Overcome Interconnection Challenges by Exploiting FERC 2222 Quirk

A recent Guidehouse Insights white paper examined how the US Inflation Reduction Act (IRA) commits billions of dollars toward ending the country’s dependence on fossil fuels by developing low carbon alternatives and renewables. New tax incentives authorized under the IRA are expected to supercharge efforts to increase clean energy generation. By some estimates, however, delivering clean energy where it is needed and reducing domestic greenhouse gas emissions to net-zero by 2050 will require a tripling or more of the current transmission and distribution (T&D) infrastructure.

The Interconnection Permitting Roadblock

Until the country achieves this massive T&D build-out, clean energy projects will face significant challenges obtaining transmission interconnection permits. Interconnection permitting is a tedious and painstaking process requiring advanced modeling to determine the exact system upgrades needed to ensure that a project of a specific size can connect to the grid at a specific place and time without disrupting the safe and reliable operation of the grid. Lawrence Berkeley National Laboratory estimated that at the end of 2021, the number of projects stuck in the interconnection queue would be enough to double US generation capacity.

Even before the IRA’s incentives, reviews had backed up to the point that an individual project could wait 4 years or more for a permit. Many of these projects lose financing while languishing in the queue, as investors tire of having their capital locked up with an uncertain outcome. Indeed, Berkeley Lab found that fewer than 1 in 4 projects that apply for interconnection survive the queue and begin operations.

A Potential Work-Around for DER Projects

Federal Energy Regulatory Commission (FERC) Order 2222, which will become effective in some states as early as July 2023, could further increase the backlog of interconnection requests. If carefully exploited, however, Order 2222 could also provide a mechanism for new projects to bypass the interconnection queue altogether.

Order 2222 requires all regional transmission operators (RTOs) and independent system operators (ISOs) to develop rules for allowing aggregated distributed energy resources (DER) and demand response resources to bid into RTO/ISO wholesale markets. The order marks a sea change for organized power markets in the US by providing a way for individual customers to sell energy and ancillary services from their behind-the-meter assets in both retail and wholesale energy markets. Removing barriers preventing DER from participating in wholesale markets will provide a critical revenue stream for many projects that are losing profits due to the phaseout of state net metering programs.

In a recent report, Guidehouse Insights examined how Order 2222 compliance plans submitted to FERC reveal wide disparities in how and when various regions of the country intend to integrate distributed clean energy assets into wholesale markets. Yet the plans reviewed had one thing in common: almost universally, the RTOs/ISOs defer to distribution utilities to review the interconnection impacts of the DER comprising an aggregation and to affirm within 60 days that the sum of their interconnections does not threaten the safe and reliable operation of the grid.

Notably, many of the plans do not limit the size of an aggregation or the individual DER that comprise it, and nothing in Order 2222 requires them to do so. For example, both the Midcontinent Independent System Operator (MISO) and the Southwest Power Pool (SPP) intend to limit aggregations to DER serving a single pricing node, which could have the practical effect of limiting the size of aggregations—but neither plans to limit the size of individual DER that can aggregate or set a maximum size for aggregations.

MISO has proposed a 90-day interconnection review—10 days for MISO review, 10 days each for review by the load-serving entity and the state regulatory commission, and 60 days for the distribution utility—which is far faster than the yearslong traditional interconnection review process. And SPP leaves it entirely to the distribution utility or the state regulatory commission to determine whether interconnecting the DER components will have any impact on the safe and reliable operation of the transmission network.

Under some RTO/ISO plans (like PJM’s), DER projects do not even need to pair with another asset to take advantage of the processes designed for DER aggregations. The units simply register under the RTO/ISO’s DER aggregation participation model and then may avail themselves of the significantly faster, less costly, and simpler interconnection review by the distribution utility.

Order 2222 may have inadvertently opened a route for clean energy projects in some regions to bypass the normal interconnection queue by aggregating generation sources and seeking interconnection approval from the distribution utility. This may offer a potential solution to interconnection challenges that project developers can take advantage of as soon as RTO/ISO implementation plans are approved and go into effect.

Finding solutions to the interconnection backlog is crucial not only to the viability of many projects but also to avoiding critical climate change thresholds. Whether intended or not, this quirk in Order 2222 implementation is a welcome development for those wanting to meet net-zero emissions targets and speed the transition to a more flexible, smarter transmission network.