Regulator’s Penalty for Grid Delays Splits Clean Energy Builders

US energy regulators are betting that the threat of financial penalties on both clean energy developers and transmission providers will help to tackle a backlog of solar, wind, and battery projects waiting for years to connect to the power grid.

A sprawling final rule published late last week by the Federal Energy Regulatory Commission has largely pleased clean energy developers, who pressed for changes to the wonky process as they ramp up investment and project announcements. But the rule has also been met with opposition from transmission providers who are overwhelmed with requests.

One year since the passage of the Inflation Reduction Act, which renewed and created incentives for clean energy deployment, about 2,000 gigawatts of projects are seeking to connect to the grid. The FERC rule aims to streamline a process that can take five years or more for plants to get approvals from transmission providers to begin operations.

The commission’s rule, spanning nearly 1,500 pages, includes new fines for developers if they withdraw a project from the interconnection process, which can suddenly raise costs for other proposed projects. FERC also imposed new fines for transmission providers that miss certain study deadlines, where previously the commission allowed providers to make an unenforceable “reasonable effort.”

FERC’s rule “increases ambition and expectation on both sides,” said Caitlin Marquis, managing director at Advanced Energy United, a trade association representing clean energy companies and consumers.

“Developers are willing to have accountability in the process, but they need something in return, and some expectation of the timeline and the level of some certainty of how they’re going to move through the process,” Marquis said.

But FERC’s rule angered transmission providers. The penalties on transmission providers are “manifestly unfair” because missed study deadlines are due to circumstances beyond the control of the providers, said Larry Gasteiger, executive director of WIRES, a trade association that advocates for more investment in transmission infrastructure.

Gasteiger—who previously worked at FERC, including in its enforcement office—said the rule will likely draw requests for rehearing and drag the commission’s ability to move forward on the rule.

“It flies in the face of Penalty 101 to penalize someone for conduct that’s beyond their control when you’re trying to get them to comply with something, and that’s exactly what FERC’s doing here,” Gasteiger said.

The rule was much anticipated after a two-year rulemaking process and a proposed rule issued in June 2022.

FERC largely kept the bones of the proposed rule in place. The rule establishes a “first-ready, first-served” process that prioritizes projects that are likely to be built and requires “cluster” studies of multiple similarly situated projects. Previously, transmission providers could study projects individually and on a “first-come, first-served” process.

The process is a relic of a time when grid operators were seeing only a handful of large centralized generators seeking to connect at a spot with ample transmission capacity. Today, the process has been overwhelmed by intensifying interest in renewable energy, flooding the queues with many projects, often without the needed transmission or substation capacity.

Facing so many projects, the question of how transmission providers decide which ones are “first-ready” is difficult to answer. Those entities, in comments to FERC, pushed back hard on missed-deadline penalties, arguing they simply don’t have the staffing and resources to handle the studies.

The final rule imposes measures on developers such as control of the site where they want to build, increased deposits to go through the study process, and the withdrawal penalties.

“Each side can get assessed—each side has their own responsibility that the rule really makes sure they fulfill,” said Elise Caplan, vice president of regulatory affairs for the American Council on Renewable Energy.

FERC, in making penalties stiffer the later a developer would scrap its project, is “trying to structure them so that withdrawals would happen earlier,” Caplan said.

The commission is also requiring that transmission providers publish a heatmap showing available capacity on the grid. It’s a nod to developers’ arguments that they don’t have enough information ahead of time to pick the best location for their project.

“In the past, developers have essentially filed projects just to find out what the costs would be in that area,” said Ted Kelly, senior attorney for energy markets and regulation at the Environmental Defense Fund. “If there’s more upfront information, I think you’ll see a lot more ability for them to only file projects that actually have a very high chance of being built versus the more speculative ones.”

“From what I’ve heard from the development community,” Kelly added, “it seems like they feel like it’s pretty reasonable where things landed.”

Others think the rule alone won’t change the status quo enough.

Electric consumer groups—such as big tech companies and other large corporate buyers of energy—are pressing for FERC to move quickly to finalize a proposed rule to improve regional transmission planning that is key to getting projects built. They also have called for further interconnection reforms, outlined in a June 8 letter to FERC organized by R Street Institute, a free-market think tank.

The interconnection final rule leaves a lot on the table, said Devin Hartman, director of energy and environmental policy at the R Street Institute.

“Does it take any wind out of the sails for further reforms, or does it build momentum for further reforms? That is the critical question,” Hartman said.

To contact the reporter on this story: Daniel Moore in Washington at [email protected]

To contact the editors responsible for this story: Zachary Sherwood at [email protected]; JoVona Taylor at [email protected]

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