Generator Interconnection, Network Expansion, and Energy Transition

Abstract

Inefficient coordination between decentralized generation investment and centralized transmission planning is a significant barrier to achieving rapid decarbonization in liberalized electricity markets. While the optimal configuration of the transmission grid depends on the relative social costs of competing technologies, existing processes have not led to transmission expansion consistent with declines in the cost of wind and solar combined with increased estimates of the social costs of traditional thermal resources. This paper describes the negative feedback loop preventing efficient interconnection of new resources in U.S. markets, its connection to conceptual flaws in current resource adequacy constructs, and the ways in which it protects incumbent generators. To help resolve these issues, the paper recommends a shift to a “connect and manage” approach and outlines a straw proposal for a new financial right connected with transmission service. From a generator perspective, the effect of the proposed reforms is to trade highly uncertain network upgrade and congestion costs for a fixed interconnection fee. From a transmission planning perspective, the goal is to improve the quality of information about new generation included in forward-looking planning processes. Simulation on a stylized two-node system demonstrates the potential of the approach to facilitate a transition to clean technologies.