Ensuring Energy Reliability in the Transition to Clean Energy

Ensuring Energy Reliability in the Transition to Clean Energy | Part 1

Clean energy has become vital to the United States energy portfolio as it seeks energy independence and reduced environmental impact. However, the reliability of energy supply and efficient transmission present critical challenges in harnessing the potential of new energy resources, and these challenges are not isolated to one region or energy source.

Regional transmission organizations (RTOs) are independent entities that coordinate and manage the operation of multiple electricity transmission systems across a multi-state region. RTOs aim to ensure reliability and optimize transmission services and electricity markets across large interstate areas. They provide open access to the regional transmission grid for all participants and oversee critical operations like scheduling power transactions, administering wholesale electricity markets, planning transmission system expansions, and ensuring non-discriminatory access to the grid. As system operators, RTOs play an essential role in the interconnection process, conducting required studies to determine necessary grid upgrades for proposed generation projects seeking to connect to the regional grid.

The Backlog on the PJM Interconnection Queue

The PJM Interconnection, one of the largest regional transmission organizations (RTOs) in the United States, faces a significant backlog of energy projects awaiting integration into the grid. Traditionally operating on a first-come, first-served basis, the review process led to the approval of projects unprepared for implementation. Early applicants secured priority, leaving other viable projects waiting in the queue. In response to the backlog, PJM significantly modified its review process, transitioning to a first-ready, first-served process. This approach aims to prioritize well-prepared projects, streamlining the integration process.

The Transition to First-Ready, First-Served

The shift from a first-come, first-served to a first-ready, first-served process resulted from a collaborative effort among PJM stakeholders. In April 2021, PJM and stakeholders embarked on an intensive exploration to streamline the interconnection process. The objective was to provide developers with a more predictable, transparent process regarding timing and costs while weeding out speculative projects that could hinder the progress of genuinely viable ventures.

Stakeholders overwhelmingly supported the proposal, recognizing its potential to drive efficiency and accelerate the integration of clean energy. The Federal Energy Regulatory Commission (FERC) received and approved the proposal in 2021. As PJM implements the new process, it is poised to promptly study and connect approximately 2,500 proposed energy projects over the next three years.

However, this shift revealed a new issue: the challenge of transmission infrastructure and interconnection. While the new process emphasizes project readiness, the existing transmission grid needs improvement to accommodate the growing number of energy projects seeking integration.

Transmission Infrastructure and Interconnection

As new energy projects seek to meet growing demands, the strain on transmission infrastructure intensifies. Unfortunately, establishing new lines is costly, with developers bearing much of the burden. The actual interconnection cost is only realized post-approval, creating a financing barrier. Additionally, navigating the complex interconnection process involving many stakeholders causes delays.

Interconnection costs for projects actively going through the queue have increased eightfold from $29/kW to $240/kW between 2019 and 2022. The increased cost has disproportionately affected clean energy development. The median interconnection costs for offshore wind ($190/kW), solar hybrid ($82/kW), solar ($82/kW), storage ($63/kW), and onshore wind ($46/kW) are far greater than natural gas ($8/kW).

There are several reasons clean energy projects face higher interconnection costs. Clean energy projects are often sited in remote areas with limited grid infrastructure compared to fossil fuel plants built near load centers. The variability of solar and wind also requires transmission upgrades to maintain reliability when these resources fluctuate. Additionally, qualifying for capacity markets incentivizes batteries to maximize discharge during peak demand periods, increasing their interconnection costs despite flexibility.

The Growing Trend of Localization

In response to delayed clean energy development, climate change concerns, and escalating electricity costs, a growing number of communities are seeking localized control over electric infrastructure. Community Choice Aggregation (CCA) programs have emerged as an avenue for municipalities and counties to independently procure energy, bypassing traditional utility providers.

However, Community Choice Aggregators (CCAs) encounter various technical challenges, especially as new entities lack institutional expertise in electricity markets. One significant hurdle is accurately forecasting customer load and peak demand since CCAs have limited historical data to predict future electricity usage and peak loads. Inaccurate forecasts can complicate utility procurement planning and resource adequacy assessments. Additionally, operating a CCA requires expertise in wholesale market operations, transmission systems, and balancing supply and demand, which can be challenging for newly formed CCAs to acquire.

Smooth CCA operation also relies on coordinating with the local utility to align the CCA’s clean energy and resource plans with the utility’s procurement strategies. This alignment is essential for maintaining grid reliability as customers transition. Furthermore, managing customer enrollment can be complicated due to varying policies for enrolling new CCA customers who move into the service area, adding administrative costs. CCAs must continuously monitor electricity prices and renegotiate supplier contracts to offer competitive rates, which becomes problematic in the face of energy market volatility.

In regulated electricity markets like California, CCAs face additional challenges. They must enter long-term power purchase agreements to comply with clean energy portfolio standards, requiring project financing expertise and access to low-cost financing. Moreover, legacy contract cost allocation poses a dilemma, as investor-owned utilities earn revenue based on long-term investments made on behalf of past customers. Regulators must determine fair exit fees for customers moving to CCAs to avoid cost-shifting.

CCAs in regulated markets also need to demonstrate ownership of sufficient capacity to meet peak customer demand across multiple timeframes, complying with resource adequacy requirements. However, accurately forecasting capacity needs is a significant challenge for CCAs. Additionally, CCAs argue against falling under the complete oversight of utility commissions meant for investor-owned utilities, but resolving regulatory authority over CCA activities affecting reliability is necessary.

While CCA initiatives might empower communities to select clean energy options that align with their sustainability goals, they must address significant technical challenges to be feasible.

Regional transmission organizations (RTOs) and independent system operators (ISOs) play a vital role in managing multi-state electricity grids and wholesale power markets. However, RTOs like PJM face extensive backlogs of proposed projects awaiting interconnection approval due to an inefficient first-come, first-served review process. Transitioning to a first-ready, first-served model aims to accelerate viable clean energy projects, but upgrades to transmission infrastructure remain essential for integration.

Additionally, emerging community choice aggregation (CCA) programs empower municipalities to independently procure clean power aligned with sustainability goals. However, CCAs encounter challenges in forecasting, cost allocation, and regulatory oversight that threaten their technical feasibility and system reliability.

Addressing transmission infrastructure constraints and CCA deficiencies through collaborative action and investments can enable cleaner electricity access while maintaining affordability and reliability. Although the clean energy transition pathway contains obstacles, modernizing America’s electricity networks through bipartisan solutions remains key to an optimized and sustainable energy future.