The Cost of New Transmission

In this episode, clean grid expert Chaz Teplin demystifies interconnection queues.

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Text transcript:

David Roberts

By now, you’ve probably heard that tons of new renewable energy projects are “stuck in the interconnection queues,” unable to connect to the grid and produce electricity until grid operators get around to approving them, which can take up to five years in some areas.

And you might have heard that FERC recently implemented some reforms of the interconnection queue process in hopes of speeding it up.

It all seems like a pretty big deal. But as I think about it, it occurs to me that I don’t really know what an interconnection queue is or why they work the way they do. So I’m going to talk to an expert — Chaz Teplin, who works on carbon-free grids with RMI — to get the lowdown.

We’re going to talk through the basics of interconnection queues, why they’re so slow, what RTOs and FERC are doing to reform them, and what remains to be done (namely some friggin’ regional transmission planning).

With no further ado, Chaz Teplin. Welcome to Volts. Thank you so much for coming.

Chaz Teplin

Thanks for having me.

David Roberts

You know, as I said in my intro, it seems like the clean energy community at this point has heard the term interconnection queue enough times that they all know it enough to say it, right. We know on some level that interconnection queues are slowing things down and they're backed up and that's why we're not building renewable energy as fast as we should be. But I suspect that quite a few of my listeners are roughly where I am, which is that's basically where my knowledge runs dry. I can say the words, so I'm excited to talk to you about what the heck they are, why they exist, etc., how to solve them, etc.

So maybe let's just start with why is it that all of a sudden everybody's talking about interconnection queues? Why has this come to the top of the pile recently?

Chaz Teplin

Yeah, everybody's talking about interconnection queues and there's been a recent order from FERC amid the hullabaloo. Right. So I think it's a good news, bad news story. The good news is that there's currently two terawatts of generators asking to connect to the US grid. And almost all of that two terawatts is clean energy, wind, solar and storage. So for those of us that have been in the business for a while, this is unbelievably great news. That means there's so many projects out there of clean energy mostly there's some gas, but clean energy mostly that believe it's economic to connect to the grid and they're willing to pay a fee in order to ask to connect.

David Roberts

And how much is that relative to what's currently on the grid?

Chaz Teplin

Yeah, it's not exactly an apples to apples comparison, but two terawatts asking to connect 1.25 terawatts approximately on the US grid today.

David Roberts

Right. So there's more waiting to get on than exists currently on the grid. Now, we know, I'm sure you're going to say, we're going to say probably 50 times during this pod, just because something's in the queue doesn't mean it will necessarily get built. So it's not like all of that two terawatts is real or inevitable, but still, the fact that more is waiting to get on the grid than currently exists on the grid is quite striking.

Chaz Teplin

That's right. And every year more is asking to connect, right? So, yeah, absolutely, it's not going to all get built. But I think it's a fairly clear demand signal that generators and developers are giving. They want to connect to the grid. They believe they can make money doing so, so it's great news.

David Roberts

And yet they are stuck there.

Chaz Teplin

So that's the good news. The bad news is twofold. First, say I'm a wind or solar generator developer wanting to connect to the grid. It's going to take me years after I ask, before I even find out if I'm allowed to connect. Three, sometimes even five or more years. It depends on the grid and some of the details, but it takes years. And that adds cost and obviously time to your project that you don't want. And that's unfortunate. And second, it's bad because a lot of times what the grid operator comes back with is a really large bill that could easily make it so that your project is uncompetitive, no longer makes sense.

And so you see high dropout rates. So yeah, the queue is huge. That's good. It shows that there's demand, but it's bad because projects take too long to get through the queue and even find out what the cost is going to be to connect. And often those costs are high.

David Roberts

This might even be too obvious to say, but I think it's worth emphasizing at the outset that it's just a little crazy. Anyone who's an investor or who's tried to manage a project or build a project, just imagine if you had to say to your investors, not only like, this is a worthy project now, but this will be worthy in three years, or it will be worthy in five years. How do you know? It's just an insane addition of uncertainty and risk to every single solitary project.

Chaz Teplin

Right. And you don't know how much it's going to cost. It's like this cost of my project is a dollar a watt, plus or minus $0.50. That's not really reasonable because you don't know what the connection cost is going to be.

David Roberts

I know it's just an insane business environment. Like we're not sure of what your costs are, not sure how long it's going to take, and then you're trying to talk investors into sort of sticking with you through this.

Chaz Teplin

One thing I want to add on that is it causes problems for developers, for investors, but it also causes problems for the grid. And the problems sort of are in this reinforcing loop. Because developers don't know where to ask to connect or how long it's going to be. They tend to put in a lot of speculative projects. Because they are hoping that one of them is a good deal.

David Roberts

Right. Playing the table, right?

