FERC Order Helps Microgrids and DERs Speed Up Interconnection, But Costs Still a Challenge

As more and more microgrids and distributed energy resources (DER) are added to the grid, they help green the electricity system and provide resilience and grid services. But one of developers’ biggest gripes is interconnection hassles.

Under the existing system, interconnecting to utilities and Regional Transmission Organizations (RTO) takes too long and can be too expensive, they complain. A Lawrence Berkeley National Lab report earlier this year found that for projects built in 2022, the typical interconnection wait time was about five years.

A Federal Energy Regulatory Commission (FERC) July 28 ruling on interconnection can dramatically speed this process, but doesn’t do enough to lower the costs of paying for the upgrades needed to connect to the system, two DER developers say.

Developers like the “first-ready, first-served” process

FERC Order 2023 creates a first-ready, first-served study process. It also establishes higher financial requirements for interconnecting customers and transmission providers. And it requires transmission providers to implement a “cluster study” instead of the first-come, first-served study process that has been in place for many years and has slowed DER developers’ interconnection efforts.

The DER developers applauded the first-ready, first-served study process, but said that FERC didn’t go far enough in providing transparency about the costs imposed by transmission providers for upgrading their systems to accommodate new DERs. Those costs are too high, and may not reflect the true costs, they said.

FERC order designed for the uptick in renewables

“The FERC order is a really good thing,” said Jeff Perry, executive vice president, asset management, Agilitas Energy, which develops and operates solar and storage projects. The first-come, first-served process served the industry well until the number of renewable energy projects trying to connect started to boom. Now, with so many renewables projects being developed, that process doesn’t work, he said. “FERC’s order will allow us to move through the interconnection process more quickly and reliably,” he said.

Under the first-come, first-served interconnection study process, developers could reserve a place in line even if they hadn’t made much progress on their project. This process slows interconnection for projects that are truly ready to be built, said Perry.

“Before, anyone could get into the queue whether or not they were ready,” said Perry. “If developers knew it would be hard to get into the queue, the first thing they’d do is apply to secure a spot.” That worked when there were few projects in line.

Under the new FERC order, more clean energy projects will get built. That’s because they won’t get hung up behind projects that are in line but may never move forward, he said.

The FERC order also increases the cost of filing an application, which is intended to ensure that those who are ready to proceed with their projects are willing to commit to them by putting money on the table, said Perry. FERC created a non-refundable $5,000 application fee that should be submitted with the interconnection request.

However, the fee may create equity issues for smaller developers who can’t afford to put $5,000 down, he noted.

Transmission owners incentivized to follow schedules

Also under the order, transmission owners must adhere to their schedules and milestones for interconnecting DERs, or they will be penalized.

“That’s a huge thing; it’s an incentive to move projects along,” said Perry.

But the cost of paying for system upgrades–and determining how those costs should be established–are still challenges for developers. High and unpredictable network upgrade costs have been one of the biggest obstacles for developers attempting interconnection, said Adam Weber, director of offsite solutions at Pivot Energy, which develops and operates solar and storage projects.

New generation could be financed and deployed much more efficiently if these costs were reduced to reflect actual grid conditions– and if the costs were known years or even months sooner. FERC has signaled that it will address this issue, and Weber hopes that happens in the near future, Weber said.

Under the old interconnection system, affected-systems studies are an example of this challenge. With these studies, project developers may be required to pay for the impacts of interconnecting in their local areas but also may incur additional bills hundreds of miles away, potentially in other grid operators’ territories, said Weber. “It's unlikely the sum of these costs reflects the actual total impact a given project will have on the grid,” he said.

Should ratepayers pay for system upgrades?

Perry agreed that these costs can be high. Rather than imposing these costs on developers, transmission providers and regulators should consider whether ratepayers should be paying to build out the grid with renewable energy because clean energy provides societal benefits, he said. Ratepayers often reject this argument, saying that if they don’t receive the power directly, they shouldn’t pay for it.

Transparency is also an issue. There is no transparency for developers about what’s happening in the system that may affect their charges from transmission providers, Perry added.

Barrett Bilotta, president, co-founder and CEO of Agilitas Energy, said that collaboration and open communication between developers and interconnecting utilities can also speed up connection times and lower costs.

In addition, because building more transmission lines could take a decade or more, the industry should view energy storage as a transmission asset, he said. This would give grid operators more flexibility in how they connect renewables to the grid and would help utilities, developers and other market participants navigate shifting grid dynamics, such as congestion trends and real-time pricing, Bilotta added.

Meanwhile, industry members are still trying to understand the details of the order.

Said Thomas Wells, federal and state policy manager at Southern Power and PowerSecure, subsidiaries of the utility Southern Company, "The recent FERC interconnection order has broad impacts for the entire system. We’re reviewing it to determine the impacts across our operating companies.”

Order eases some frustration

While industry members are studying the FERC order, they’re certain about one detail: The order will result in faster interconnection times, relieving some, but not all, of the frustration developers experience trying to interconnect their projects to the grid.

“The order codifies numerous best practices for shifting from a system designed for few, massive, centralized fossil fuel generators to many, smaller, decentralized clean energy generators,” Weber said.