National Interest Electric Transmission Corridor. The Department of Energy defines these corridors as regions where the public would benefit from additional transmission due to congested power lines coupled with high demand. FERC currently has this authority over siting of gas pipelines, so there is precedent for this proposal. The consolidation of siting authority could in of itself help advance transmission infrastructure because it would reduce development risks. States have understandably objected to the idea.

The ANOPR and proposed infrastructure bill are subject to revision and the actual impact is impossible to predict. They both reflect changes in generation technology, new clean energy policies, and the reality that the current grid is aging. We think it is reasonable to expect some version of meaningful transmission reform that will impact developers and lenders. Stay tuned.


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