Chaz Teplin

That's right, they're playing the table and unfortunately that doing that might be good for them but it puts a huge load on the grid operator to try and process all this and makes it bad for everybody because then it makes the process take even longer.

David Roberts

Right.

Chaz Teplin

It's an example of the rule of incenting bad behavior and then the bad behavior cycling.

David Roberts

Right. So let's back up then and talk about what an interconnection queue is exactly, and why they exist. Like why do utilities need every project to stand in a single file line and be approved one by one? Why?

Chaz Teplin

So, there are some very good reasons and then some arguable reasons for having an interconnection queue. The clear and very good reason, and we're all glad that they exist, is because the grid operator does need to ensure that a new generator on the system won't cause some cascading set of failures that could bring down a significant fraction of the grid. That's not likely, but it's possible. The way that that would work is you would study the grid under some set of scenarios and then the key thing is then you also ask so what if something else on the grid fails that would cause transmission or cause power to flow along the transmission lines in different ways.

And if you, for example, overloaded a line or a substation, that would be bad. And so you might need to upgrade that substation to make sure that when this new generator comes online you don't cause a problem.

David Roberts

So you're just ensuring for each individual project that that individual project will not be sort of the straw that broke some camel's back.

Chaz Teplin

That's right. And it's important to understand though that's like one piece and every grid operator studies that to make sure that there's not going to be a problem. But there's a second piece which is making sure that the power from that generator is usually going to be deliverable to load, meaning you don't have to turn it off to keep things in safe conditions. And that's a little bit different. And that's related to how grid operators plan for resource adequacy, making sure that there's always enough generation to meet load. And different grid operators do that in different ways.

But a lot of the different opinions about how we should do this come down to how much we should ensure that different projects are deliverable to the system. And it's related to how grid operators again think about making sure that there's always enough generation online at a given time.

David Roberts

Right, so that seems like a reasonable reason to have a queue. Is that the main one?

Chaz Teplin

The one that's universal right is the making sure there isn't cascading failures issue. The one that is more controversial is the connection to resource adequacy because different grids do that in different ways. And then the other related issue is that in a lot of grids today, this is the primary way we invest in the transmission system is we ask the next generator to pay for upgrades to the transmission system.

David Roberts

Yes, this is the part I always stumble over the craziest thing to me so I want to just spend a second on it. The analogy I always hear is like a line of cars waiting to get on the freeway. The freeway can only fit so many cars. So when the freeway reaches capacity we ask the next car in line to build a new lane of the freeway, basically. So the next generator in line when capacity is reached is on the hook for paying for new transmission which is as crazy as it sounds, yes?

Chaz Teplin

Yeah, it's pretty much like that. So it's a competition to be the car after the person had to pay because then you sort of get to nominally free ride.

David Roberts

Exactly. Or the car before or just like not be that car. You don't want to be like that one car who it's like a lottery almost.

Chaz Teplin

Yeah. And it's important to recognize though that it's crazy in the current system to look at it that way. But when these roles were put in place it wasn't quite as crazy as it seemed. In a world where that we're in today, where we're seeing lots of new generation that is sort of geographically constrained. You want to put low cost wind farms where it's windy, you want to put solar farms where it's sunny and the cost to build is low. Those are sort of geographically constrained. In previous eras where load was flat and we were mostly building gas plants, you can kind of build a gas plant wherever it's convenient for the grid.

Chaz Teplin

And so to continue with the analogy, you can get to your destination through lots of different highways so you're encouraged to use an empty one. But that's no longer the world we're in now. And because, and this is the key thing, because we haven't been doing significant investments in transmission, we're in this place where all of the key highways are clogged or close to being clogged and lots of cars are waiting in line to get on that highway.

David Roberts

So is it the case that if you are the project that just draws the short straw and happens to be in line or at the head of the line when new transmission is needed, two questions: One, how much additional cost is that to you, does it double your cost? How much is it for a developer to pay for new transmission? Is that sort of dispositive amount of additional money? And number two, if you are the unlucky person in that spot or the unlucky project in that spot. And you hear back from the RTO that, yes, you can connect if you build a new transmission line, can you then just say, well, never mind, right, and then drop out, and then the next project behind you is the unlucky project and then why wouldn't that project also just drop out?

So who accepts these additional costs? It seems like you don't have to like everybody would be trying to avoid it.

Chaz Teplin

That's right, everybody's trying to avoid it. Absolutely. You aren't required to build your project when you enter the queue. You might lose your deposit. So the cost can be very large. The queues that make it all the way through, often they are ones with manageable costs and so they do get built or they run into the next set of challenges, things like supply chains currently or permitting. But those projects that do make it through the queue often are the ones that chose a good place on the grid, if you will. Like I mentioned earlier, it's sort of a cascading problem if a project drops out, that also impacts all of the projects around you. So now somebody else becomes the second car, the second car becomes the first car. And so then the RTO needs to go and restudy and say, oh, we thought that generator A was going to be online, but they dropped out, so now we have to restudy the whole thing.

