Catalyst with Shayle Kann - Fixing interconnection

Episode Date: September 21, 2023

Everything's bigger in Texas—the hats, the boots, the convenience stores. But its interconnection times? They’re surprisingly short. In the U.S. it takes power generators four years on average to get approval to connect to the grid, and in some places, it takes far longer. In the Texas electricity market, it takes only about 1.5 years between interconnection request and agreement. And it costs way less to interconnect, too.  The results are telling. The Texas grid, operated by the Electricity Reliability Council of Texas, or ERCOT, has installed more wind power than any other state—40+ gigawatts worth. It’s also installed 19 gigawatts of solar power, second only to California. ERCOT has interconnected two times more generation than PJM, an electricity market in the Mid-Atlantic, even though PJM is two times larger than ERCOT in terms of peak load.  So what does Texas know about interconnection that the rest of the U.S. doesn’t? And how could other states learn from Texas?  In this episode, Shayle talks to Tyler Norris, PhD student at Duke University’s Nicholas School of the Environment and former vice president of development at Cypress Creek Renewables. Tyler recently published a policy brief on how the U.S. could reform its interconnection process, applying lessons from ERCOT. They cover topics like: Why FERC’s system impact studies lead to long delays and high costs ERCOT’s shorter and lower-cost process, called “connect-and-manage” Recommended Resources: Duke Nicholas Institute: Beyond FERC Order 2023: Considerations on Deep Interconnection Reform Catalyst: Understanding the transmission bottleneck FERC: E-1: Commissioner Clements Concurrence on Order No. 2023: Improvements to Generator Interconnection Procedures and Agreements Brattle Group: Generation Interconnection and Transmission Planning Sign up for Latitude Media’s Frontier Forum on January 29, featuring Crux CEO Alfred Johnson, who will break down the budding market for clean energy tax credits. We’ll dissect current transactions and pricing, compare buyer and seller expectations, and look at where the market is headed in 2024.

Hey, it's executive editor Stephen Lacey. If you're hearing this on the carbon copy, you know me as the host. If you're hearing this on Catalyst, you know me as the voice that is sometimes confused with Shale. And I've got some news, so don't fast forward. PostScript Media, the company that I co-founded, that produces this podcast in collaboration with Canary Media, is soon going to be rebranding as Latitude Media. It will be a B2B News and Analysis outfit covering the new frontiers of climate tech. We're going to still be partnering closely with Canary Media on the Carbon Copy and Catalyst Podcast, so rest assured these pods will continue.

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We've got a link in the show notes. And now on to the episode. I'm Shail Khan, and this is Catalyst. What Erkot has accomplished here is truly remarkable. So Texas has around 40 gigawatts of installed wind. This is just under 30% of all U.S. wind power capacity. So the defining feature of Erkott's interconnection process is that they don't rely on the interconnection process itself

to identify and pay for grid upgrades. So I'm off coffee at the moment. It's a long story, and I do not want to talk about it. But, hot tip, you know what's a great alternative? Talking about interconnection reform. When utilities need flexible capacity they can count on, they turn to Energy Hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility built for the moments when utilities can't afford uncertainty.

Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale. Predictive, verifiable, and designed to perform when it counts. Learn more at energyhub.com. Trillions of dollars are flowing into clean and critical infrastructure, but those investments aren't driven by technology alone. They're shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, and host of a brand new podcast, Critical Capital. Each episode, I talk with people deploying capital, shaping policy and building the clean economy. Tune in as we unpack how progress is actually made.

Listen to critical capital on Spotify, Apple, or wherever you get your podcasts. I'm Shail Khan. I invest in revolutionary climate technologies at energy impact partners. Welcome. Okay, so I've said this before, and I will say it again, I think that interconnection, both of generation and of load, is rapidly because, the single biggest barrier to the energy transition, full stop. Hopefully, that'll explain to you why I wanted to do this episode,

because I will freely admit it is wonky. But so is this issue. Basically, here's what we know. If you're a new electricity generator looking to connect to the grid, odds are high right now that you're either trying to connect solar or wind or batteries or a combination of those three. And it's taking you longer and longer and becoming more and more expensive for you to do so. Sure, that's a problem in and of itself in the context of fleet turnover, right?

