Guest essay by Eric Worrall

According to The Hill and industry advocates, its deeply unfair that the government is unfairly trying to force renewable energy providers to pay the full cost of power line upgrades required to bring cheaper electricity to American homes. The government is also cruelly forcing green entrepreneurs to submit to lengthy planning processes.

Regulatory overhaul is key to the clean energy transition


As Congress contemplates clean energy subsidies and standards, we should first ask why clean energy deployment can’t already keep up with burgeoning demand. The answer is simple to identify but difficult to remedy: archaic regulation. Regulatory solutions aren’t as sexy as grandiose public spending, but for those motivated by results over optics, it’s time to redefine clean energy leadership. 

The infrastructure deal relies on a controversial budgetary approach to clean energy, but America needs unified regulatory reform. The deal, as it currently stands, includes a one-time injection of $73 billion for clean energy and electric transmission. To put this in perspective, utilities spent over a quarter trillion on transmission alone over the past decade. The problem isn’t the private sector’s unwillingness to spend, but a regulatory structure that deters private investment and insulates incumbent utilities from competition. For example, Congress should be asking why transmission regulation is a “protection racket” that rewards utilities for spending excessively while deterring innovative, low-cost alternatives that would save consumers billions and accelerate decarbonization

For starters, a slew of regulatory flaws in electricity market rules and governance insulate incumbent power plants from clean, competitive new entrants. A report by Americans for a Clean Energy Grid outlines the imperative of overhauling grid regulation, noting that the current system is “causing a massive backlog and delay in the construction of new power projects.” New projects backlogged in the grid interconnection process already equal 77 percent of the total capacity of all existing power plants. 

Today’s regulatory state is the antithesis of the Wall Street refrain on sustainable finance: “speed to market.” Forcing taxpayers and consumers to pay for what the private sector wants to finance but can’t build is impractical and unjust. Aside from research and development assistance, clean energy leadership must divorce itself from spending others’ money. Congressional efforts should instead prioritize unleashing the might of the strongest economic force in history: American free enterprise.  

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Regulatory overhaul is key to the clean energy transition

If you read The Hill article and were left with a weird disjointed feeling that the author never actually explained their problem, you are not alone. But delving into one of the referenced reports, by Americans for a Clean Energy Grid, we finally see them spell out their grief.

Disconnected – The Need for a New Generator Interconnection Policy

I. Executive Summary

… (page 5)

Although FERC and the RTOs have undertaken worthwhile reforms to alleviate interconnection backlogs, the interconnection queues are costly, lengthy, and unpredictable. Power project developers are uncertain if their project will be approved and this risk significantly increases the cost of capital for generation developers, which increases the cost of energy for customers.

The current process also places nearly all costs of network upgrades on the energy project developer, even though many others will benefit from the construction of the project. Until a few years ago, these interconnection charges for new renewable resources would comprise under 10 percent of the total project cost for most projects. In recent years – due to the lack of sufficient large-scale transmission build – these costs have dramatically risen and interconnection charges now can comprise as much as 50 to 100 percent of the generation project costs. The system has reached a breaking point recently as spare transmission has been used up. Presently in most regions, new network capacity is needed for almost all of the projects in the queues.

Participant funding for new grid connections is no longer a “just and reasonable” policy and violates FERC’s “beneficiary pays” principle and the Federal Power Act. Relying on the interconnection process to identify needed transmission leads to a piecemeal approach and inefficiently small upgrades, raising costs to consumers. The incremental reforms at the RTO-level over the past decade have only served to treat symptoms of this fundamental issue – the lack of alignment between regional planning processes and the interconnection process.

… (page 20)

The failure of the current system under the new resource mix, including excessive costs and risk, an inability to build needed transmission, and generators paying for large network upgrades that primarily benefit customers suggest that participant funding may no longer be a just and reasonable policy. Participant funding of network upgrades not only imposes costs on interconnection customers that are often exorbitant and rising, but is also not the solution to the inability to build large-scale transmission.

One policy solution would be to end participant funding for new generation. It is clear that major network upgrades resulting from generation interconnection requests provide economic and reliability benefits to loads and reduce congestion to improve grid efficiencies and operational flexibility, and therefore should not be direct assigned as a result of participant funding. The Commission can and should change this policy within the scope of interconnection policy.

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Renewable entrepreneurs argue that the network upgrades they are demanding would improve the overall electricity network resilience. There may be a grain of truth in this, but I suggest the vast bulk of the network upgrades renewables entrepreneurs are demanding, like running high capacity transmission networks into the middle of whatever remote wasteland or mountain top hosts their new wind and solar arrays, would likely only be economically useful to the renewable entrepreneurs themselves.

Renewable energy entrepreneurs don’t want to pay the full cost of power transmission network upgrades required to bring their product to market, they want to force coal, gas and nuclear plant operators to share some of the cost burden.

If renewable operators get their way, by forcing every provider to help pay for the upgrades they alone want, in my opinion this would trap ordinary people into paying more for electricity. If renewable energy entrepreneurs alone have to pay the full economic cost of their product, they still have to compete against the existing prices of coal, gas and nuclear electricity plant operators. But if everyone has to pay a share, there is no escape for ordinary people from higher costs. Every provider would have to jack up their electricity prices to end users, to pay for their share of the cost of electricity network upgrades most of them do not want and do not need.

via Watts Up With That?

August 21, 2021