David Roberts

And those studies are what take years.

Chaz Teplin

The studies themselves are pretty complicated because first you have to look at every possible failure on the grid that could happen and then you have to look at, well, okay, if that fails and something else fails, what happens? That's part of the interconnection queue study and they are processor and human intensive. And so, yes, they actually take a long time to do the studies. They're expensive in terms of having the staff and even the computational capabilities to run. And so they take a long time.

David Roberts

So we can get a situation here that's trying to paint a picture where all these projects are in line. A project comes to the head of the line, the RTO takes years to study, comes back and tells the project, our study concluded that we don't currently have capacity to accommodate you, so you're going to have to build a new transmission line if you want to connect to the grid. And that project says, oh, that's going to double my costs. No thank you, I'm dropping out. And then the years long study process starts over again. That's like two years a pop, three years pop with nothing happening and nothing getting interconnected. That just seems like an insanely slow way to do things.

Chaz Teplin

Yes. And so there's been lots of ideas about how to fix some of these process-oriented challenges and some RTOs are already doing that. And FERC has made some progress this week. We'll get to there I'm sure. But yes, that is a fairly close approximation of the existing process.

David Roberts

Is any transmission getting built this way? It just seems like the most inefficient possible way to build transmission, too. Are there projects that get stuck with this obligation to build new transmission who do it? And are we seeing transmission getting built through this?

Chaz Teplin

Yeah, I mean, most projects will have some interconnection cost, right? And so they do make some improvements to the transmission system. So some developers are able to make it work and they'll swallow the cost and that benefits everybody else on the system.

David Roberts

Right.

Chaz Teplin

They pay for it. So, yes, we are building a small amount of transmission in that way. Not very much.

David Roberts

All right. And also, it seems worth pointing out that in terms of transmission planning, building each increment of transmission based on what the next project in line requires also seems like the most myopic possible way to be building transmission. Like, you're not planning for the future, you're just literally reacting —

Chaz Teplin

Yeah, that's right.

David Roberts

on a project by project basis.

Chaz Teplin

Yeah. And like I said, it's not crazy in a world where you don't imagine the grid needs to change very much, but it'll never get us to where we need to go with the energy transition underway. And this has big implications. In terms of economics, as ACORE has pointed out, in terms of states meeting their clean energy goals, as NRDC study recently showed, and then even in terms of reliability, which PJM in the Mid Atlantic has shown, they're worried about retiring fossil plants and these problems and the lack of ability to get projects online, being out of sync and then having reliability issues. Not having enough resource adequacy to meet demand.

David Roberts

Right. So this process is not going to be fast enough for any of the things we want to do to hit our carbon goals, state carbon goals, utility, carbon goals, utility, reliability. All these things require some speed and agility, which this is standing in the way of. So why is it like this? How did it get this way?

Chaz Teplin

Yes, I mean, the current system was set up in the 2000s where natural gas was the primary generation being added and could be flexibly cited. And so in order to try and set up the system in the way that made sense, FERC suggested that we have this participant funding paradigm where new generators pay for the transmission needs that they require. That's how we got here, and there's a lot of status quo bias towards keeping that system, and there's not a lot of appetite among many for changing it dramatically.

David Roberts

This I don't understand, though, because I'm not a grid expert, but even just explaining it to me in this way, it's very obvious to me that it's not working. It's obvious from the results that it's not working. It's obvious from any description of the process that it's clearly not working. It's not working for anybody, for anybody's goals. Why isn't there more appetite for large scale change? Is it just the conservatism of the industry?

Chaz Teplin

Yeah, you're putting me in a tough spot here, David, but I think there is a lot of hesitancy to change. Cost allocation is often a problem with — if we're not going to ask new generators to pay for the transmission, who are we going to ask to pay for it?

David Roberts

Right.

Chaz Teplin

And then there's disagreements between again, to go back to PJM the grid I perhaps know the best, between states that have clean energy goals that are excited to do this kind of transmission planning and states without that feel like they're being burdened with other states goals. I don't think that's a good argument necessarily for not building transmission because just the economics and reliability benefits from the transmission alone are more than adequate to make a great case.

David Roberts

To make a great case for ratepayer benefit, for citizen benefit. But the utilities in those states with no targets, their narrow financial interests may not always line up with — they make a lot of money through the grid being congested is one of the dark secrets there.

Chaz Teplin

Yes, of course. There are financial actors that have a spot on the grid where power prices are higher than they would be otherwise. And if you happen to own the generator there, you're making more money. And if you did the transmission and you had to compete with that's just unavoidably true. We would hope that the stakeholder processes and the RTOs and whatnot would take the broader picture about what's best for the full system, for the economics and everything. But it's hard to make those changes and it's always hard to make a change from the status quo, especially if it was — there were long battles in the 2000s about getting to this era, so folks are always hesitant to make that effort, to really look at what could be done differently.