Like if we're going to be retiring tens of gigawatts of coal and replacing it in large part with clean power, we sure do need that clean power to be able to connect. But the reason that I'm so obsessed with the problem goes beyond that. Once electrification really starts to take hold, and we're adding millions of electric vehicles and heat pumps and battery manufacturing facilities and green hydrogen production facilities and direct air capture and, oh, I don't know, data centers to the grid, and we're trying to double or triple our total load on the grid, but we're already facing a bottleneck in interconnection before any of that happens at scale.

You can imagine what might come next. But the interconnection issue is not a simple one, and the suite of solutions has to involve some regulatory reform. So that's the piece that we're going to talk about today. Tyler Norris has been thinking about this problem. Previously as a solar developer trying to interconnect himself, but now as an academic, thinking about it at the higher level. And he wrote a great paper about what sounds like a pretty simple idea,

which is basically bring the process that has worked in ERCOT, the Texas electricity market, to the rest of the country. But of course, this is electricity, so nothing is simple. Let's hear it from Tyler. Tyler, welcome. Great to be here, Shale. Thanks so much for having me. Let's get wonky about interconnection.

Before we get super wonky about it, I'm interested in your high-level perspective on, like, the state of interconnection in the U.S. today, particularly in light of the fact that until fairly recently, you were involved directly in interconnection by working at a renewable project developer. So you probably have seen it evolved to some degree over the past few years. So how would you characterize where we are at today and what the past few years have been like? Yeah.

Well, Shail, I think it might actually help to start with an analogy here before we get too far into the weeds. So imagine with me that it's 1953, right? We've won the war. The economy's moving. Automotive technology is advancing really quickly, and there's a demand for a lot more interstate commerce. The interstate highway system hasn't been built yet. There's a patchwork of smaller highways that connect each state. So President Eisenhower announces a new program, right, where trucking companies that want to transport goods across states can apply for the right to do so. Once they apply, they'll go through one or two years of study. These will be really intricate studies, right? Well, we're, we're, we're, we're. We're We'll consider detailed forecasts of future traffic, weather patterns, where and tear on roadways, and we'll consider a bunch of different extreme contingencies. And the output of these studies will identify where each trucking company's fleet is likely to contribute to traffic congestion. And when it does, they'll be assigned a portion of the costs required to expand those highways. And the idea is the trucking companies can't access the roadways until they've paid 100% up front for these future highways.

highway expansions. And so President Eisenhower goes out and he announces this and he says, you know, it's as expected to hopefully maybe, if all goes well and all the stars align, lead to the development of an interstate highway system. And so it's an absurd analogy, of course, but I think it's not entirely dissimilar to how we've been approaching transmission interconnection in the United States. And so I think a lot of folks have seen the numbers on the Q backlog, but I think they're really instructive and worth just reviewing. So in 2022 alone, the backlog of projects and interconnection cues waiting to connect to the grid grew by 40%. It brought the total to just over 2,000 gigawatts.

80% of this growth was driven by solar and storage projects. And for comparison, we have around 1,200 gigawatts of generation capacity in the U.S. that's operational. So of this 2,000 gigawatts, 1,350 around is generation capacity. Sord is about 700 gigawatts of that. And at the same time, we've seen, and this has been documented by Lawrence Berkeley National Lab, the time required to interconnect has approximately doubled from around 15 years ago. So it used to be that the typical duration from interconnection request to commercial operation was around two years or just under. and now it's four years or more.

And those timelines seem to be growing. And, you know, we've seen various pauses and entire interconnection cues. I think the most prominent example is in PJM. We've seen that elsewhere. But, you know, the cute backlog is a really good measure. But I think what we haven't seen until recently is a really clear comparative metric between markets that are using different interconnection. connection rules to compare the outcomes. And we now sort of finally have those metrics, and I think they're really instructive. Right. And I think that's what we want to spend a bunch of time on,

is talking about which markets, if any, are kind of doing it right or closer to right and what we might learn about how to do it in the rest of the country before we get to that. So high level, I think folks at this point probably appreciate the dynamic you're describing, which is we're trying to connect. There are lots of developers. trying to put lots more, mostly renewables, mostly solar and storage on the grid, all over the country, that ballooned in the last year,

