Title: The Challenges and Opportunities of Interconnection
Speakers: Brian Harms and Fred Wilson
Brian Harms (00:07):
It’s so funny, this renewable development obviously got a big boost with the IRA and everybody’s getting real excited, but there’s some concerns. There’s some challenges we’ve got out there. Supply chain everybody’s been talking about. But also just interconnection and interconnection queues just being backed up, having some issues. And so what are you seeing out there?
Fred Wilson (00:29):
Yeah, Trump is in a unique position in that we represent project developers, utilities – Right. Specifically transmission owners. And load serving entities.
Brian Harms (00:41):
Right.
Fred Wilson (00:42):
So we get to see these issues from a number of different perspectives. I think the primary challenge today for the integration of renewable resources, whether large utility scale renewable resources or even distributed resources throughout the system, is interconnection. There are a number of challenges with interconnection, right? Interconnection queue administration is probably front of mind for a lot of people because they get stuck in the queue and it just takes a long time to get from application to interconnection service agreement.
Brian Harms (01:15):
Agreed. And it creates uncertainty, to your point. It creates uncertainty both on the cost side, because sometimes you don’t know what the network upgrade cost is gonna, and then creates uncertainty in terms of the timing. When’s it actually gonna be built? When’s it gonna be done? So suddenly these, where you’re thinking you’re gonna be able to take advantage of IRA very quickly, suddenly you have this area where you thought, okay, this will work and I’ll be able to do this. Not as much.
Fred Wilson (01:40):
Yeah. Those challenges really affect the viability of a lot of these projects, right? You come up with a project, you anticipate the ability to take advantage of the various credits. But then you have to worry about network upgrade costs, which can be prohibitive in a lot of instances. And the financing for interconnection facilities themselves, right? And the commission has come out with orders that allow transmission owners to fund those interconnection facilities on behalf of their developers and earn a return on that, right? So the cost of interconnection itself is increasing, notwithstanding the increase or potential increase in cost of network upgrades.
Brian Harms (02:22):
Yeah. And it is interesting what you just said, transmission owners mostly are the ones who develop the interconnection facilities, but sometimes you’ve got the option if you’re the developer to take on that responsibility and you self-build. And that has become something I’ve seen more often if you’re on the utility side, if you’re on the transmission owner side, it’s kinda like, okay, how do we get that transferred back to us? They’re actually, because there’s no clear mechanism, sometimes that becomes as thorny as anything else.
Fred Wilson (02:53):
Yeah. I think we’re in a transitional period where the commission is figuring out the best way to address funding and cost recovery for these different facilities. Exactly. And project developers obviously wanna keep their costs low and keep their projects profitable. Yes. And transmission owners want to have more control over all the facilities in their system and earn a return on the cost incurred to develop those or construct. So it’s a challenge for all involved. Whether it’s time or it’s cost. Exactly.
Brian Harms (03:30):
Um,
Fred Wilson (03:30):
Those things need to be addressed.
Brian Harms (03:33):
Yeah, agreed. And I think it’s a unique challenge in terms of what we were talking about with the queues. You and I were talking about PJM and how they’re trying, they’ve been adjusting their queue system to try to be more open to not just doing the first come, first serve.
Fred Wilson (03:52):
Other efforts that I’ve seen that could potentially assist with interconnection is transmission planning at a regional level. Part of the issue with interconnection with a lot of these resources, so the renewable resources are located pretty far from the loads, right? Right. That’s a good point. And it requires a significant amount of transmission to get from the generation centers to the load centers. I’m reminded of a time early in my career when I participated in the CRES meetings. ERCOT developed these competitive renewable energy zones and built hundreds of miles of high voltage transmission that facilitated the interconnection of a bunch of renewable resources and prevented them from incurring those network upgrade costs. New York has done something similar with SmartPath and SmartPath Connect projects, which are intended to develop high voltage highways, if you will, to get renewable resources, both hydro and wind from upstate New York down into Zone J, and the load centers in New York City.