David Roberts

Yeah. So let me ask what might be a naive question, but what would happen if an RTO, a regional transmission organization that's responsible for the sort of wholesale electric market in a region, just threw open the door and let projects connect? First come, first serve as they show up? Without this extended single file line process, would things come crashing down? Is that even a possibility?

Chaz Teplin

Well, I mean, that is basically or has been at least the ERCOT model, which is in Texas. Right. So to be clear though, they still do interconnection queue studies. They just don't worry about deliverability to the same extent. They still make sure that new projects won't cause dynamic instabilities in the grid that could cause cascading failures. Everybody does that. What happens though is you put on the developer the risk that they just will have to be curtailed much more often.

David Roberts

Right, because of grid congestion.

Chaz Teplin

Yeah, that's right. It's also tightly related to the different ways that in this case, ERCOT handles resource adequacy. In ERCOT, there is no effort to make sure that there's always enough power to meet demand. They trust that high energy prices will incent developers to build projects.

David Roberts

Right. For the nerds, this is an energy-only wholesale market. They do not have a capacity market alongside it.

Chaz Teplin

That's right. And so, because in PJM, in order to qualify for the capacity market, PJM, quite reasonably wants to make sure that you can actually deliver power to load, otherwise you're not really helping much with resource adequacy. Though there's some details there. In ERCOT, there's no such concern. They just trust that developers will look for places on the grid where they think there might be high energy prices, because there's barely enough generation to meet load, and that that will incent development and so they don't have to be as careful with that kind of analysis. And so it speeds up the system.

They put more of the risk on developers that their projects will get curtailed and so they're able to make their interconnection queue process go more quickly.

David Roberts

And it works?

Chaz Teplin

Well —

David Roberts

ERCOT's had some troubles lately.

Chaz Teplin

Their queues are much shorter and they are able to process applications much more quickly. Every grid has been having its challenges in ERCOT especially. I'm not sure I would blame the recent outages there on this problem. The other thing that in the past, ERCOT has done well and is the solution everywhere, as we've hinted all along, is the CREZ transmission planning effort made it much easier to connect a whole bunch of wind energy.

David Roberts

What's the CREZ?

Chaz Teplin

Yeah, this was an effort that the state and ERCOT took to recognize renewable energy zones and plan significant transmission investments that made it possible to connect all of the amazing wind in the Texas panhandle.

David Roberts

Right. Proactively planning and building the transmission for when they show up, rather than waiting for them to show up.

Chaz Teplin

Exactly.

David Roberts

And then building the transmission in reaction. So that sort of takes that bit of risk off the developer's back.

Chaz Teplin

Right, that's right. Or you do in places where there's been proactive transmission planning, there's a surge in projects in those regions with the new transmission and the interconnection costs are much lower.

David Roberts

Right. And what does CREZ stand for? I can't let this go.

Chaz Teplin

Now you're going to get me. It's something for renewable energy zones.

David Roberts

Yeah.

Chaz Teplin

And we would love and many folks are calling for the same thing, that we need to do a lot more of this kind of proactive transmission planning for reliability, for economics, for reducing costs to customers and to help relieve the stress on the interconnection process.

David Roberts

Yeah. I think this is a theme here, not only in this podcast, but on all of Volts and indeed all of the clean energy world. It is mind-bogglingly crazy that we're not doing large scale regional transmission planning when that is clearly necessary to shorten these queues, to improve reliability, to reduce costs, to meet our energy emissions targets. Just name it. If you look in these models, Princeton has done these models of IRA's effect, the Inflation Reduction Act's effect and how big the effect is depends almost entirely on how much transmission gets built. Like the modeling that shows big reductions from this depend on a ton of transmission getting built. And right now we just aren't doing it. It's crazy. I know I'm just repeating myself at this point, but it's so crazy, I feel like I need to just say it over and over again.

Chaz Teplin

And we can make the argument for that based on economics, benefits to ratepayers and reliability. As you've said, in other cases, the emissions reductions are just a bonus. I think it's also important to notice where progress is being made. For example, in PJM again, my favorite grid there is now the start of some regional planning. So there's going to be a huge opportunity there to look at what that looks like.

David Roberts

Maybe let's take a minute to focus in on PJM because PJM is sort of like the poster child for this difficulty, right? They have the biggest queue, the slowest queue. Like, this is the problem that's most acute there. So maybe tell us a little bit about PJM, like where it is and what it is and why it has this problem so badly.

Chaz Teplin

Yeah. So PJM is in the Mid Atlantic 13 or 14 states, District of Columbia, it's the nation's largest grid operator with 150 gigawatt peak. They have 3000 queued projects, even though they stopped taking actually projects into the queue for some time because they just couldn't process it.

