Project developers are no strangers to the infrastructural bottlenecks and regulatory gridlock that constrain the deployment of new renewable energy projects.
Delays are causing electricity costs to rise and are limiting economic development and job creation expected from the Inflation Reduction Act (IRA). Efforts to address these structural issues have thus far failed in congress.1 The current state of affairs has business leaders, policy experts, and academics raising the alarm: the current approach to permitting and interconnection is broken, presenting barriers to the energy transition, and threatening the progress of corporate decarbonization commitments.2
The source of the bottlenecks
Delivering electricity is a complicated is a business that takes time, investment, and more time. Several factors can delay clean energy project development, but two intersecting factors are top of mind for all stakeholders in the industry; permitting & interconnection queues.
Permitting has two layers: siting and transmission.
After a developer has identified a site that makes sense for solar and has negotiated the relevant arrangement with a landowner (no small feat!), they must secure the relevant permits to actually build the project. This requires approval at the local and federal level, and can take up to 3 years.3 This is particularly challenging when a project requires federal permits, often requiring sign-off from multiple different agencies.4
Projects large enough to require new transmission lines are subject to further scrutiny. Transmission lines refer to the short- and long-distance lines that convey electricity from the site of generation to the site(s) of consumption. Projects can be further delayed if additional electric transmission lines and/or permits are needed.
Overall, between siting, permitting, and construction, new transmission projects can take a decade to complete.5
The Progressive Policy Institute highlighted the discrepancy between electrical transmission line permitting times and fossil fuel pipelines, with electric transmission infrastructure permitting taking an average of 4.3 years, which is 8-months longer than the average fossil fuels pipeline permitting process.6 These numbers exclude the many projects ultimately abandoned and not constructed due to overly burdensome costs and delays which may prompt negotiations to fall apart and options on land to expire.
Projects that check all the relevant regulatory boxes still face hurdles. Lengthy interconnection queues, which can reach 5+ years for utility-scale projects, have been an Achilles heel of the market. Interconnection queues refer to the waiting line in which projects are assessed to determine if the electric grid can handle the additional power load the projects add to the system. It now takes about twice as much time to build a typical solar project than it did in 2005 – from 2 years to 4 years.7
Compounding the issue, much of the existing grid is not designed to handle the varying sources of power that developers are looking to bring on line, putting renewables at a disadvantage. Those concerned that gridlock will inhibit achievement of 2030 clean energy targets are in for a frustratingly pleasant surprise - according to Lawrence Berkeley National Laboratory (LBNL), 70% of the renewable and nuclear capacity needed to meet these goals are currently in the 750GW queue.
With time-intensive processes at the backbone of electricity system, it is critical to plan ahead and build out the infrastructure needed to support generation and distribution.
As the Inflation Reduction Act (IRA) catalyzes increased clean energy investment, project development bottlenecks are well-poised to be exacerbated unless the pace and magnitude of grid infrastructure investment ramps.
With the energy transition afoot, a wave of developments expected following the passage of the IRA, and year-over-year growth in capacity in interconnection queues, it's critical to encourage more proactive transmission efforts, and to seek troubleshooting mechanisms. The domestic approach to transmission planning must shift from reactive to proactive.8
But what about today and right now? Can the bottlenecks be avoided?
There is a glimmer of hope. Permitting for renewable energy generation projects is comparatively short relative to transmission or pipelines, on average taking 2.7 years. Structural challenges are fodder for innovation and sea-change. Developers have the opportunity to focus on a road somewhat easier to travel, which serendipitously can enhance grid resilience and energy security.
Distributed generation (DG) offers an alternative approach: mitigate (or avoid altogether) interconnection and permitting delays by generating power where it is being consumed. By prioritizing smaller distributed generation projects with shorter permitting and interconnection processes, developers may be able to accelerate development and get ahead in the market. Distributed generation also contributes to energy resilience and can insulate energy buyers, whether households or businesses, from disruptions in service or shocks to energy prices. It’s an easy way for consumers to take more control of their energy security – after all, it’s impossible to install an LNG-fired plant on your roof!
So what’s the catch?
Cost is often noted as a primary challenge for distributed generation projects. On a dollar per watt basis, distributed generation projects can be more expensive. This is driven by a lack of basic economies of scale: DG projects tend to be smaller, and supply chain pressures make it difficult to rapidly install systems across disparate sites. One way to mitigate cost pressures is to ensure that a behind-the-meter system is able to export power back to the grid. Alternatively, there are many favorable jurisdictions that offer incentives or programs that allow these projects to easily benefit from the investment in DG.
Where do we go from here? What are the mechanisms to bring the $/w cost of small projects down?
Stakeholders should encourage expanded virtual net metering. Increased virtual net metering can benefit non-proximate energy consumers and production systems by easing the accounting and exchange of clean energy production, and by doing so, improve distributed generation project economics.
Microgrids and other aggregation strategies could be effective approaches, however, if deployed at scale these projects could run into the same permitting and transmission delays as larger projects. We encourage the development community and other stakeholders to keep their eyes and efforts on supporting robust, modernized, and expanded transmission infrastructure to support clean energy deployment, enhance grid reliability, and mitigate power outages.
Have questions on how Energetic Insurance can help increase the bankability of distributed generation projects, contribute to a lower cost of capital, and expand market access?
This article does not constitute and is not intended by Energetic Insurance to constitute financial advice or a solicitation for any insurance business.
Sources: 1. https://news.bloomberglaw.com/environment-and-energy/common-ground-elusive-as-manchin-permitting-bill-awaits-action
2. https://cleanenergygrid.org/new-report-finds-current-transmission-interconnection-process-unworkable-inefficient-raising-energy-costs-customers-stifling-job-creation/
3. https://www.progressivepolicy.org/publication/americas-clean-energy-transition-requires-permitting-reform-policy-recommendations-for-success/#_ftn3
4. https://www.resources.org/common-resources/reforms-to-federal-permitting-can-speed-solar-energy-deployment/
5. https://yaleclimateconnections.org/2022/10/permitting-americas-next-big-climate-conundrum/
6. https://www.progressivepolicy.org/publication/americas-clean-energy-transition-requires-permitting-reform-policy-recommendations-for-success/
7. https://www.utilitydive.com/news/energy-transition-interconnection-reform-ferc-qcells/628822/
8. https://www.utilitydive.com/news/gridlock-in-transmission-queues-spotlights-need-for-ferc-action-on-planning/603128/
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