probably in part because of the IRA, I suspect, interconnection, capacity to get through the queue, the pace of getting through the queue has not improved. And so you have way more trying to connect. You have the same capacity of throughput of studies, for example, and timelines have gotten longer, everything has gotten more challenging, and now we're sitting on this gigantic Q backlog. FERC, the Federal Energy Regulatory Commission, which regulates all the ISOs and RTOs, did, I mean,

interconnection reform has been a thing people are talking about for a long time. So FERC did institute an order, pretty recently, Order 2023, that I think has gotten sort of mixed reviews in terms of the impact that it might have on this challenge. Can you just briefly outline what that, FERC order does and your thoughts on the degree to which it's going to solve this problem? Yeah, so FERC order 2023 is a meaningful step towards reform. It was a very comprehensive rulemaking process, an incredible effort on the part of the FERC commissioners and their staff and so many experts and stakeholders that contributed to that comment process. And the biggest

thing that it does, right, tries to speed up the interconnection process by moving. from serial-based queue management to cluster study queue management. And what that basically means is traditionally the cues have been studied on a project-by-project-based one project at a time. And what the idea is with clusters is that you'll do this in grouping studies, right? So every year you'll combine all the projects that have submitted during a certain window. You'll study them all at the same time. you'll look at the combined impact, and hopefully you'll be able to identify the necessary upgrades relatively quickly and then allow those projects to advance.

And the hope is that you might be able to utilize this interconnection process to cover the cost of large upgrades by splitting those costs across a larger number of projects. And so that's kind of the working theory here. There are other important reforms that were included here, so reducing the number of speculative projects by imposing different requirements on interconnection customers to try to discourage what we might call speculative projects. There are other reforms trying to speed up, so, for example, limiting the reasonable effort standard that currently governs the completion of interconnection studies and imposing pensions. on transmission providers for missing deadlines. There are other meaningful efforts here.

There are reforms to what's called the proportional impact method. So how do you allocate costs when they're identified in the form of network upgrades? There's an attempt to improve information access by requiring transmission providers to publish heat maps of their available transmission capacity. And then there's an effort to incorporate. technology into the interconnection study process. One of the most significant steps here was to evaluate the use of alternative transmission technologies. And so this is now required, so transmission providers will be required to look at the use

of grid enhancing technologies to attempt to mitigate network overloads. And then a few other pieces here and there. FERC is mandated that interconnection studies reflect the the operating assumptions of electric storage, and to make sure that they're not inappropriate assumptions being used there, and then a few other elements. But really, the main story here is around this hypothesis that transitioning from a serial-based queue to a cluster-based queue

is going to speed up the interconnection process and do so at a lower cost. And the principle there is, if I'm on the other side of that, and I'm getting request after request and I have to do a study each time, that's going to take me a lot more time with my fixed resources than it would to wait for 10 or 20 requests to come in and to do one bigger cluster study.

That's basically the idea. That's the hypothesis shale, and there are some reasons to suspect that this can improve the interconnection rates in certain jurisdictions. What I think is fair to say is that we don't really have, have good empirical evidence to prove or disprove this hypothesis yet, there have been transmission

providers that have shifted to cluster studies in recent years. I was very involved in one of those efforts for Duke Territory and some other utilities in the Southeast. And the truth is, I don't think we've seen conclusive evidence that it is, in fact, improving the pace of the interconnection process. And the reason for that, which I know we'll get into more detail, is that there are more fundamental issues with the interconnection process in most of the U.S., especially outside Urquot, that unless they are resolved are likely to contribute to ongoing delays. Right. So if I can characterize your overall view here, it's that this FERC order is significant. It's impactful, but it's not enough. And in fact, the impacts may be more muted than you would hope.