David Roberts

So you can't even go to PJM now and set up a new renewable energy project, basically, like you can't even get in the queue at all.

Chaz Teplin

Yeah, I mean, they've just restarted their process. I want to acknowledge the staff at PJM and the stakeholders at PJM have a really hard job to manage this large collection of politically diverse states. And they see their job as keeping the lights on and doing so economically, and they're balancing lots of competing things. So their job is hard for sure, but the queue process, they have not done any real regional transmission planning for some time. So they've looked at where transmission projects are needed to relieve, like, immediate congestion on their system and they do a good job of building those kinds of projects, but they haven't done any of these regional transmission projects for some time.

David Roberts

Is their queue notably slower than other queues? Like, do their studies take longer or are they just in a particularly large and busy place?

Chaz Teplin

No, objectively, their queues have been taking longer to process, typically five years.

David Roberts

Esh...

Chaz Teplin

Yeah. Compared to nationally, about three years. Again, the good news is that there's lots of projects in their queues.

David Roberts

I sort of wonder why, though. I start to wonder why, if you're the 2970th project in the queue, why bother? Like if it's taking five years per project, you're not going to come up for approval until like the year 4000 or whatever.

Chaz Teplin

It's a good question. I think these project developers though, right, they have to take a long view. They know that in five years, if they still want to have work, they got to put projects in now. And so there's a lot of speculation about where good projects will be and where they'll be able to get generations cited. And so it's worth taking the risk and we'll get to the FERC piece, but there's relatively little cost to adding your project to the queue and it potentially could be a really valuable position to do so. Really profitable to build a project there.

So people do still have a lot of appetite to put projects on the queue, even with a long time horizon.

David Roberts

And do they have unique reliability problems in PJM that are either exacerbating or being exacerbated by this interconnection process?

Chaz Teplin

One thing that makes it easier in PJM, I'd argue, is there's very little variable generation on their grid right now. They have very little wind and solar, less than 5% of generation in PJM is from wind and solar, whereas it's much higher in many other parts of the country. It is true. PJM has done recent studies of their own where they are very concerned about in the out years, about resource adequacy, they're looking at upcoming electrification, they're looking at coal retirements and they're concerned that they can't get new generation online fast enough. The official take on it and others take on it places the blame at different places on the system and the solution at different places.

What we'd like to see is transmission planning and reforms to the queue that makes it easier to get new generation online. We think that's the opportunity with the best economics and the most reliability and of course also the bonus emissions reductions.

David Roberts

And so isn't it the case that outside of ERCOT, no RTO seems to be really like killing it on this? But didn't MISO recently do some things to have some reforms that sort of sped things up somewhat? Aren't they? I thought they made news recently with some reforms.

Chaz Teplin

There is progress around the country, not to the extent that we'd like to see. MISO's process is probably seen as one of the better ones. They've had a long stakeholder process and they've identified the first of four tranches of new transmission that they have approved at the RTO level. Right. So MISO is approved. There's also good things going on in California. California has identified that they need a lot more transmission to bring more generation in from out of state. And I mentioned PJM starting up a new process and of course, FERC is looking at requiring with a new rule that regional transmission planning be more holistic.

David Roberts

Is it one of the things MISO is doing? And this I feel like is one of the reforms, sort of the near term easy reforms I see tossed around a lot, which is at least approving projects in batches instead of one at a time.

Chaz Teplin

Yeah. And this is perhaps the biggest deal in the FERC order as well. So most of the RTOs now are moving towards more of a batch process. So it's not like the example, the metaphor you used earlier with the cars in line, where the last car that gets tasked with the whole lane, instead they look at looks like there's twelve cars coming online in this freeway entry. We're going to look at what it's going to cost to add all of them at once.

David Roberts

And if it requires a new transmission, then the cost of the new transmission gets spread out over those twelve projects.

Chaz Teplin

That's right. They also ask more of the developers in each of these so-called clusters. They want to do more to increase the financial and the siting, make sure that they actually have the land available to them, that they're serious projects. And so this first ready, first served approach where you look at clusters of projects and require the developers to show that they're likely to actually build the project, is hoping to fix a lot of the issues that we talked about. Not all of them, there's still going to be a lot more to do. But this is something that now FERC is requiring that MISO and PJM and their new process is requiring, I believe SBP does it as well in California.

David Roberts

This batching?

Chaz Teplin

Yeah, that's right.

David Roberts

It seems like if nothing else, that would impose a little sort of discipline on the queue. Like you wouldn't get in the queue so casually, like you wouldn't get in the queue unless you're really ready to go.

Chaz Teplin

Right.

Chaz Teplin

And these clusters sort of progress together and it handles dropouts much more efficiently so that there's less re-re-re-re-studies, still some, but — the process should move a lot faster and more efficiently. With these best practice cluster studies.

