Investing in Renewables

Renewable generating projects are forecasted to grow exponentially over the next decade and beyond. Obtaining transmission for these renewable projects is currently more than challenging. As a result, managing investor expectations and achieving success will take work and substantial coordination with multiple stakeholders. 

According to the US Department of Energy (“DOE”) Energy Information Agency’s June 2023 report, solar generation for the summer of 2023 is expected to be 24% higher than last year and energy storage capacity also grew by 90%. Onshore and Offshore wind projects also continue to advance, with offshore wind finally coming into its own with a 40 GW pipeline and offtake agreements for at least 50% of the projects.  This recently reported growth in renewables is largely before the 2022 Inflation Reduction Act (“IRA”) incentives were passed and before certain expedited permitting policy pathways were established as part of raising the debt ceiling.  

Still, many solar, wind and storage projects are stuck in the transmission queues and may not advance. Getting a project through the queue is a challenge. As of the end of 2022 according to Lawrence Berkeley National Labs (”LBNL”) 1,350 GW of new generating projects were filed in the transmission queues with 680 GW of new storage also pending and approximately 600 GW of new generation being added annually.

LBNL’s review of 2022 queue data shows that 14% of new US generating capacity for 2000-2017 (or 21% of projects by number) ultimately obtained interconnection and reached COD by the end of 2022.  While permitting, financing and supply chain issues are also critical, these numbers highlight how difficult it has been and is to find a path through the transmission queue and to develop successful projects. 

The DOE announced a Notice of Interest (“NOI”) for National Interest Electric Transmission Corridors (“NIETCs”) to essentially fast track new transmission priorities including strategically importance inter-regional transmission capacity. Various studies have also been announced to help develop the most important transmission priorities to lower customers costs and increase new renewable generation.

In addition, the Federal Energy Regulatory Commission has conducted multiple joint meetings with state regulatory commissioners, public outreach efforts and notices of proposed rulemaking to facilitate new transmission, interconnection and clarify its backstop siting authority.  There have been discussions around reducing the time to interconnect new projects by requiring financial deposits, cluster studies, first ready to build, and other approaches to speed up the interconnection process. Transmission line expansion planning has also been reviewed for improvements. 

Some estimates, referenced by DOE, indicate that new transmission facilities will have to be increased by 60% by 2030 or perhaps three times by 2050 to achieve renewable goals and emission targets.  Without new transmission capabilities, it will not be possible to achieve a 50% reduction of carbon emissions from 2005 levels by 2030 or other related goals.

The question remains – will real progress be made in the transmission essential to the realization of new solar, wind and storage projects. On one side, pending activities are ripe for new transmission corridors and special strategic projects. An April 2021 report sponsored by ACORE & Americans for a Clean Energy Grid, suggested that 8,000 miles in 22 new transmission projects at approximately a $33.2 billion cost could facilitate 60 GW of new renewable projects.

On the other side, while DOE, FERC and Congress talk a lot about the need for new electric transmission, real progress is difficult.  Some groups oppose renewables and seek to delay improvements.  Negotiators of the debt ceiling increase cited that Congress as a group is hard pressed to fully understand the dynamics for new transmission.  Different utilities as well as different states have various priorities. 

As a result, transmission improvements are slow.  Yet without a solution, the tremendous incentives laid out for the renewables industry remain as potential benefits just outside of everyone’s grasp.  Investors are wise to consider the likelihood that their projects will obtain transmission prior to making investments.

The more successful approaches in this environment include:

• New High Voltage Direct Current (“HVDC”) lines which can take a decade to design and implement;
• Shared upgrades—negotiated in transmission planning group sessions or submitted by multiple generating projects in unique situations;
• Selected new generation resources that have a tolerable expense for interconnection and new transmission;
• Some other creative approaches:
  • New conductors, dynamic loading, and AI to expand the limits of the existing system,
  • Mid to long duration storage to help balance the grid, help manage some line loading situations, and ultimately serve as a dispatchable resource, and
  • The addition of more distributed generation resources and controllable loads through virtual power plants to lower the need for new utility capacity and help focus on smaller resources.

It is important to note that the new utility-scale resources that tend to succeed in this environment are large scale projects.  The advantage goes to 1,000+ MW scale projects that can afford expensive transmission.  Specifically, offshore or onshore wind projects and large solar projects that can handle the slow pace and expense of large-scale transmission projects and upgrades have a better chance of implementation. 

On the other end, smaller sized distributed solar projects that can be economically added to distribution lines, depending on the interconnecting utility’s procedures and timing, also are a good choice in this situation. Medium scale solar or wind projects may not be able to obtain transmission or interconnection due to the costs that they can afford and still be viable. It will take strong competitive advantages to succeed.

Therefore, realizing the potential of new renewable generation remains a challenge.  Investors will have to make wise choices but given the size of the opportunity should still have multiple options as they evaluate new investments.