And so we should absolutely implement this order, but in addition, there's going to be more reform needed. Is that about right? Yeah, I think that's right. And I think it was really well captured by Commissioner Clements and her concurrence to the order, which I encourage everyone to read if you're interested in digging deeper. But she said almost exactly what you said verbatim right there, Shale, that this is a meaningful step, but there's a lot more to be done. So let's talk about what else could be done. And in particular, we're going to talk about Texas. So, as probably a lot of folks who listen here already know,

Texas is the only state in the U.S. that has its own grid. And so things are different in Texas. And it sounds like you think that Texas is actually a model that we might think about replicating or at least partially replicating in the rest of the country. Before we talk about what Texas actually does in terms of interconnection, let's talk about the impacts that it has had. So how has Texas performed in terms of interconnecting new genera? relative to the rest of the country.

What Urquot has accomplished here is truly remarkable. And I think maybe it's helpful to start by just capturing the total installed capacity, just to contextualize, right? So total installed capacity for wind to start, you know, this story is better known. But so Texas has around 40 gigawatts of installed wind. It's three times more than any other state. So Iowa is the next at about 12.5 gigs. This is just under 30% of all U.S. wind power capacity.

So that story is relatively well known. Solar is a newer phenomenon. And so ERCOT is now at about 17 gigawatts of utility scale solar installed, the state at large at around 20 gigawatts of all solar. So it's now number two in the U.S. just behind California. And the utility scale side now appears effectively equivalent with California. Texas has just blown past every other state. You may recall at one point that North Carolina was number two and solar.

Even as of 2018 or so, Texas was substantially behind. And just in a few years, they have interconnected a massive volume to surpass North Carolina, Florida, and Arizona. And so on an annual capacity additions basis, so in 2020, I think, is, really where it starts a take off. So Texas interconnects 2.5 gigs of solar in that year. 2021, it explodes to 4 gigawatts. And then 2022, it's another 2.6 gigawatts, at least in ERCOT. And so over the course of three years, Texas added around 10 gigawatts of utility scale solar,

which, I mean, that number alone is more than the installed solar capacity of every state, except California. And how much of that can be just attributed to the size of Texas? It's a big market, obviously, bigger, much bigger than Iowa, for example. So I know a part of it is going to be what we're going to talk about,

which is how they manage interconnection, but is some of it just Texas is big? There's no doubt that the size of Texas is part of the story here, but I think a comparison is instructive on this front too, right? So PJM is substantially larger, at least in terms of overall peak load, which, you know, there are different ways you can measure this.

But the overall peak load in PJM is approximately two times that in ERCOT, and yet PJM's interconnection rate overall, for all resources over the past two years, has been approximately 2.5 times less than ERCOT. So in that sense, you know, this is not just about the overall size of Texas. Right. So ERCOT's doing something right. So what is ERCOT doing? Like, walk us through Erkot's interconnection process? The defining feature of ERCOT's interconnection process is that they don't rely on the interconnection process itself to identify and pay for grid upgrades. And this enables them to interconnect projects much more quickly and at much lower cost. And what allows them to do this is that all

generators in ERCOT are energy-only resources subject to economic and security curtailment, which means that ERCOT can turn them off for effectively any reason, according to market dispatch protocols. And so ERCOT manages its grid constraints by curtailing generators as necessary with that market dispatch. And so these generators can connect to the grid very quickly at relatively low cost, but with the understanding that they may be curtailed to mitigate any grid overloads. And, you know, this doesn't mean that ERCOT doesn't pursue grid upgrades. It's just that they do it via separate transmission planning process. And their market structure enables them to really clearly measure these congestion costs that arise because of the system's inability to

deliver lower cost available electricity to load. And so, you know, a simplified example might be helpful here. So say you have a city, it's supplied by two large transmission lines. You know, the first line connects to an aging coal plant, you know, with a high cost of electricity that you don't want to run very much. The second line connects to several new large-scale wind and solar power plants that sell power much more cheaply. It's a hot summer day. The load ends up exceeding the capacity on the second line, and as a result, the city is forced to rely more on the coal plant, and the cheaper wind and solar generation gets curtailed because of the overload on that second transmission line. And so this is a simplified example, but this is occurring very often across

these congestion costs, they're very meticulously documented and reported. and then ERCOT is able to use that market information to identify the most valuable set of incremental upgrades with the highest economic value. And, you know, it's worth noting that there are some really significant limitations to ERCOT's transmission planning process, and there are a lot of concerns that it doesn't incorporate the longer-term benefits of these upgrades, and the result is that they probably aren't pursuing as many proactive efforts. upgrades as they should. But I think, you know, the overall structure here is one that can be improved upon and provides potentially a model for other jurisdictions to think about. Virtual power plants are becoming a reliable way for utilities to manage capacity, but enrolling

