FERC takes a big step to get more clean energy on the US grid

The U.S. has far more clean energy projects seeking to connect to the grid than utilities and grid operators can handle. It’s a crisis that has been decades in the making, but one that must be resolved in the next few years if the country is to meet its climate goals.

Last Thursday, the Federal Energy Regulatory Commission approved a sweeping set of reforms to address one facet of that crisis: the need to streamline and modernize the rules and processes that govern how power projects interconnect to the nation’s transmission grids.

Clean-energy groups offered qualified praise for FERC’s effort to remove barriers that have left hundreds of wind, solar and battery projects languishing in yearslong backlogs to be considered for interconnection. But they also said the order was just the first step in a much broader effort needed to solve the country’s grid backlog problems, with the biggest step — finding ways to dramatically speed up the building of new transmission lines — still to come.

FERC Order 2023, approved unanimously by FERC’s four commissioners on Thursday, will require U.S. grid operators and utilities to undertake what FERC Chair Willie Phillips described as ​“the largest and most significant set of interconnection reforms” in the past two decades.

The order, the culmination of nearly a year of work on an interconnection reform plan, includes more stringent deadlines and financial penalties for energy project developers to secure financing and land rights for proposed projects before adding them to interconnection queues. It also imposes financial penalties on grid operators and utilities that fail to stick to new timelines to complete the onerous studies that determine whether new projects can interconnect and how much developers must pay for the grid upgrades to allow those connections.

The order also requires transmission operators to adjust decades-old processes that have created barriers to battery and ​“hybrid” solar-battery and wind-battery projects getting approved for interconnection. And it orders them to consider the option of ​“advanced transmission technologies,” such as high-capacity transmission wires and power-flow control devices, that can augment the capacity of the existing grid to allow new clean energy resources to be added.

Those reforms are needed to clear what’s become ​“the largest backlog in history” across the country’s grid, Phillips said at Thursday’s meeting. At the end of 2022, more than 2,000 gigawatts’ worth of projects, the vast majority of them wind, solar and battery storage, were seeking grid interconnection. In some of the more congested parts of the country, ​“we have wait times of over five years, and the average project needed today won’t even begin construction until 2028,” Phillips said.

Clean-energy developers have sparred with grid operators and utilities over who’s at greater fault for this interconnection logjam. The developers have pointed to multiple overlapping interconnection studies that utilities and grid operators can take years to complete, and that often saddle developers with project-killing costs for grid upgrades that they say utilities and grid operators should be responsible for.

Utilities and grid operators counter that project developers are filing multiple speculative interconnection requests, clogging up queues with projects that require studies despite having little chance of being built. As evidence, they point to the sheer volume of projects backlogged in interconnection queues, which add up to nearly twice today’s nationwide generation capacity.

FERC’s current commissioner makeup consists of two Democrats and two Republicans. One seat has remained vacant since January because Senator Joe Manchin (D-West Virginia) refused to hold a reconfirmation hearing for Commissioner Richard Glick, whom President Biden had nominated for a second term. The Democrats on the commission believe FERC has the authority to impose requirements on the state regulators and utility stakeholders that make decisions at the independent system operators and regional transmission organizations that FERC oversees, but the Republicans have been less supportive of aggressive federal action.

Given these competing views, FERC struggled to craft a set of reforms that treats both sides fairly, FERC Commissioner Allison Clements, a Democrat, said at Thursday’s meeting. ​“The final rule requires everyone to do their part to address the cause of interconnection backlogs,” she said, with ​“strong new requirements on interconnecting generation, and accountability on the utilities whose job it is to get the studies done and the interconnections done in a timely manner.”

FERC Commissioner Mark Christie, a Republican, echoed that sentiment, but highlighted the role of clean-energy developers in causing backlogs. He called the order ​“a major step forward” in ​“reducing the clogging of the queues and moving those commercially ready projects that need to go forward and get done ahead of those that are just speculating.”

Clean energy groups on FERC order: A good start, but not enough

Clean-energy groups and grid experts had mixed reactions to FERC’s rule. Many praised the scope of reforms achieved, given the conflicts between clean-energy developers and utilities as well as FERC’s current commissioners.