Do we have empirical evidence that these reforms are going to speed things up? Or is it just hope at this point? Has it been implemented anywhere long enough for us to judge its success?

I wish I had great data on that. I don't. I know that MISO for sure has been doing this now for a little while, and I'd welcome a listener to comment somewhere on whether there's data there. But I think everyone agrees that this is best practice and we're seeing better results with the process moving along more efficiently.

David Roberts

Right, so let's talk about FERC then. So FERC, the Federal Energy Regulatory Commission, obviously this problem has been bouncing around for a while and people have been angsty about this and we desperately need reforms of this. The chance to do it legislatively came and went. So sort of all on FERC's back now. So what exactly did FERC take upon itself to do and what did it do?

Chaz Teplin

Yeah. So FERC Order 2023, named obviously after the year was issued last week. It's a 1500 page light read.

David Roberts

Yikes!

Chaz Teplin

Yeah. So I admit I have not read all of it but can summarize what a lot of folks have been talking about. So perhaps most importantly, it moves to this first ready, first served approach and this cluster study approach which includes some more requirements from developers to show their projects are serious.

David Roberts

So this has force of law now like RTOs have to do that?

Chaz Teplin

That's correct. The way it works is that all the RTOs will have to say, okay, we see your order, we're required to do it in certain ways. This is how we're going to change our process and then FERC approves that. And a lot of the RTOs already have a FERC approved process. Likely a lot of them will have to over the course of the next few months, revise their already approved processes to comply with the new order or ask for an exception. There's going to be a lot of action there to try and make sure that the RTOs are as aggressive as possible in how they comply with this new order.

David Roberts

Yeah, I'm sort of wondering if we can just kind of a timeout here, but I'm just curious what the sort of disposition of the RTOs is toward this. Are they looking at this as like, oh, here come the Feds imposing onerous restrictions on us or are they on board, do they want to do this? Are there any RTOs that are sort of like pushing back or recalcitrant on this type of reform?

Chaz Teplin

I mean, compliance is always a burden, right? But I think FERC's stakeholder process and comment process is extremely extensive and the RTOs get a large voice in that process. So the order itself is quite long. But the comments they got on the draft order, the notice of proposed rulemaking was even longer and so shout out to all the FERC staff that had to read all those orders and try and make sense of it and final rule. So the RTOs of course are going to like some things and dislike others and have to work hard to comply.

And I think that FERC did a good job of balancing the needs. Of course we probably would have asked them to go further in some ways, but a lot of what they've done is really good.

David Roberts

So what else is it? There's the clustering, first ready, first served.

Chaz Teplin

Yeah, they now need and there are studies of like how can we solve the issues that we did identify. They now have to include what FERC called alternative transmission technologies. Right. So things like new ways of moving power on the grid and other tricks that we can play to get more out of the current system. Unfortunately — also they're called GETs, grid enhancing technologies — so a lot of these technologies are really cost effective, most studies show, but they're not always adopted. And so now we probably would have liked this ruling to be a little bit stronger. We think that the opportunities for these technologies is really great and the payback times are often measured in months, not years.

And so we'd like to be adopted more aggressively. They're now required to at least consider and evaluate the option there.

David Roberts

That's it though, they have to consider and think about grid enhancing technologies?

Chaz Teplin

Yeah. We haven't, I haven't especially, gone through the detailed language in the order to know exactly how that's going to look, but I think a lot will come down to how the RTOs actually comply.

David Roberts

Longtime listeners will remember I did a piece on grid enhancing technologies a couple of years ago and a pod on it, and it's just sort of like advanced digital stuff, as you say, to get more performance, more throughput out of existing lines. And it always struck me that if we have these technologies available and we know they're available and we know they work, then RTOs are like utilities refusal to use them violates the sort of core utility mandate for just and reasonable rates. Like, you could lower rates by using these. So it seems like it ought to be more enforceable.

It seems like something that you could sue utilities over, not just like a helpful suggestion.

Chaz Teplin

Yeah. A lot of people have made the just and reasonable argument that these are cost-effective technologies and it's just crazy not to use them to the greatest extent that we can. There's always the balance that comes back on. Are they really proven? And we have to be very conservative because we don't want to risk the grid. I think the evidence is there that that's not a great argument. And so we have projects to really try and push getting more of these GETs technologies onto the grid to reduce interconnection costs and just use our existing grid more efficiently while we build out the transmission.

David Roberts

Yeah, and when we say more efficiently, like getting 30, 40, 50% more out of it. These are not small numbers that these technologies enable.

Chaz Teplin

Yeah, often. And they're fairly low cost and can be deployed a lot more quickly than building a new transmission line.

David Roberts

Yes!