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See what that looks like at Energyhub.com. We're living through a profound economic shift, and energy sits at the center of all of it. Trillions of dollars are flowing into power plants, transmission lines, battery factories, data centers, but the future of energy isn't shaped by technology alone. It's shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, the capital platform for the clean economy. Join me for my brand new show, Critical Capital, as I talk with people deploying capital, shaping policy and building projects. Together, we unpack how risk is priced, how incentives are structured, and how progress is actually made.

Listen to critical capital on Spotify, Apple, or wherever you get your podcasts. Okay, so if I can try to repeat it back to you in layperson terms, basically the deal, so what Erkot does is they say, okay, I'm going to, in one office over here, I'm going to, you know, use all. my market data and determine where I need to do transmission system upgrades. So I'm going to go ahead and do that. And it's an independent process from the interconnection queue. Meanwhile, on the interconnection side, I make a deal with any generator. And it's basically, come on in, go ahead and interconnect. I'm not going to run a ton of studies and slow you down and take a long time. You're welcome to do it. You just have to wear the risk of me saying that I'm going to curtail you, which, of course, if I curtail you, then you're not getting paid for the generation.

So you're going to bear more market risk on curtailment. But in exchange for that, I'll let you connect. And you're welcome to wear that risk. I'll give you all the data on the market to tell you to be able to make that decision intelligently. And in some ways, that seems very much like a, it's a very Texas-like thing, right? It's kind of a very free market thing. Like, you want to wear the risk generator? Go ahead.

Maybe I'm going to curtail you, but go ahead and interconnect. Am I thinking about that right? Yes, that's exactly right, Shail. And it's worth noting, too, though, that, you know, Urquat does provide an assessment of the network upgrades that would be necessary if your project was required to alleviate them to comply with reliability standards. So they are still conducting interconnection studies that are fully complete. compliant with NERC reliability standards, and they do actually identify upgrades that would be necessary. But what they're saying is that, you know, you're not required to address these upgrades as part of your interconnection process. But this is what you should be aware of so that you can incorporate this

into your own assessment of the curtailment risk and then ultimately incorporate that into, you know, the cost at which you can sell your power. Right. Like the results of that stuff. is sort of a, for the generator, can be kind of a proxy for the likelihood of a certain magnitude of curtailment. Have we just in empirically, given that Texas has been running it this way, are there generators that we can point to that have said, okay, I'm going to, I'm going to take the risk and that they've really made a mistake? Like, are there generators getting curtailed an inordinate amount of the time in some places? I'm sure, Sheila, that is the case for certain

generators that perhaps didn't fully incorporate the results of their studies into their curtailment risk analysis or, you know, conditions change, right? Other generators show up. There are other aspects that the topology of the system can change. So I have no doubt, right, there are generators that are experiencing more curtailment than they estimated. On the flip side, they're very likely generators that are experiencing less than what they anticipated. And as you said, this is kind of the free market mindset, right? You are the master of your own destiny. We're going to empower you with as much data as we can to make an informed decision and to quantify the risk you're facing.

But, you know, the proof is in the pudding, right? What we're seeing is that a very, very large number of generators believe that they are able to manage this risk, and that's contributing to this higher interconnection rate. So it seems very logical to me on its face. Let's contrast it with what happens in the rest of the country. So I'm a perspective generator and I submit an interconnection request outside of Texas. What happens in that case? Yeah. So I think the most important thing to understand here for your listeners is what's called the system impact study. And so what this does is it assesses the impact to the grid of the power flow from the proposed generator. in interaction with the rest of the system. And so transmission providers use electricity simulation software to conduct this power flow analysis.

