Federal efforts to speed up clean energy projects have been the focus in recent weeks, especially during the debt ceiling negotiations. Discussions centered on national permit reform and how such reform would solve the significant delay developers face for all environmental and technical approvals on everything from a utility scale solar farm to electrical transmission lines. Permitting reform would change the approval process for transmission lines, change costly grid upgrades to interconnect projects, and speed up government environmental review. Democrats and Republicans have different goals for each of these reform measures but for developers, will these changes matter to them? We interviewed several developers (and those that work with developers) to find out: Simon Mahan, Executive Director, Southern Renewable Energy Association; Steven Shparber, Attorney at Mintz; and Michael Wallace, Vice-President of Origination, BrightNight.
Question #1: The debt ceiling bill required the North American Electric Reliability Corporation (NERC) to study whether transmission is needed between different regions. The Federal Energy Regulatory Commission (FERC) then has one year to consider public comments on the NERC report. Do you think this was a good step to take for transmission reform or are there other steps not taken you believe should be?
Simon: This is one step forward, but two steps back. The original debt ceiling discussions included provisions of the BIG WIRES Act, which would have directly established interregional transfer capacity requirements, something desperately needed to maintain reliability, reduce costs, and bolster renewable energy growth. Instead of requiring a minimum transfer capability, the final provision in the debt ceiling deal includes a study that may end up slowing down momentum on transmission reform due to its lengthy time frame. While some regions, particularly the Southeast, need additional study, most of the country already has plenty of evidence that transmission capacity should be bolstered.
Steven: This is a positive step forward, but I agree with Simon Mahan that the study included in the debt ceiling bill could delay the eventual implementation of impactful permitting reform, which is needed to get enough transmission built to achieve meaningful decarbonization.
Michael: This is a positive step and generally a good starting point. The grid is vastly different across the country and each power provider, state and region is trying to solve a different problem as well as satisfy various regulatory requirements. Transmission is complicated and transfer capability is necessary as we interconnect additional renewables. Our hope is the study will showcase the issues and show how to make interregional transfer possible. In many cases this will require grid upgrades which are typically viewed positively by power providers. I do agree with Simon and Steven that it is important to complete this study in a timely fashion so we can continue to move forward.
Question #2: FERC should have a final interconnection rule soon. Is the FERC action likely to result in real interconnection reform or is it more likely that markets such as PJM or the utility commissions in non-regulated markets are where action is most impactful?
Simon: It’s hard to say what FERC will finally come to adopt; in the meantime, we cannot wait for the feds to act on interconnection reforms. Reforms can take several years to develop, and several more to implement. Even implementing new federal requirements will take time in the states and RTO stakeholder processes.
Steven: FERC’s interconnection reforms should make a positive impact by mandating cluster study processes, incentivizing developers to withdraw speculative projects from the queue earlier in the interconnection study process, and limiting the need for late-stage restudies. However, FERC’s interconnection reforms likely won’t tackle some of the core issues that produce some of the most significant interconnection challenges faced by renewable energy developers.
For example, the FERC Interconnection NOPR does not address interregional transmission planning because that issue is being addressed in a separate FERC proceeding - and it is unclear when action will be taken in that proceeding. The importance of interregional transmission planning reform cannot be overstated. Reforms to interregional transmission planning are needed to get large transmission projects built, which is important for renewable energy developers because it will ensure sufficient transmission capacity, and generally reduce renewable developers’ costs associated with funding network upgrades.
A final FERC rule on interconnection reforms also is not expected to alter the participant-funding model that is present in all FERC-jurisdictional RTOs. The participant funding model ensures that network upgrades (which are built outside the interregional planning process) are primarily funded by interconnection customers seeking to interconnect their projects to the grid rather than by utilities (who then ultimately pass those costs onto ratepayers). This paradigm has ultimately led to renewable developers shouldering many of the costs necessary to build out the grid, which can significantly, and unpredictably, increase costs associated with developing and building renewable energy projects. ERCOT (which is not regulated by FERC) does not utilize the participant-funding model, which is one of the reasons it has been a very successful market for renewable energy developers, as developers generally have lower interconnection costs and better predictability with respect to their forecasted interconnection costs.
