Imagine standing in line outside a restaurant only to find that when you reach the door, there are no more tables. “No worries!” says the restaurant owner. “We can accommodate you in our new wing. We just need to build it. And, oh, by the way, you’ll need to pay for its construction.”
Odd as that sounds, it’s pretty much how the grid interconnection queue works in a big swath of the United States.
What’s the problem? The utility distribution grid is unprepared as we add solar, batteries, electric vehicles and other distributed energy resources (DERs). Upgrades are needed, but who should pay for them is often unclear.
“Fundamentally, at the end of the day, this is another example where we’re existing in a paradigm that wasn’t designed to support what we’re trying to create,” said Ed Brolin, vice president, policy development & distributed government relations for RWE, a global clean energy developer.
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The result is a scenario that dumbfounds those new to electric power. Here’s what happens.
To interconnect to the grid at a certain location, DER companies queue up for a review process, pay a fee, and eventually one by one, they’re in. But then, at some point, the utility’s hosting capacity fills up. The utility needs to build new infrastructure before it can connect anymore projects. This is bad news for the project developer waiting next in line for approval. That company can either foot the entire bill to upgrade the system — even if they’ll use only a portion of the new capacity — or walk away.
The problem stems from pre-DER times when only large power plants were interconnected to the grid. Then the practice made sense, Brolin explained. A power plant built five miles away didn’t begrudge paying to string wire to the grid because it was clearly the beneficiary of the wire.
“No coal-fired power plant ever said, ‘Oh, we can’t deal with it,’ when they get the interconnection bill for $3 million,” he said.
But DERs are different. Smaller and less capitalized, they attach to the grid edge, close to the customers they serve, and eventually use up capacity on a distribution system built before technologies of their kind were anticipated.
Two community solar projects walk into a grid interconnection queue…
Brolin offered a hypothetical example. Two community solar projects, each 5 MW, apply for grid interconnection. But that spot on the distribution grid can only support 9 MW. The utility evaluates the first 5 MW project and determines it can interconnect for $300,000. The developer pays the bill and proceeds. But now the system can accommodate only 4 of the 5 MW for the second system. The utility determines the system requires $2.3 million in expansions. The community solar project must either pay the bill, reduce the size of its project, or walk.
And it gets worse.
Some utilities now charge project developers for transmission upgrades triggered by the changes in the distribution system — an even costlier proposition.
“So now we’re not talking about $2.3 million, we’re talking about $33 million,” Brolin said.
In essence, these DER developers are being asked to foot the bill to meet policy goals to decarbonize and modernize the utility grid, he said.
This approach to grid upgrades also creates skewed incentives that lead to poor grid planning. Rather than trying to locate where their power is needed, DER developers prospect around the distribution grid for places that can accommodate them.
Grid interconnection payment alternatives
Several attempts to rectify the problem have led to more problems, according to Brolin. New York considered a system where the project developer would pay the full cost of the upgrade but then get reimbursed as other projects joined the system and used the new capacity.
“Nobody wrote the check. Tax equity investors aren’t wing-and-a-prayer people,” he said.
Another approach was for the utility to divide the pie — figure out how much of the upgraded capacity the developer would use, charge them only for that, and then collect the remainder as new projects interconnect. This made sense but fell apart when pressure on the distribution grid began triggering transmission level upgrades.
Has Massachusetts figured it out?
Brolin is bullish on a provisional framework being tried in Massachusetts, which sprang from a broadening of the utility mandate. Regulators typically require that electric utilities provide safe and reliable energy at reasonable rates. But Massachusetts state lawmakers in 2019 expanded the mandate to include the state’s decarbonization and environmental justice goals. This opened the door to examining interconnection problems that stifle the achievement of these goals.
Under the framework, utilities create capital investment project (CIP) proposals, which detail where upgrades need to be made, what they’ll cost, and how they’ll benefit ratepayers.
The approach splits the financial burden between the ratepayer and the developer. The utility must determine what percentage of the project benefits ratepayers and which portion directly benefits the developer and then apportion the costs accordingly.
Because the filings go before the Massachusetts Department of Public Utilities (DPU), the process is transparent, so all parties can see what’s being charged and why.
In addition, Massachusetts is getting proactive about planning distributed energy resources. Utilities must file grid modernization plans every five years that, among other things, must “enable increased, timely adoption of renewable energy and distributed energy resources,” according to the DPU.
Brolin still envisions battles during regulatory proceedings as the different parties hash out the details. But he sees Massachusetts moving in the right direction.
“There’s this concept called punctuated equilibrium theory. It basically posits that because you have the same people in the room — and not very many people in the room — year after year after year, you get groupthink,” he said. “You have these long periods of stasis where nothing changes. That’s how our industry has been regulated historically.”
“But every once in a while, there’s a punctuation in that equilibrium. And during those punctuations, the previously unthinkable can become the inevitable. We are in a punctuation. We need to take full advantage of it,” he said.