One of the most common software packages is called Tara. And so what they do is they look out several years at a specific fixed point in time. It's called a, to get jargon, it's called a steady state circuit analysis. So it's a single snapshot of the balancing authority in time. they load your project in and all other generators that are committed to the system, all the existing operating generators, all those that have executed interconnection agreements,

and then others that are ahead of you in Q. And then they run all these power balance equations for power flow simulation to capture the supply, the demand, the transfer of power throughout the system. And then what they do is they run all these contingency analyses, where they look at these sort of extreme scenarios where different elements of the system go out, right? So a transmission line goes out, a transformer fails, and other scenarios.

And so they test a bunch of these contingencies to see if your generator contributes to a network overload, that then the question is then whether you have to resolve that overload. But that's what's going on with the power flow study in a nutshell. To be clear, the SIS, it also looks at voltage and dynamic voltage and stability. So those are important elements. But really, I think the main story here about the system impact study is looking for these network upgrades as a result of power flow overloads. I guess high level, you know, when you hear this with fresh years, I feel like the

obvious thought process is, okay, the Texas mechanism, the Aircott mechanism seems much simpler from the generator's perspective. You can easily imagine how it's faster and you get more resources interconnected. On the other hand, this system impact study driven process in the rest of the country seems like it is kind of more bureaucratic and slower, but probably designed to ensure higher reliability. So you would imagine if that's true and if it's successful at that, that the network in Texas would be less reliable, all else equal than the network in the rest of the country. Do you have any evidence of whether that is or is not true? What you say here is really important to acknowledge, right? So in every electricity market in

the U.S. outside Urquat, you do not have an energy-only market. So you also have a capacity markets and this is what's called the resource adequacy framework and so when you study these projects under these sort of extreme contingencies what you're doing is you're trying to assess them for what's called deliverability and once they if they can pass all those contingencies and either don't trigger network upgrades or they do and then they resolve those upgrades then they can qualify for capacity compensation and contribute to these resource adequacy requirements, right, which in aggregate take the form of these planning reserve margins that state, you know, that indicate how much reserve margin every balancing authority has to have.

And there's a whole process that goes into determining those reserve margins. But this is, so there's this resource adequacy market framework that governs, essentially every electricity market in the U.S. outside of Urquat. So we're unlikely to see other markets go in an energy-only direction. And the question is whether we can incorporate some of the learnings and the process improvements that Erkot has achieved into this alternative framework where you have both energy and capacity markets. And it's not a simple task.

it looks like there are meaningful improvements that can be made, but that is kind of the challenge that's upon us right now is to figure out what can be adapted into the framework that exists outside Urquat. It's not intuitive to me. Maybe you can explain a little bit more why the fact that there are capacity markets outside of Erkot makes it more difficult for them to implement Texas's

interconnection process. Like, yes, there is a, I guess the medical measurement of the capacity value is driven by these system impact studies, so you need to do them in order to determine capacity values? It's something like that. Otherwise, why not just keep your energy plus capacity market, but implement a version of Texas's, you know, go ahead and interconnect and wear the curtailment risk thing? I think you're right that it is possible for transmission providers outside ARCOT, even with capacity markets, to implement an approach. that would be energy only to allow for much faster, cheaper interconnection while pursuing proactive grid upgrades necessary to relieve congestion and ensure resource adequacy and reliability, and to do that via separate transmission planning process. And so it's possible.

It's going to require one or more transmission providers to get creative. And it's tricky, right? So there's a lot of kind of devil-noburn. detail and how you structure this in the interconnection study process outside ERCOD, especially in the framework of these cluster studies. But this is the detail that we need to work through. But I agree with you. There should be no inherent reason why you couldn't adapt this even into markets with

capacity markets. So I think in some ways it is kind of intuitive given how you describe the process, but maybe we can spend a minute more on exactly why the process that the interconnection process outside of Texas with the system impact studies and so on leads to such inefficiency

and growing cues in long timelines. So I think there are a lot of concerns with respect to the inefficiency of this existing approach outside of RACOT. And so, you know, first, it appears to be temporally inefficient, right?