Chaz Teplin

They make a lot of intuitive sense and most of the studies support that. There's always some devils in the details and so we're even doing some quantitative work there to try and show how much it could reduce costs and increase deliverability.

David Roberts

Yeah, I need to revisit that. I need to revisit that subject on the pod. Okay, so FERC saying batch processing, you have to at least think about and consider grid enhancing technologies.

Chaz Teplin

Well, there is now some deadlines and penalties if the processing takes too long. So there is some stated rules about we expect you to process interconnection applications in a certain amount of time. I don't think this is like start to finish when you get in to when you get the final results of the study. It's more like how these cluster studies should progress as they go through. So we think that's good. The penalties, I don't believe, are extremely large by utility numbers, but it's still meaningful that they're there and I think it should be a way to encourage transmission owners and RTOs to move quickly.

As an aside, I think this isn't in the FERC order, but just from a pure staffing perspective, it's really a challenge for the RTOs as well.

David Roberts

Capacity. Capacity. Capacity our favorite subject here.

Chaz Teplin

That's right. Yeah. So you did a workforce pod and I don't think it was too much focused on this kind of issue, but yeah, the need for transmission engineers is far exceeding the supply. So all you engineering students out there, please go into transmission.

David Roberts

All right. So that seems like those three things together seem like reasonable, incremental reforms —

Chaz Teplin

That's right.

David Roberts

from FERC. So nothing bad. Is there more that FERC could have done? Like, I'm sort of curious about the kind of limits of its authority here. What would you like to see it do that it didn't do?

Chaz Teplin

Yeah, I mean, I think the regional transmission planning and ideally even interregional transmission planning, I'd be remiss if I didn't say, like, please, we need to do everything we can to make that kind of transmission planning the default and the requirement. So that's number one, it's not a fast fix because it takes a while to build transmission —

David Roberts

Yeah, I'm just curious whether FERC can do that because this was the whole debate over they tried to get it in the legislation and then that deal fell apart and it fell out of the legislation. And then people are like, well, we'll just go to FERC. And so I'm curious, I think a lot of people are curious whether FERC can do that to the extent legislation could have.

Chaz Teplin

Yeah, I mean, they're not going to be able to do obviously legislation is more flexible. Right. But FERC does have a notice of proposed rulemaking on regional transmission that has been a huge focus and hopefully will come out over the course of the next year and hopefully require this transmission planning. It's definitely within their jurisdiction to my understanding, though. Though I'm not a lawyer to make that caveat.

David Roberts

Yeah. I mean, it would just make so much more sense to go plan your transmission grid and then for the RTO to go out and say, hey, we're going to build transmission here. It can accommodate X amount of new energy bid for this spot on the grid. Right. So instead of backing into the future, you're sort of proactively filling out your grid according to your vision.

Chaz Teplin

That's right. And that requires broad alignment, though, about everybody in the market trying to say, yeah, what is the future that we envision? It's not going to just be a — so it's a long and complicated stakeholder process that we're all excited to partake in.

David Roberts

It'd be super nice, wasn't it, if we had federal, if we didn't have this patchwork of states with radically different visions about what they want to do and radically different targets. It'd be nice if we were sort of like everybody's on the same page and striving for the same goal. It is politically a super sticky wicket to do interregional transmission planning with states that are so heterogeneous.

Chaz Teplin

The clean part of it is challenging politically but the reliability and the cost perspective isn't so bad. So the Hickenlooper bill that would have required more interregional transmission built does have bipartisan support, and we're hopeful that that will come back and there'll be a chance for a requirement there on the legislative side. But in the near term, and as for what we can do to fix these problems the FERC oder, perhaps order 2024 is really top of mind for everybody in this space.

David Roberts

So FERC can do more and do you think wants to?

Chaz Teplin

I'm not going to guess what the current set of four commissioners are going to do.

David Roberts

Right? We're still lacking one, aren't we?

Chaz Teplin

We're still lacking one. Yeah. So we currently, I believe, have four. Commissioner Danly's term I believe, is up or coming up but is able to stay on for, I believe, till the end of the year. So yeah, we may be down to three shortly. It would be great to have, as they say, a fully staffed and operational FERC.

David Roberts

Yes, I'm sure Joe Manchin will find some way to screw that up and delay that appointment. I want to ask one final question, but first, I want to ask a second to final question because I forgot to ask about this earlier. This is something I've always been sort of curious about. Generation projects in the queue are one thing, but lots of projects these days will be combined generation and storage, and some projects now will be standalone storage. Are those also in the same queue and if so, are they studied the same way? Because it just seems like the performance of a storage project on the grid is going to be fundamentally different and its effect on the grid.

It's going to be fundamentally different than the performance and effect of a generator. Do they all go mushed in the queues together? Are they all evaluated in the same way?

