Grid capacity needs to increase materially in the coming years. Electrification and decarbonization require it. Against this backdrop, interconnection reform needs to become a higher priority.
“It’s an issue that needs to be addressed quickly, particularly because interconnection proceedings at regulatory commissions take months or years to complete,” Laurel Passera, policy director for Coalition for Community Solar Access (CCSA) said.
Distributed energy resources (DERs) are starting to hit a noteworthy level of penetration on the grid, and already interconnection queues and delays are an issue in many states, particularly those with effective community solar programs.
The work that needs to be done around interconnection will take years to address and implement because distributed generation requires a different mindset. “It’s a paradigm shift in terms of how we think about planning and upgrading the energy network,” Jenna Warmuth, interconnection policy advisor at Nexamp said.
Interconnection delays are slowing down the deployment of community solar and having real world consequences, for community solar customers, who cannot access cost savings from their subscriptions, and for solar developers. Delays can be impactful, especially for small developers that have loans on their deposits or that have holding costs for land leases and external permits, Kevin Cray, CCSA’s mountain west regional director said.
Lately, interconnection delays are also representing a growing risk for utilities as a $1 million fine given to Xcel Energy Minnesota in January showed.
“That [fine] should be seen as a warning signal,” Cray said, noting that other commissions can also use fines, under utility quality of service metrics, to address interconnection delays.
Xcel Energy Minnesota was fined by the Minnesota Public Utilities Commission because complaints over delays in connecting solar projects to the electricity grid crossed an established quality of service threshold. In Minnesota, rooftop solar and community solar projects are lumped into the same queue, exacerbating delays.
Misaligned incentives
Despite the fact that DERs, like community solar, represent a cost-effective way to improve grid resiliency and meet decarbonization goals, utilities are having a hard time keeping up with their recent growth.
Because utilities generate electricity themselves and are not often required to plan for large amounts of DERs into the future, they have little incentive to integrate distributed generation in an efficient or cost-effective manner. As a result, DERs are often an afterthought in utilities’ integrated resource planning processes.
However, utilities that have a clear understanding of where distributed generation assets will be built can make proactive upgrades to substations and feeders in advance, Passera said. Some states are starting to address these misaligned incentives through performance-based ratemaking initiatives.
“One of the biggest unknown costs for community solar project developers is whether a project will trigger a substation upgrade or incur other upgrade costs that will render the project unfinanceable,” Passera explained. Some states are experimenting with policy options to fix this challenge.
In New York, for example, when a utility makes a significant upgrade so new DERs can come online, the upgrade costs can be shared by all the developers that would benefit from that upgrade. This cost-sharing approach was designed by a working group of project developers and utilities that meet regularly to work through solutions to interconnection challenges. Only a handful of states have ongoing interconnection working groups despite evidence showing they can be an effective way to improve interconnection procedures, she added.
Under a 42-year-old rule enshrined in the Public Utility Regulatory Policies Act (PURPA), the distributed generation project that triggers the need for a substation upgrade has to pay for it.
Typically, a small change to a project’s cost is baked into a solar developer’s financing plan, Kaitlin Kelly O’Neill, CCSA’s northeast regional director said.
But in January solar developers in Maine were greeted with substation upgrade requests in the millions of dollars – well after signing interconnection agreements with Central Maine Power (CMP).
Community solar developers have been flocking to Maine since 2019, when the state passed legislation aimed at promoting small-scale solar projects in the state and mandates calling for 80% of the state’s electricity to come from renewable resources by 2030 and 100% by 2050.
According to O’Neill, the interconnection costs were unprecedented. The legality of the move, taken so late in the process, was also unclear.
After a public backlash, CMP quickly walked back its exorbitant substation upgrade estimates, but the kerfuffle prompted Maine’s Public Service Commission to open an investigation into the matter.
Developers are currently working with CMP to devise more cost-effective solutions, and Nexamp’s Warmuth is hopeful that a cost-sharing scheme, in which significant upgrade costs are apportioned to all parties that benefit, will result.
Progress at the state level
Because utilities historically fail to act proactively on their own, it will be incumbent on state lawmakers and their utility commissions to tackle distributed solar interconnection issues, in particular, if states are going to meet their carbon reduction goals.
“You need to address [interconnection issues] before there is a problem,” Passera said. Some states are so far behind on interconnection issues that they don’t even know what their growing pains are, Cray added. States like New Mexico, which hasn’t updated its interconnection guidance in more than 10 years, would benefit from interconnection reform.
State utility commissions can also help smooth the process by requiring a standard set of interconnection guidelines that apply to all utilities in the state and provide a clear layer of interpretation on interconnection rules. Without effective guidelines, utilities can interpret rules in different ways, causing confusion in the market, said Passera.
For their part, utilities would be wise to make interconnection reform more of a priority issue and work towards solutions that help them better communicate with DERs, like community solar, on their grid, Cray said.
Until these interconnection challenges are adequately addressed, the dream of distributed solar – and all the impressive societal and grid benefits these local assets create – will not match the reality of what’s actually flowing through the grid.
