Market Design, Investment, and Interconnection to the US Power Grid

University Of Wisconsin-Madison, Madison WI

Investigators

Abstract

The transition to a low-carbon electricity grid will require massive investment in alternative electricity generation. An obstacle to this investment is US electricity transmission policy, which was designed for fossil fuel generators rather than renewable energy. This project will focus on the interconnection process, which new generators use to connect to the existing transmission infrastructure. This process is one of the most time-consuming and costly steps before a generator goes online. The researchers will construct new data on the cost of interconnection based on engineering reports, use the data to analyze how the design of the interconnection process acts as a bottleneck to renewable deployment and quantify the costs and benefits of policy reforms. Increasing the rate at which renewable energy generators complete the interconnection process has the potential to double the amount of renewable energy capacity the US adds each year. Despite its importance to the energy transition, there has been little economic research on the design of this interconnection process. New generators usually pay the entire cost of the transmission upgrades required for their interconnection, even though existing and future generators also benefit from these upgrades. As a result, there are two spatial externalities across generators in the queue: (1) the withdrawal of a generator may lead to re-evaluations of physically adjacent contemporaneous generators, which further leads to delays and increases their interconnection costs, and (2) the completion of a generator may reduce interconnection costs for adjacent lower-queued generators, decreasing their likelihood to withdraw. There is also a waiting time externality: as more generators enter the queue, it takes longer for the transmission organization to give them cost estimates of connecting to the power grid, which leads to more delays. The project will first construct new data sets on interconnection costs, interconnection queue wait times, and transmission planning. Second, using these new data, the project will estimate how various factors affect the decision to withdraw and quantify the importance of these externalities. Third, the project will develop and estimate a new model of queuing that features rich externalities across generators in the queue. Finally, the project will use the model to simulate the effects of alternative queuing designs or a subsidy for interconnection costs on withdrawal rates and welfare. Furthermore, the project will use the model to calculate the impact of grid operators proactively planning transmission projects in regions likely to see growth in renewable energy. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.