Chaz Teplin

They are all in the same queue. They aren't always necessarily evaluated in the same way. And there were some reforms also in the recent FERC order about the assumptions we make about inverter-based resources which include storage, about how they're going to operate and the ability for developers to say what technologies they're using to make sure that they go well. And I believe there's some ability to change how you can add storage, like make your solar project a hybrid project. If that's not in the FERC order a lot of the RTOs are looking at or do allow you to make some of those changes.

You don't have to go to the back of the line if you just add storage, which in theory should just make your resource more valuable and easy to control.

David Roberts

Right. I mean, this is what I'm saying. Intuitively it seems to me like a storage project is going to be good for the grid, almost categorically like, good for grid reliability, good for grid performance. There's no overloading the grid from storage. So it seems to me like storage ought to be either allowed to skip the queue or at the very least go to the head of the queue or if you attach storage to your project it seems like you ought to get some advantage in the queue.

Chaz Teplin

Yeah, and I think another thing that RTOs can do that's really valuable is look at using retiring generation, citing things there and storage like natural gas, as I mentioned earlier, can be placed pretty much anywhere. So that's an obvious place. Hopefully, you can also connect wind or solar nearby to a retiring coal plant connection. Right. And as we repower that valuable grid connection and so storage can go there and there are fast track processes and fast track queues, if you will, for considering things like that. And a lot of the RTOs are looking at those processes and we really see that as a really valuable way to leverage the existing grid.

There's a lot of fairness and cost implications and if you're a developer in the queue, you don't like to see anyone jumping the queue. So there's a lot of ways, questions about what the best way to handle that is, but yeah, that relates to storage for sure.

David Roberts

Just tell them like if you want to jump in the queue, add storage. It just seems to me like yes to storage as much as possible, as fast as possible.

Chaz Teplin

Yeah. Certainly for short term duration resource adequacy challenges, there's no question that storage is an obvious solution.

David Roberts

For sure. Okay, so by way of wrapping up then, let's just briefly talk about what's next. So FERC has issued this order as you say, these are good things, they're going to be improvements, they're going to speed things up a little bit. Do we think that this FERC order alone is enough to speed things up enough to catch us up where we need to be? And if not, what are the other tools in the toolbox here? What else can be done? What should sort of advocates be thinking about next?

Chaz Teplin

Well, there's no substitution for transmission. Okay, I know, keep being a broken record there but it's true. So leveraging gets as much as possible, leveraging the existing retiring connections as much as possible. And then the last one's a little fuzzier, but I think the RTOs have some flexibility on how they treat deliverability of resources and think about their resource adequacy. And sometimes I worry that we're overly strict about making sure a project is really deliverable. And so Commissioner Clements noted that there's something called energy only resources that typically have different, less strict rules for deliverability. So there's probably ways of getting projects on the grid more quickly by looking at some of the specific rules about how careful we have to be on deliverability.

Those are going to be some complex conversations and possibly build on some long-used processes that RTOs have been using, but I think there's some flexibility there and we're excited, certainly to work with everyone to see if we can figure out ways to get more generation onto the existing grid quicker while we plan transmission.

David Roberts

These all — except for maybe fully grasping and throwing ourselves into regional and interregional transmission, which is still not really on the table in any meaningful way — this all seems kind of incremental. Like, just intuitively to me it doesn't sound equal to the scale of the problem. So I'm wondering if you feel the same way. And I sort of wonder, given the need for grid reliability, as you say, the legitimate need to sort of study these things and make sure they're not going to screw up the grid, is it even possible to approve things to get on the grid fast enough to hit the targets we want to hit?

Like, is there a process that moves fast enough even on the horizon here?

Chaz Teplin

Well, I'm an optimist, and if you look at how many gigawatts of power are likely that the RTOs themselves say are going to clear, then it's a large number, so we can actually move fairly quickly, but it's not as large as we want. And how many of those projects are going to get bogged down in really large network connection, costs are going to be hard, but perhaps there's ways to fund those. So yes, I'm an optimist that we can use our existing grid a lot better than we are today and get a lot more storage, wind, solar on the system. But yeah, it's going to be a challenge.

There's no easy answer on expanding the grid to replace a lot of retiring fossil generation and grow it to substitute for the existing oil and gas industry. Right. That's a large ask to do very quickly.

David Roberts

It's not something it's never been done.

Chaz Teplin

No, never been done, but that's why we're here to do it for the first time.

David Roberts

All right, well, thanks so much for decoding all this for us and picking apart these strands. And it sounds like as bad as this problem is currently, there are things happening, there is hope.

Chaz Teplin

There is hope. The FERC order is a big deal and there's lots of dedicated stakeholders and advocates working really hard to try and fix these issues. So that's what always gives me hope.

David Roberts

Awesome. All right, Chaz Teplin of RMI, thanks so much for coming on.

Chaz Teplin

Thanks so much. Always great to be here.

David Roberts

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