As California works to connect large amounts of clean energy to the grid over the next decade and beyond—resources that are critical to the state's climate goals and electricity reliability—experts are increasingly emphasizing the need to reform the interconnection process.

In early March, the California Independent System Operator (CAISO) launched an initiative aimed at making "significant and transformative improvements" to resource planning, transmission planning, and interconnection queue management. With a severe backlog of interconnection queue applications, CAISO is considering various responses, such as only accepting interconnection applications in areas with existing or planned transmission capacity. While experts acknowledge CAISO's efforts to reduce the number of applications it must process, some developers have expressed concerns about certain proposals and their specific implementation.

In recent years, California's forecasted demand for power resources has grown significantly. According to Neil Millar, CAISO's Vice President of Transmission Planning and Infrastructure Development, two years ago, CAISO's transmission plan, coordinated with state regulators, projected about 1,000 megawatts of new capacity per year over the next decade. In 2022, that figure rose to about 2,700 megawatts per year. This year's plan is based on an estimate of about 4,000 megawatts per year, while the draft decision laying the groundwork for next year's plan targets about 7,000 megawatts per year.

"Over a few years, the expected pace of development has risen rapidly year by year... We believe this has driven intense competition in the resource development space and has also led to a large number of competitors entering our interconnection process," Millar explained.

Experts point out that the problem is California's current interconnection framework was not designed for the scale of resources now seeking to connect. CAISO's Cluster 14 interconnection application window opened in April 2021 and received an unprecedented 373 applications—compared to an average of just 113 per year over the past decade—forcing the system operator to extend the study process by about a year. Millar said that based on informal surveys, CAISO expects the Cluster 15 window opening this April to receive at least 300 applications.

"We believe there needs to be tighter linkage and coordination between resource planning, transmission planning, actual procurement activities, and the interconnection process," he said.

Seth Hilton, a partner at Stoel Rives, agreed that interconnection issues are undoubtedly a major challenge for the resources California needs to bring online in the coming years and beyond to ensure grid reliability. "Given the scale of procurement needed as we transition to cleaner power, a large number of resources must connect to the grid," he added.

Different paths to interconnection

In California, projects seeking to connect to the transmission grid go through a process managed by CAISO, which typically involves submitting an application, undergoing interconnection studies, and ultimately signing an interconnection agreement. Distribution-level interconnections follow a similar process. Generally, projects advance permitting, engineering, and other development phases in parallel.

Millar noted that one of the main challenges CAISO faces is the sharp increase in interconnection applications, which has led it to extend the processing time for Cluster 14 applications. Of the 373 applications submitted in the Cluster 14 window, a few have withdrawn, and in December CAISO published preliminary results for 353 applications, of which 212 wished to move to the next stage.

"That number is also far above historical levels. Typically, application numbers are lower, and a smaller proportion of applicants move on to the detailed phase two studies. So, combined with the expected volume from Cluster 15, our workload has increased significantly compared to historical baselines," he said.

"I know every system operator faces the challenge of retaining the technical staff they need, and of course every generator also wants the best talent—so these people are in high demand."

—Rob Gramlich, Founder and President of Grid Strategies

Rob Gramlich, Founder and President of Grid Strategies, said the two major bottlenecks CAISO faces in interconnection are physical capacity limits and human resource processing capacity. "I know every system operator faces the challenge of retaining the technical staff they need, and of course every generator also wants the best talent—so these people are in high demand." Additionally, the number of independent parties involved in the interconnection process, while indicating healthy competition, may make coordinating transmission upgrades more difficult, according to an analysis Grid Strategies conducted for system operators.

Millar said the volume of applications CAISO receives not only affects workload but also "creates challenges in producing reasonable interconnection outcomes amid overheated competition statewide."

Interconnection process and grid reliability

Given that California is seeking to connect a large number of new clean energy resources, the interconnection process will continue to be a critical component of these efforts. "Everything is moving at a rapid pace, and the real nightmare is if we shut down gas plants while other resources are not yet in place, leaving a gap," said Eric Gimon, Senior Fellow at Energy Innovation.