So these are other ways that different market participants or regulatory bodies or market operators are trying to help this interconnection problem log jam by developing high voltage transmission to limit the effects of costly network upgrades on project developers that are seeking to connect to the system.
Brian Harms (05:21):
Yeah. So what’s interesting is we’re helping folks just like we’re talking about in terms of renewable energy kind of being out in places. We’ve been helping some of the transmission owners in terms of building out the transmission to get where the good wind is. Or where the good sun is and getting it to the load centers. And it’s just been an interesting process of, they want, you’ve got somebody who’s developing the project and then they just wanna have the least cost. They’ll say, “Hey, we’ll build it.” And the transmission owner’s like, “Yeah, that’s not how we’d build it.” And so we’ve been working with the transmission owners, but we’ve also been working with EPC providers in terms of, in some parts of our firm that are looking at helping with, “Hey, we’re gonna actually build the transmission or we’re gonna build these interconnection facilities, high voltage folks.” So it’s just, and being able to see how each piece of the value chain kinda is like looking at what do we care about, what are we worried about, what’s going on here?
It’s very interesting.
Fred Wilson (06:26):
Yeah, there’s challenges at each and every level and I think that there are different entities seeking to mitigate those challenges, right? We talk about EPC contractors and builders and developers, they’re taking advantage of production tax credits or investment tax credits to help them reduce the cost of developing these facilities. You talk about transmission owners and system operators and they’re dealing with planning the system and all of these injections of power at all of these different places and sometimes significant amounts of injection. You think about offshore wind – Oh, yeah. And the amount of megawatts that are dropped off into a single point in the system. And you need to plan around that.
Brian Harms (07:13):
That’s stress.
Fred Wilson (07:14):
Yeah. Yeah. I spent the early parts of my career as a transmission planner and –
Brian Harms (07:19):
Mm-hmm.
Fred Wilson (07:20):
If someone tells me I need to deal with 7,500 megawatts at a single substation, I know that I have a significant amount of work.
Brian Harms (07:29):
Now, do you laugh first and then answer the question?
Fred Wilson (07:32):
Yeah, maybe there’s, like, a single tier that get
Brian Harms (07:35):
Dropped. Yeah, exactly.
Fred Wilson (07:36):
And then you get to work.
Brian Harms (07:38):
Yeah.
Fred Wilson (07:38):
So, fortunately, I think everyone sees that there are significant benefits that justify overcoming these challenges and developing these types of resources. The fact that they’re renewable resources comes with geopolitical benefits to a certain extent. Certainly efficiency benefits – Yes. Because they’re lower cost generation in a lot of cases. And the ability to develop these large scale, utility scale generation facilities or distributed generation so that you can have smaller amounts of generation closer to load.
Brian Harms (08:18):
Well, and I was just gonna say the administration obviously very interested. You’ve got DOE putting money into transmission, getting built out. So they’re backstopping, giving loans, a lot happening in terms of the federal level, in terms of the incentives that are… Like you’ve talked about the PTCs and ITCs. Now that’s more with generation than maybe with transmission, but it obviously plays right into what’s getting put into the grid. Yeah. So very interesting times, it’s funny, we get it all the time. We get the Washington report from our Troutman Pepper strategies and it’s like, “Oh, look, that’s what’s going on.” So it’s, I tell you, it’s just political to actual hard substance of the law that we deal with – Yeah. Yeah. And legal kinda, “Hey, these are the issues that we gotta worry about.”
Fred Wilson (09:01):
Yeah, I’m glad you mentioned that.
Brian Harms (09:03):
Yeah.
Fred Wilson (09:03):
There very much is a political element to this. This is a public policy issue and it’s something that various levels of government, state, legislative, executive branch, they’re all considering ways to help facilitate this energy transition. I personally like to think of it as more of an evolution.
Brian Harms (09:22):
Right.