Further, a final rule from FERC is not likely to impose strict deadlines on utilities and RTOs to meet interconnection process deadlines, nor is it likely to address the challenge of utilities and RTOs having insufficient staffing to process the growing number of interconnection requests across the country.
Michael: It makes sense to consider interconnection reform more widely and I’m hopeful FERC will take action to keep interconnection queues moving in a timely manner. This will lead to more consistency across all markets and should help increase the number of projects receiving a Large Generator Interconnection Agreement or LGIA. Interconnect delays are not a new problem and developers and utilities alike have offered solutions ranging from readiness requirements to increased securities to help regulate the queues and filter out unworkable projects. It’s important for all parties to honor the timelines put in place by queue reform and that includes developers, RTO, ISO, and utilities. At a high level we like the work MISO and PJM have done to try and implement queue reform.
Question #3: In 1970, the National Environmental Policy Act (NEPA) was passed requiring federal agencies to issue detailed environmental assessments for major actions affecting the environment. Different agencies, administrations, and federal courts interpreted aspects of NEPA differently, and it has become a big roadblock to permitting projects. Legislation in the debt ceiling would set a two-year time limit for environmental impact statements and one year for modest environmental assessments. Is this reform action one that will see real results?
Simon: Yes. It’s hard to believe that it’s easier to permit oil and gas wells or pipelines, which have significant environmental and social impacts, than it is to permit a renewable project or transmission line. The oil and gas industry have had nearly fifty years to work with and streamline the NEPA process to maximize the use of categorical exclusions, while the renewable industry is effectively the new kid on the block learning the ropes. Standardizing time requirements for EIS and EA analysis will help developers better plan for construction and operation start dates.
Michael: All aspects of local, state, and federal permitting have become more challenging across the country. The development community has found itself taking on more upfront risk and costs during the development life cycle, increasing the probability of a failed development asset. For example, shortening study timelines implemented with queue reform can work against a developer if, for example, permitting doesn’t follow similar timelines. Non-refundable security deposits increase as a project moves through the interconnection study process and those projects are burdened with increased risk if environmental permitting is not advanced at a similar pace. Regulating the time required to complete federal permits will increase the number of renewable projects available to buyers in the market.
Question #4: What are the real takeaways from all these discussions?
Simon: There are so many new discussions occurring at the state and federal levels regarding transmission planning and permitting reform, it can be difficult to keep track of all the moving parts. It is refreshing to see so much interest in topics that have been ignored for decades. As industry folks, we tend to take a lot of the delays and bureaucratic requirements as a given. But, as more decision makers learn about some of the market barriers we have become accustomed to, there’s growing hope that we can begin to untangle a lot of the red tape.
Steven: The biggest takeaway is to engage and continue to engage in these discussions at the state and federal level. The IRA was the major win for the renewable energy industry, but I believe that how successful we ultimately are in getting more renewable energy deployed will depend heavily on getting necessary regulatory and permitting reforms in place.
Michael: As an industry, the development community needs to continue to educate local, state, and federal stakeholders on the challenges we face bringing wind, solar and hybrid projects to fruition. It is very encouraging to see state and federal reform across interconnection and permitting sectors, but there is still a lot of wood to chop to continue to move forward. Upgrading our transmission infrastructure should have the same urgency and attention as upgrading our roads and bridges in the United States. Renewable projects have many tentacles that touch local and state jurisdictions and it’s important to educate and involve all parties including federal if we’re going to truly decarbonize our grid.
This set of interviews shows the immense complexity required to implement the IRA investment. While funding and national/state policy is important, getting large transmission projects built, and renewable energy on the grid is exceedingly challenging and requires constant communication with the developers who work on these issues day in and day out. That truth telling is important and Leyline strives to be part of these conversations. It matters for our own investment and ensuring that the developers we partner with know that we have been in their shoes and understand their world.