A major reason for the surge in Cluster 14 applications is recent procurement directives from the California Public Utilities Commission. Grid Strategies' analysis noted that "widespread concerns about evening electricity demand and the rotating outages in August 2020 likely also increased market interest in new capacity." The paper also noted that, in the long term, the current interconnection queue approach could undermine resource adequacy goals.

"For example, if one capacity resource type can be sited anywhere and another is location-constrained and can only be delivered over a congested transmission line, the optimal system would place the location-flexible resource in an area with fewer transmission constraints and use the location-constrained resource on that line," the paper said. However, currently, "generation projects can propose to be sited anywhere, whether or not it is optimal."

For developers, lengthy interconnection processes can lead to financial losses, said Jin Noh, Interim Executive Director of the California Storage Alliance—especially when it comes to holding site control or actual land contracts. "So, particularly for projects trying to develop on expensive land, such as in urban areas, holding leases for long periods only brings opportunity costs and real costs," Noh said.

Looking ahead and potential solutions

California is not the only state facing interconnection queue challenges. A January study by Lawrence Berkeley National Laboratory found that the average interconnection cost for projects in the PJM interconnection queue increased eightfold between 2020-2022 compared to the previous two years. PJM will not review new interconnection applications until 2026 while it addresses its backlog.

Gramlich said one important area CAISO is working on is integrating resource adequacy into transmission planning. "These have historically been separate processes, but they can no longer be separated because when renewable penetration reaches a certain level, you need resources from different locations, operating at different times, to achieve resource adequacy, and the only way to integrate those resources is through transmission." He said every region in the U.S. may eventually need to address this dynamic, "but California may be the only one that has to act immediately because the state's renewable penetration has reached a level where this factor is critical."

Last October, the CAISO Board of Governors approved a plan to streamline the interconnection process and better manage the queue. The decision aims to ensure the most viable and mature projects receive the highest priority in the queue, and to balance the responsibility for grid upgrade costs between developers and consumers, among other things.

"If CAISO limits queue slots to exactly match the amount of needed resource capacity, it will need to design a method to ensure enough projects are built to meet CPUC's reliability and climate goals, accounting for project attrition."

—Hillary Hebert, Consultant for the Large-Scale Solar Association

In early March, the grid operator also launched the 2023 interconnection process enhancement initiative, divided into two tracks. The first track—which will go to the Board for consideration in May—focuses on immediate adjustments to the Cluster 15 application timeline. CAISO plans to accept Cluster 15 applications in April as scheduled, but proposes deferring some review processes until after Cluster 14 project reviews are complete, potentially into 2024.

The second track will examine "transformative changes" to the broader interconnection process, and CAISO has proposed several possible measures. For example, the system operator could only accept or process interconnection applications in areas where available transmission capacity exists (existing or planned). Additionally, CAISO could consider requiring projects to hold a power purchase agreement or be on its shortlist before entering phase two studies. "This would help limit needed upgrades to what is truly necessary and provide more precise construction timelines," CAISO said.

Hilton noted that the broad problem CAISO is trying to address through these proposed measures is reducing the number of interconnection applications it must process, but the challenge with this approach is "picking winners and losers at the initial stage... which is not what CAISO has historically done." For example, the idea of requiring projects to hold a PPA to advance in the interconnection process has drawn criticism from some developers. Developer Golden State Clean Energy questioned the notion that a PPA is a "marker of commercial success" in a white paper released in September.

"It is absolutely not true that commercial maturity is determined solely by having a PPA, because there are many examples where PPAs have been signed but the project was never built," said Daniel Kim, the company's head of government and regulatory affairs.

Hillary Hebert, a consultant for the Large-Scale Solar Association, said in an email statement: "If CAISO limits queue slots to exactly match the amount of needed resource capacity, it will need to design a method to ensure enough projects are built to meet CPUC's reliability and climate goals, accounting for project attrition." As for accepting projects consistent with planned transmission capacity, "the specific locations of much of the planned capacity are not yet clear. We still have a lot of work to do," Hebert added.

Noh suggested another potential solution is to have interconnection customers take on some of the process work themselves. This could involve using their consultants and internal staff to complete parts of the process, which the ISO or utility would then review and approve. "They have their own electrical engineers, and they are trying to build safe and reliable projects—is there a handoff point and division of responsibilities where the ISO and utilities could share the load?"