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CERAWeek 2022: Permitting innovations could support power grid adoption of renewables

15 March 2022 Kevin Adler

The permitting process in the US for new power transmission lines and connections to the grid is slowing the transition to renewable power generation and storage batteries, said industry experts and regulators at the just-concluded CERAWeek 2022 by S&P Global in Houston.

Panelists discussed a number of solutions, ranging from selecting which renewables projects get priority permitting review and ratemaking incentives that encourage smart use of technology to finding the right place for battery storage in the regulatory structure.

"We have 670 gigawatts of renewable power in the [permitting] queue across the United States. It's encouraging … and a large [percentage] of what we need to do to decarbonize the power sector," said Chris Shelton, chief product officer, AES Next, the technology development arm of power distribution company and utility AES.

The US had about 1,239 GW of power capacity of all types as of December 2021, according to the US Energy Information Administration.

But the grid is not keeping up. "Seventy percent of [the US] grid is in the last half of its life," said David Carroll, chief renewables officer for ENGIE, a France-based utility with operations around the world.

Operators have the opportunity to modernize the grid and to do so in the best way to manage renewables, he said. "There's a lot of investable capital to do it now," Carroll said.

One of the most infamous aspects of the current system is the time it takes for a new transmission line to receive necessary permits from the states. A few years ago, the average time was about two years, according to Shelton, but it's ballooned to four years or more.

The source of the problem is fairly obvious: a surge in the number of renewable power projects seeking to connect to power grids. The regional transmission organizations and independent system operators (ISOs) that manage grids in the US were set up to review a fairly small number of coal and gas projects. Now, there are hundreds or even thousands of applications on file.

One ISO, known as PJM, coordinates power for the District of Columbia and all or parts of 13 states in the US Midwest and East. Earlier this year, PJM proposed a two-year delay on accepting any new applications for connections, as it has a backlog of more than 2,500 requests for permits. It has a task force studying solutions.

While hiring staff to speed up review would be one answer, one regulator at CERAWeek said that a new way of looking at connection applicants is needed as well. Applications are reviewed by PJM on a "first-come, first-serve" basis, so operators have an incentive to start the permitting process to get ahead in the line. However, the panelists said many of those projects don't have a realistic chance to be built, and yet they are taking up regulators' review time.

"A lot of these projects won't go into service … maybe 20% of them will be finished," said Jason Stanek, a member of the state utility regulatory body Maryland Public Service Commission (Maryland is in PJM). "Let's get rid of the first-in, first-out approval system."

This problem will become even more acute as applications start to pour in several years from now for connections from large offshore wind farms that have been approved up and down the East Coast, Stanek said (articles here and here).

Wrong incentives

Ratemaking rules also are ripe for reform. State and federal policies allow utilities to be paid back—with a profit—for adding new transmission lines, and they worked well for decades. The rules helped create a highly reliable power grid, and one that had redundancies that made returning it to full operation fairly quick.

But it's also expensive. Stanek explained that utilities have an incentive to propose a more costly project to add transmission lines rather than a digital project to improve performance of existing lines. "As regulators, we need to encourage outside-the-box thinking instead," he said.

This is not to say that new lines aren't needed as well, especially for renewables or a new gas-fired power plant that's far from where the power is used. Stanek said wind power operators in Kansas are eager to sell power to New York City residents, but the grid is not interconnected in a way that allows that to happen.

A Kansas-to-New-York connection would require a truly national grid, rather than the series of regional grids that exist today. But it has significant hurdles to overcome. "There's no support for new transmission … in 'flyover states,'" Stanek said, referencing states in between the site of generation and its end use.

Under the $1.2-trillion infrastructure bill signed by President Joe Biden in November, the US Department of Energy has been given $20 billion for the Building a Better Grid Initiative. The program aims to make the grid more resilient to climate change impacts and to expand access to new renewable energy. Shelton said that DOE has $2.5 billion it can loan under the Transmission Facilitation Program to be an "anchor-tenant" for up to 50% of the cost of a new transmission line or upgrade, as a way to encourage upgrades and expansions.

Under the infrastructure bill, Congress also sought to strengthen the federal government's hand in overcoming states' opposition to new power lines. Currently, states have almost total control over a power line permitting, and so one state can block a multi-state project. The infrastructure bill gave the US Federal Regulatory Energy Commission (FERC) limited power to override a state's refusal to permit a new power line, referred to as "backstop authority."

FERC had backstop authority since the Energy Policy Act of 2005, but federal courts had repeatedly denied FERC's use of it, saying that Congress had not clearly articulated conditions for backstopping. Under the new law, this has been clarified, and Carroll called it "a good first step."

Criticism of battery regulations

Batteries represent yet another area where power providers are eager to invest, but often are slowed by outdated regulations.

"Batteries are generation, but they also are consumption. They have turned the model upside down," said Demetrios Papathanasiou, global director for the World Bank's Energy and Extractives Global Practice.

If a battery is put in the transmission category, then utilities run into trouble because most states and ISOs prohibit a utility from owning transmission. In those circumstances, a utility can't propose to install battery backup for its own wind or solar operations. States and FERC are starting to provide exemptions, said Stanek.

Shelton, the AES executive, described other illogical situations related to batteries as well. AES wanted to install a 20-MW battery storage unit at a power station it owned in New York State but was not operating. It already owned a 50-MW power connection to send the battery's power to the grid, a legacy of the power plant. Yet the company was required to do a full modeling of PJM's regional power needs as part of a permitting process for the connection that took two-and-a-half years, he said.

In another situation, New York State regulators required AES to add 32 MW of interconnection capacity for a battery unit that the company planned to install at a 125-MW wind farm. The purpose of the additional capacity is to make sure that power coming from the combined wind farm and battery system could meet contractual commitments, but would never exceed the existing connection's carrying capacity. The company was prepared to sign an agreement and install technology to ensure maximum output would never be exceeded, but instead the unnecessary upgrade was required, said Shelton.

In sum, the panelists agreed that reforms are underway, but more are needed. Better planning, quicker permitting, and finding ways to value carbon reduction, resilience, and reliability in the ratemaking process are critical to building a net zero grid.

Posted 15 March 2022 by Kevin Adler, Chief Editor

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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