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Interconnection queues and study cycles are growing rapidly,
challenging the ability of system operators to keep up with new
requests. This bottleneck poses a looming challenge to achieving
renewable policy goals, while rising uncertainty over cost
expectations and timelines is becoming a pain point for project
developers.
To better understand how network upgrade costs are impacting
project development IHS Markit has analyzed interconnection studies
from the past five years in MISO and SPP. Figure 1 displays the
average interconnection costs per state. Data from over 1300 wind,
solar PV, and natural gas projects have been analyzed and the state
averages include projects that have been realized, withdrawn, and
ones still in the queue process.
Among our many findings are that interconnection costs in load
centers in the eastern part of MISO are significantly lower than in
more remote regions with costs in North Dakota, for example, being
on average five times higher compared to Illinois. The high
averages in the Dakotas are largely associated with wind projects
while higher interconnection cost in New Mexico and Texas are
primarily due to solar projects. One reason for this disparity is
that good resource areas near available transmission or load
centers are typically the first to be developed. Thus, projects
located in more remote regions of the US can be quoted with
significant network upgrades.
Network upgrade costs assigned to a project can be hard to
predict because of their dependence on other unbuilt generators and
transmission lines. We find that developers have started entering
the same project to the same interconnection queue, but at
different locations to weigh upgrade costs against projected
captured prices and capacity factors. While this approach may be
useful to developers seeking to understand locational tradeoffs, it
is only exacerbating the congestion in interconnection queues,
leading to further delays.
We also find that many project owners are looking at retired
points of interconnection to build new resources, which can save
the project a significant amount and reduce the need for new
transmission lines. With the rapid retirement of coal resources
across the mid-continent over the next decade we expect this trend
to continue.
The federal government is aiming to alleviate some of these
bottlenecks and speed up the deployment of renewable resources with
the new federal task force on transmission. However, it remains to
be seen how upcoming policy changes will influence interconnection
costs and whether they can meaningfully reduce the uncertainty in
the project development process.
IHS Markit closely monitors the global energy transition,
publishing data, key insights and market analysis.
Learn more about our research.
Posted 25 January 2022 by Mason Lester, Research Analyst, Power & Renewables, North America, IHS Markit
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