The interconnection process is ​“really foundational to getting new resources online affordably and efficiently — and unfortunately, our current system isn’t doing that,” said Caitlin Marquis, managing director at clean energy trade group Advanced Energy United.

In that light, clean-energy groups were largely relieved that the final order didn’t include proposals they feared might put outsize burdens on project developers. 

One example was a change to FERC’s ​“commercial-readiness” requirements for project developers. While the order does require developers to pay financial deposits that they can lose if they fail to meet certain milestones, the final version stripped out a contentious proposal to require developers to sign contracts with customers for their power before completing an interconnection agreement.

The problem with that, Marquis said in an interview, is that ​“projects don’t have contracts before they enter the queue, because they don’t know what their interconnection costs will be.” And so-called ​“merchant” projects that sell their power on wholesale energy markets ​“may never have a contract.”

Marquis also commended FERC’s decision to add, for the first time, hard timelines for grid operators and utilities to complete interconnection studies and financial penalties for failing to stick to them. Those penalties can add up to thousands of dollars per day, and they were hotly opposed by grid operators and utilities. Given that pushback, it’s notable that FERC ​“nonetheless recognized the importance of holding all parties in the interconnection process accountable,” she said.

FERC’s decision to make advanced transmission technologies a required option for grid operators and utilities to consider in interconnection studies is also an improvement from previous language that simply allowed project developers to ​“suggest” them as an alternative, she said.

At the same time, FERC’s order ​“unfortunately leaves important stones unturned,” Marquis noted in a Thursday statement. Those include its failure to demand improvements to what she characterized as ​“unnecessarily protracted and inefficient” interconnection studies, which can sometimes determine that developers must pay for millions of dollars’ worth of upgrades to areas of the grid that may be thousands of miles away from where they’re planning to interconnect, and the resulting ​“unexpectedly high costs of transmission system upgrades, which are ultimately passed through to consumers.”

Clean-energy groups also emphasized that the effectiveness of the order will depend on how grid operators and utilities carry out its provisions. The country’s seven regional transmission organizations and independent system operators, which manage transmission grids delivering power to about two-thirds of the country’s population, now have 90 days to craft implementation plans to comply with FERC’s new rules. Those plans will then be subject to review by FERC, with the potential for further debate and challenges. 

John Moore, director of the Sustainable FERC Project at the Natural Resources Defense Council, said FERC’s order ​“will improve and standardize interconnection processes across all grid operators, usher in new clean technology, improve grid efficiency and reliability, and require accountability for bringing new sources online.” But he added that its success will ​“depend on grid operators taking leadership and increasing the capability and capacity of the grid.”

FERC’s order requires grid operators to switch from studying projects one at a time to studying them in groups, through a so-called ​“cluster” process, to speed up interconnection and better understand how many projects coming online might impact the grid. But while that requirement is helpful, cluster studies are not a new concept, pointed out Claire Wayner, an associate with the Carbon-Free Electricity Program at think tank RMI. (Canary Media is an independent affiliate of RMI.)

Some independent system operators already conduct cluster studies, such as California’s CAISO and the Midcontinent Independent System Operator (MISO), but they are still seeing long queue times, she noted. ​“So it only gets you part of the way. It also introduces a lot of interdependencies” that need to be managed, including how to deal with the complications that arise when some projects in a cluster drop out of contention, she said.

Big changes to interconnection policies also take years that the country can little afford to spare in its fight against climate change. PJM, the operator of a grid that provides electricity to about 65 million customers from the mid-Atlantic coast to Chicago, has launched an interconnection revamp to unclog its bottleneck of 250 gigawatts’ worth of projects. But that reform isn’t set for completion until 2026 — and in the meantime, PJM’s lack of progress on getting new projects connected to the grid is threatening the ability of member states from New Jersey to Illinois to meet their clean energy targets.

The bigger problem: Not enough transmission for all the new clean energy 

Clean-energy groups also highlighted that FERC’s action on interconnection, while much needed, is only the first step in a much wider-ranging set of reforms required to break the logjam on clean energy growth. Simply put, there’s only so much that interconnection reforms can do to make room on increasingly crowded and constrained U.S. power grids.