So it takes a lot of time to work through these very detailed, intricate studies to identify these overloads and then allow for interconnection customers to decide whether or not they are going to relieve those upgrades. And it creates the possibility of a lot of cascading failure within those interconnection studies. So there's an aspect of it, so it's temporally inefficient. It's bureaucratically inefficient, right? And just that it requires a lot of study resources. You know, we are increasingly using the very limited number of transmission planners and engineers to conduct these massive interconnection studies because we're relying on the interconnection process itself to identify and fund

network upgrades. And then it's economically inefficient. What we're seeing more and more is that it will save ratepayers money if we pursue these upgrades. via separate proactive process, and that's for a couple reasons. One is you don't have to go back incrementally and continue upgrading the system in response to interconnection customers. You can identify a set of low regrets or least regrets upgrades and do it all in one batch. So from an upgrade cost standpoint, it's inefficient. And then from the standpoint of accessing lower cost generation,

with lower production costs, it's also inefficient because it's creating an additional barrier to allowing, in many cases, lower cost resources to get online and supply the system. And then I think it's worth just mentioning one more. It's a little bit more debatable, but it's just concern about reliability risk that when we're retiring so many resources and we have now such substantial incoming load growth, we really need to get more capacity online onto the system more quickly. and if you're creating unnecessary barriers to entry, it could introduce a reliability risk.

Okay, so if you're in charge of PJM or MISO or KISO or some market outside of Texas, and you could wave a somewhat realistic magic wand. In other words, you can reform the interconnection process, but you're not going to do the fundamental structural market reform, like you can't turn PJM into an energy-only market all of a sudden. how would you distill, like, what could be done within the bounds of reality? Yeah.

Yeah, so assuming that you're still going to have generators pursuing the interconnection process to receive capacity rights, you have to figure out a way how to study both energy-only resources and these interconnection studies alongside these capacity resources. and this is tricky, but there should be a relatively simplified approach to this. And so there are a number of experts in FERC's rulemaking process that recommended that instead of one big combined, you know, integrated cluster with both energy only and capacity resources, that you just do this in two steps, right? So you start off with a cluster that's energy only. and at the end of that process,

the interconnection customers will make a go, no-go decision on whether they're going to proceed. And then, you know, you take all those, and then you run the second stage, which includes all the capacity resources. In that study, you actually, you turn off the energy-only resources

because, again, they're not receiving capacity and they're not contributing to overloads because they'll be curtailed in real time. So pursuing a two-step, study process with energy only first, followed by capacity resources, I think, is a relatively simple one that can be adopted quickly. There's also reforms that can be made to what's called the impact threshold. So this is the question of, you know, when do you actually assign upgrades even to energy-only resources? And there was a lot of debate in the FERC rulemaking around

what is the proper impact threshold. And we've seen reasonable thresholds work in various markets around 20%. So I think there's a case to be made that if you're taking this approach, you can relax that impact threshold. That's something that transmission providers can do on their own. And then, you know, there are a few other, there are a few other details here that we could go through, but the biggest additional piece is improving the pro-actual. transmission planning process and not relying as much on the interconnection process. And we could have a whole podcast, of course, dedicated to proactive transmission planning. There's a separate FERC rulemaking going on, considering various options to improve it.

But one of the simplest things is just looking out over a longer period of time to estimate the cost savings that occur from different transmission upgrades so that you, You capture that in the cost-benefit analysis in order to identify the least regret set of proactive upgrades. Yeah, in other words, it should be a cost-benefit analysis, not just a cost analysis. Exactly. All right. Well, it sounds like we should have a future conversation on proactive transmission planning. But in the meantime, Tyler, thank you so much for joining.

Thanks so much. Really great to be here. Tyler Norris is a PhD candidate at Duke University's Nicholas School of the Environment. he's also a former VP of development at Cypress Creek Renewables. This show is a co-production of PostScript Media and Canary Media. You can head over to canarymedia.com for links to today's topics. PostScript is supported by Prelude Ventures, a venture capital firm that partners with entrepreneurs

to address climate change across a range of sectors, including advanced energy, food and ag, transportation and logistics, advanced materials in manufacturing, and advanced computing. This episode was produced by Daniel Waldorf, mixing by Roy Campanella and Sean Marquand, theme song by Sean Marquan. I'm Shail Khan, and this is Catalyst.