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Plugging into the grid – the challenge of renewable project connectivity

The passage of the Inflation Reduction Act (IRA) in late summer of 2022 has dramatically accelerated the development of distributed and clean energy projects which have the potential to create significant new loads on the grid to support advanced electrification projects like electric vehicle (EV) charging. Local utilities and regional power authorities (ERCOT, PJM, ISO-NE, NYISO, CAISO, others) need to review many of these projects to make sure the infrastructure can support their deployment, but are limited by budgets, staff and supply chains as to how quickly they can move. This “interconnection” queue can stretch for years, create significant obstacles to project development and financing, delay access to tax credits and create unplanned capital costs that challenge project economics, and the queue is getting longer as legislative mandates and technology drive an increased number of smaller projects “at the edge” of the grid.

Today, every company is an energy company. Any company can be an energy developer, addressing issues including power market participation, unpredictable power costs, poly-fuel transportation transition strategies, decarbonization and improving reliability and resilience. Every company is an energy consumer and is responsible for the impact of its energy choices and its environmental impact. Developing your strategy requires looking at each of these issues, creating a plan to meet those needs and understanding how to work with your state/local/regional power authorities to match your project to their market rules, interconnection procedures and economics.

The more closely your projects align to power authorities’ needs and requirements, and the more focused and intentional your proposal, the greater likelihood of approval. For example, in the last 12 months, PJM (the ISO for states from Virginia to Chicago) has changed its interconnection and project priorities rules three times as it manages a multi-year project evaluation backlog complicated by federal rules designed to facilitate Distributed Energy Resource (DERs) integration. This resulted in a massive expansion of project review requests and a two-year moratorium by PJM on accepting new projects. Most recently, PJM has proposed and received approval for a new “first-ready, first-served” project evaluation model that includes “clustering” of project approvals and more stringent site control requirements (and incremental developer fees costs) designed to reduce speculative project submission by developers and allow the ISO to focus on high probability projects.

PJM’s experience is being repeated around the country as state and federal incentives drive a transition to distributed renewable and storage projects. However, the rules of engagement are constantly changing as federal, regional, and state regulators shape their priorities. Government policies at all levels are reshaping project priorities, resulting in several major policy actions within the past few years:

  • The IRA is driving new investments into microgrids and distributed energy resources while creating extensive new loads for carbon capture and “green” hydrogen projects that challenge grid capacity.
  • The Infrastructure Investment and Jobs Act of 2021 has required local utilities to accommodate high demand EV charging stations, often on distribution networks that are at or over capacity.
  • A wide range of Department of Energy (DOE) priorities and funding around grid/transmission assets has forced attention to projects building, integrating and operating those new assets.
  • Many states have developed “clean fuel” incentives focused on net-zero concepts like renewable diesel and renewable natural gas. California has mandated that all new vehicles sold in the state by 2035 to be electric or plug-in hybrid electrics (PHEVs).
  • New York and other cities are moving to eliminate new natural gas connections in new construction starting in 2023 which creates new “green” electrification demands. In addition, some cities (i.e., New York and Boston) have passed laws pushing existing buildings to move from natural gas to electricity for space heating.

These policy actions have created a highly dynamic environment in which project approval, permitting and interconnection needs to be actively managed to preserve safety, reliability, and affordability. Active management and predictable timelines for project approval are needed to meet these objectives and to accelerate the “power flow” that triggers tax credits, revenues and other project benefits including decarbonization impacts.

We can help

Baker Tilly works with regional, state, local and federal agencies to understand their changing “rules of the road” and priorities. Whether you are a business, university, or government organization, we are uniquely positioned to help you understand how to best accomplish your energy transition business objectives. We start with listening, with understanding your business, organization, or community goals and challenges, then help you shape projects that support your objectives while delivering real economic, organizational and community benefits, a concept we refer to as “Sustainable Sustainability.” We speak “Energy”, the vocabulary of the utility industry and regulators so you don’t need to learn it or master the rules under which they operate. From concept through construction and compliance, Baker Tilly is helping organizations shape their energy future, while maximizing the economic, tax and community benefits that define project success.

To learn more about the Inflation Reduction Act, visit Baker Tilly’s IRA Resource Center.

Andy Roehr
Managing Director
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