Advanced Energy United’s Marquis cited the example of MISO, the Midwestern grid operator whose territory covers parts of 15 states from the Gulf of Mexico to Canada’s Manitoba province. MISO provides a ​“heat map” of available grid capacity across its territory, a potentially useful tool for clean-energy developers. Unfortunately, almost all of MISO territory is colored red on the map, indicating a heavily constrained grid — a condition that MISO hopes to resolve with a multibillion-dollar transmission expansion plan now in the works. 

Fixing that requires ​“making sure the transmission planning process is reformed and taking into account the need for new generation, so you’re making sure that in the future there’s more headroom on the system,” she said.

That view is backed up by studies from organizations including the U.S. Department of Energy, Princeton University and think tank Energy Innovation that indicate the U.S. must double or triple its current pace of transmission buildout, both to meet the Biden administration’s targets for a zero-carbon power grid by 2035 and to capture the full scope of the hundreds of billions of dollars in clean energy incentives made available through last year’s Inflation Reduction Act.

“The rule that FERC released Thursday has been hotly anticipated and is a critical step forward — and it’s insufficient,” said Katie Siegner, a manager in RMI’s Carbon-Free Electricity practice. ​“We have to take at least three more steps of that size — such as finalizing a strong transmission-planning rule — if not more, to fully address this problem.”

Seigner cited a recent letter from U.S. Senate Majority Leader Chuck Schumer in which the New York Democrat urges FERC to move quickly on several key rules now under consideration. Those include a long-running effort to create regulatory structures to boost the development of large-scale, long-term regional transmission planning across the country, and another that would clarify FERC’s ability to serve as a ​“backstop siting authority” — essentially using its power of eminent domain to issue construction permits for transmission projects that have been deemed vital to the national interest but have been denied approval by state regulators.

Phillips acknowledged these remaining challenges during Thursday’s meeting, noting that FERC expects to issue its regional transmission-planning order later this year. ​“Together, with this interconnection-queue reform, with long-term and regional planning, we will have the greatest transmission reforms in a generation to come out of FERC,” he said.

Adding more transmission lines won’t just expand clean energy capacity, FERC’s Clements noted during Thursday’s meeting. It will also make the grid more reliable in the face of extreme weather, like this summer’s unprecedented heat waves and the winter storms that have caused blackouts across the country in recent years. It will also mitigate the fast-rising costs of grid congestion that prevent lower-cost energy from reaching the places it’s needed most.

Phillips also noted the controversial outstanding issue of cost allocation — the methods by which grid operators and utilities determine how to split the cost of grid upgrades needed for interconnection between utilities and project developers, and how to split the cost of new grid infrastructure between different utilities and their customers.

“The commission is working diligently on how to address the key issues of regional transmission planning and cost allocation,” Phillips said in a prepared statement. ​“We need to take a longer-term, forward-looking approach to planning for essential transmission facilities and to allocate the costs of those facilities in a just and reasonable manner while enhancing the reliability and resilience of the grid.”

Clean-energy developers, utilities, state regulators and FERC’s commissioners themselves are far more divided on this issue than on the need for interconnection reform, creating the risk that the commission won’t be able to reach a consensus on how to address cost allocation.

The developers say that leaving existing cost-allocation rules in place would mean failing to solve a key challenge for quickly adding new projects to the grid. 

As grid expansion has slowed over the past decade, the cost of grid upgrades being assigned to new project developers has ballooned, sometimes reaching as much as the total cost of the projects themselves, and forcing a growing number of project developers to abandon their plans.

“It’s such a thorny one that it may be impossible to gain a majority decision on that. So how it gets resolved is somewhere over the horizon,” said Mike Jacobs, senior energy analyst at the Union of Concerned Scientists. ​“But it’s a strong symbol of the part of this interconnection process that’s really entwined with transmission planning.”

Back in 2021, then-FERC Chair Richard Glick initially introduced the idea of linking interconnection, transmission planning and cost-allocation reform in a single rulemaking, Jacobs noted. The decision to split these issues into distinct rulemakings may have been seen as politically expedient at the time, he said, ​“but now we see the implications of that. With the narrow focus on interconnection, we’ve gotten incremental improvement — but it’s certainly incremental.”