Fred Wilson (09:22):
Because the system is growing and adapting into something more efficient and hopefully more reliable and resilient than it’s ever been in the past. But you kinda have to keep your eyes on all of these different aspects of the system in order to really understand the challenges and how to overcome them. That’s one of the things that makes me grateful for working at Troutman and – Yeah. Having this platform because we have touchpoints in all of these different areas to see these challenges and assist our clients in getting
Brian Harms (09:55):
Through it. Yeah, no, and I know one thing we talked about before too was maybe we keep saying transmission, but in reality, there’s been the utility scale and those are the important ones, big projects, but a lot more distributed generation happening, a lot more connections at the distribution level, which I’m sure you probably dealt with when you were transmission planning at some level.
Fred Wilson (10:17):
Yeah, yeah.
Brian Harms (10:18):
Yeah.
Fred Wilson (10:19):
So the commission in order number 222 developed kind of rules of the road for these smaller distributed energy resources or entities that wanna aggregate these resources to participate in wholesale markets. So we talk about interconnection queues and the challenges of doing that. Part of it is allowing some of these smaller resources to also provide services that are needed by the system. Yep. Which could assist in lightening some of that log jam of everyone that’s kind of waiting in line. So it’s a hopeful time.
Brian Harms (10:52):
Mm-hmm.
Fred Wilson (10:52):
We’re in the middle of this transition. The system is changing in ways that I think will benefit the public in general. Yeah.
Brian Harms (11:00):
And,
Fred Wilson (11:00):
And you have everyone kind of rolling in the same direction.
Brian Harms (11:03):
Yeah. Well, and it’s interesting. Yeah. We’ve really kind of been focused and talking about and thinking about the generation side of things, wind, solar, maybe solar with storage, but storage is interesting now that you’ve got the ITC for standalone storage, which could really help, you would think, the grid, the network resiliency – Yeah. Going forward too. So…
Fred Wilson (11:24):
Yeah, when I was an engineer, I used to say that there were two technologies that would change everything. And the power system. Superconductive transmission or lossless transmission is one, and we’re not there yet, although it exists and it’s very ex – but it’s prohibitively expensive. Yeah,
Brian Harms (11:41):
Prohibitively expensive. Okay.
Fred Wilson (11:43):
But the other is utility scale storage. And utility scale storage gives you the ability to do a number of different things.
It provides what would traditionally be considered generation services, like sales, and ancillary services. But it also is capable of providing transmission services. And those facilities are also, depending on which services they’re providing, going to participate in the interconnection queue process. Yeah, exactly. So you have this, we’ve talked about generation – Yeah. And all the transmission needs, but then you have this third bucket of storage that – Yes, exactly. Kind of fits into both. And they’ll similarly need, depending on the application, to go through the interconnection queue process. Exactly.
Brian Harms (12:22):
Yep.
Fred Wilson (12:22):
It remains to be seen whether it’ll help or harm planners as they try to deal with these issues. Presumably storage has the ability to mitigate system abnormalities – Right. That transmission planners are most concerned with. But it’s still an interconnection customer that’s requesting – Exactly. To connect to the system and you need to address it. So it’s great that they’re receiving support, policy support from lawmakers. And it remains to be seen or, interested to see – Yes. How they continue to proliferate through the system.
Brian Harms (13:01):
Yeah, absolutely. I bet we can see that the investment community’s very interested in putting money into these things. And so that’s a huge positive. So there’s, I think there’s a place that’s gonna be very important – Yeah. Going forward.
Fred Wilson (13:14):
It’s a game-changing technology, right? Yes, absolutely. The ability to shave loads potentially mitigates the need for that additional peaker – Right,
Brian Harms (13:26):
Absolutely. Um,
Fred Wilson (13:26):
The total amount of generation needed – Yeah. To reliably serve. So I’m excited. I love this industry. I’ve been excited number of different times for a number of different reasons, and this is just the latest one. Yeah. I think where you have challenges like interconnection queue administration, you have great opportunities.
Brian Harms (13:46):
Yeah, I agree. And I like the words you used, evolution. That’s where we’re in. We’re in the, we’re evolving. It’s an evolution.
Fred Wilson (13:52):
Yeah. Yeah. Thanks, Brian. I really enjoyed the conversation.
Brian Harms (13:55):
Yeah, absolutely, Fred. I did too. Thanks, man.
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