Can the ERCOT model provide lessons for accelerating and reducing the cost of grid interconnection in the United States?

In July, the Federal Energy Regulatory Commission (FERC) made a landmark decision requiring transmission providers to revise interconnection rules to alleviate the backlog of interconnection requests from generators and energy storage developers. Although the new rules are seen as a significant improvement, agencies such as the U.S. Department of Energy (DOE) are already exploring ways to further optimize the interconnection process, including the "connect and manage" model adopted by the Electric Reliability Council of Texas (ERCOT).

In her concurring opinion on the new interconnection rules, FERC Commissioner Allison Clements noted that "connect and manage" could serve as a potential template for interconnecting energy-only resources. A white paper released in August by Tyler Norris, a Duke University doctoral student and former Vice President of Development at Cypress Creek Renewables, titled "Beyond FERC Order No. 2023: Considerations for Deeper Interconnection Reform," also focuses on this model. Karin Herzfeld, Senior Legal Advisor for Transmission to FERC Acting Chairman Willie Phillips, stated at a November 2 meeting hosted by WIRES, a transmission industry organization, that the "connect and manage" model "is certainly worth exploring" in any future FERC action on interconnection.

What is "connect and manage"?

ERCOT is the only grid operator in the United States that uses the "connect and manage" model. This model only studies the local upgrades needed to interconnect a project and does not review the need for broader transmission grid upgrades. ERCOT manages grid congestion caused by new generating units through market redispatch and curtailment.

ERCOT, with a peak load of about 85 GW, is a mid-sized grid operator, but over the past two years it has interconnected more generating capacity than any other grid in the nation. According to S&P Global data, ERCOT interconnected 14.2 GW between 2021 and 2022, while PJM, the nation's largest grid operator, saw only 5.6 GW begin operation during the same period.

Norris noted that compared to other regions across the country, the ERCOT model allows generators to complete interconnection at lower cost and with greater efficiency. The operator uses congestion data to identify needed upgrades through its transmission planning process. In ERCOT, interconnection customers can refer to the operator's studies to assess their own curtailment risk before deciding whether to move forward with a project. Norris said: "Then they decide whether to continue, and if they do, they assume the curtailment risk themselves. We see many generators who believe they can bear that risk." According to data from his white paper, ERCOT curtailed about 9% of utility-scale solar generation and 5% of wind generation in 2022.

In addition to avoiding expensive grid upgrades that could kill a project, ERCOT's interconnection process is also faster. Frank Swigonski, Director of Market Design at Pine Gate Renewables, said the ERCOT interconnection process can be completed in one to two years. "We are strong supporters of the 'connect and manage' model," he said, calling interconnection issues the company's "number one project killer." Mario Hayden, Director of Transmission at Enel North America, said that in ERCOT, it takes about 3.5 years from interconnection to project operation, while other regions take more than six years, with PJM and the Southwest Power Pool (SPP) taking the longest. "In ERCOT, interconnection is fairly plug-and-play," he said. Enel has 3.3 GW of wind and solar capacity in ERCOT, plus 520 MW of energy storage (providing 780 MWh of energy), and is building 1.8 GW of solar and 823 MW/1,234 MWh of utility-scale storage.

Comparing the "invest and connect" model

Outside of ERCOT, transmission owners and grid operators use the "invest and connect" framework. They typically study interconnection requests under "Network Resource Interconnection Service" (NRIS), assessing whether broad transmission upgrades are needed under stressed conditions to ensure that plants and storage facilities can interconnect reliably at full capacity. Generators bear the cost of these upgrades and must complete them before interconnection.

A June report from Lawrence Berkeley National Laboratory shows that this process is becoming increasingly lengthy and expensive. According to its January report, the average interconnection cost for projects in the PJM queue jumped eightfold from $240/kW between 2020 and 2022, compared to $29/kW in the prior two years. Swigonski noted that interconnection timelines have a direct impact on resource adequacy. In PJM, for example, the interconnection process is severely delayed, making it difficult for generators to respond to capacity market price signals. "If you try to build a new plant today because capacity prices are rising, it will take at least five years to come online," he said.

Lessons from ERCOT

Norris believes ERCOT offers lessons for interconnection reform nationwide. "ERCOT's interconnection performance shows that a less restrictive study approach and greater use of real-time congestion management can improve the efficiency of limited transmission capacity. The goal is to improve energy-only and fast-track options, reducing reliance on the interconnection study process to identify and fund transmission upgrades."

Enel's Hayden noted that given ERCOT is a single-state energy-only market with no broad cost allocation mechanism for interconnection costs, directly transplanting its framework to other markets is difficult. Norris suggested that FERC could strengthen its requirements for "Energy Resource Interconnection Service" (ERIS)—a service that does not require resources to be fully deliverable under stressed grid conditions. If a project qualifies for ERIS, its potential grid upgrade costs could be far lower than under NRIS, but generators would bear curtailment risk. In her concurring opinion, Clements said ERCOT could serve as a template for ERIS interconnection. Streamlining ERIS interconnection studies could allow transmission providers to focus study resources on the few requests seeking NRIS.

Norris's white paper proposes that cluster interconnection requests could be studied in two steps: first ERIS, then NRIS. Meanwhile, transmission providers could use "security-constrained economic dispatch" rather than power flow calculations to study ERIS requests, to determine whether curtailment can address grid constraints caused by a project. Overall, if energy-only and other fast-track options become more attractive, the number of projects seeking NRIS would decrease, improving the overall efficiency and success rate of the interconnection study process.

Operational and planning concerns

Casey Cathey, Director of Advanced Grid Asset Utilization at SPP, cautioned that the "connect and manage" model raises operational and planning issues. At the operational level, the market mechanisms used to manage "connect and manage" resources cannot assess operational challenges such as voltage stability, transient stability, short-circuit issues, and critical clearing times. "When we talk about the 'connect and manage' concept, there is still a whole set of issues in the electrical engineering field that need to be addressed," he said.

Cathey also noted that "connect and manage" needs to be paired with transmission planning reform to ensure planners "focus on and address the best transmission solutions needed for all interconnection requests." He warned that if transmission upgrade needs are not identified in the interconnection process, and more transmission is ultimately needed, plant owners could face severe curtailment before transmission is built—which could take years. "Then the question becomes, what have we actually accomplished?" he said.