Power Grid Adequacy: Grids Need to Grow Ahead of Electrification

    Wood MacKenzie published an excellent opinion piece recently by Fahimeh Kazempour and Ken Norris - The Netherlands' gridlock: a cautionary tale for the US – that clearly showed the reasons for the extreme case in the Netherlands that arose due the energy transition getting ahead of power grid buildout. Interconnection delays for new power generation, mostly from renewables, have become common around the world since wind and solar are more complicated to integrate onto existing grids. The Netherlands case, however, is extreme in that interconnections for all non-residential loads and generation have been paused indefinitely since November 2022.

     The issue is grid congestion. What is grid congestion? Grid congestion occurs when transmission limits are reached and low-cost wind and solar resources are prevented from being fully utilized, which limits their market value. One solution is locally available energy storage. However, the high costs of deploying storage, mostly lithium-ion batteries, limits its availability. Variable and intermittent generation like wind and solar often leads to congestion. Where that generation is high there are generally backlogs in grid interconnection queues. It is one of the major grid integration issues associated with renewables. Wind and especially solar can be built quickly but if there are gridlocks such as transmission bottlenecks, that can lead to significant delays in this generation actually coming online. That can strain the economics of project developers. With pledges and goals to accelerate renewables come more congestion issues that end up curbing that acceleration if transmission bottlenecks are not relieved.  

     While the EU’s ban on Russian natural gas is a factor, it seems that Dutch regulatory policy is the main reason for the pause. The WoodMac article gives three main reasons for the Dutch congestion: 1) sustainability targets, electrification incentives, and the ban on Russian gas have led to increased demand far beyond forecasts. Heat pump and EV adoption have grown quickly. 2) EU NOx emissions regulations – the Netherlands has used up its allotment of those emissions due to the high agriculture sector NOx emissions, so other projects like grid expansion have not been able to get permits. That seems a bit silly to me. There seems to be a need for practicality since it is estimated that 25-75% of grid expansion projects are on hold while there are negotiations with the ag sector to meet the NOx requirements. 3) Inadequate investment in grid expansion as the previous cycle underestimated the need to fund an expanded grid to accommodate more renewables.

     Generation congestion had been well forecasted for some time, but load congestion was not. Some areas of the Netherlands are known to have little to no capacity for renewable generation. However, now, in addition to that, congestion charges – costs paid by the load that would not be paid if the transmission system was congestion-free – have increased 340% from 2019-2023. As can be seen below on the graph there is now significant generation congestion as well as load congestion in many areas.

 

 

     The WoodMac analysts consider whether the U.S. will be in the same boat in the future as renewable penetration increases. They conclude that it is not likely in the near term. In the Midcontinent Independent System Operator (MISO) region renewable generation grew from 11% to 17% from 2019 to 2023, and congestion costs rose by 293% over that period. That region, which is wind-heavy and solar-medium-heavy is not expected to reach renewable penetration comparable to the Netherlands until 2028, but that may be optimistic as public opposition to renewables continues and projects are delayed. Supply chain issues are also occurring. Meanwhile, the number of projects in the interconnection queues has been growing due to the IRA. The number one obstacle in the U.S. to getting those projects built is the lack of transmission capacity. A lack of incentives, permitting issues, and transmission buildout time is keeping that lack. Even though new transmission incentives are not likely to get more projects online in the near term, reforms may actually lower the number of projects in the queue since many are just in there to increase the odds of success and that will be less of a useful strategy with reforms. Compared to the Netherlands, electrification in the U.S. is likely to be much slower. One reason is the widespread availability of inexpensive natural gas. Heat pumps and EVs are not being adopted at high rates and are not expected to for a while yet. WoodMac predicts an annual electrification increase of 21% from 2023-2030. Capacity inadequacy is predicted in California, New York, and Texas mainly. The U.S. does not have NOx requirements like the Netherlands but permit issues significantly delay transmission projects so there is some comparison there. Relief may be on the way but as mentioned it won’t happen quickly. Utilities are gearing up for grid investments with better returns, so the bottleneck will likely be relieved. That is not likely in the Netherlands, unfortunately. $13 billion from the Bipartisan Infrastructure Law dedicated to grid upgrades will help in the U.S. with an equal amount of private capital expected to match it. However, supply chains, materials, and parts availability need to keep up once deployment begins. I would guess that the period from 2025-2030 will be one of significant grid upgrades and transmission buildouts in the U.S.  

     In the MISO region, it has just been reported that the average time from clearing out of the interconnection queue to turning them online is 2 years. Recently 49GW, mostly solar (31GW) with some gas, wind, and storage, has cleared the queue so we should expect that capacity to come online in 3Q 2025. The numbers are similar for PJM Interconnection region. Meanwhile in MISO there is a projected shortfall of 2.5GW for 2025-26 planning year and a 9GW shortfall for 2028-2029 planning year. Resource adequacy is the expected problem for MISO rather than congestion. New loads are expected on the system so resource adequacy is likely to be the main issue in the near term. As noted, help is on the way. A $9.1 billion transmission project is in the works to be built in a 1–3-year time span. The reasons for the delays in getting generation online are shown in the graph below. 

 

References:

The Netherlands' gridlock: a cautionary tale for the US. Fahimeh Kazempour and Ken Norris. Wood MacKenzie. September 5, 2023. The Netherlands' gridlock: a cautionary tale for the US | Wood Mackenzie

US grid interconnection backlog jumps 40%, with wait times expected to grow as IRA spurs more renewables. Emma Penrod. Utility Dive. April 11, 2023. US grid interconnection backlog jumps 40%, with wait times expected to grow as IRA spurs more renewables | Utility Dive

MISO: 49 GW has received interconnection approval, but projects face major delays. Ethan Howland. Utility Dive. September 14, 2023. MISO: 49 GW has received interconnection approval, but projects face major delays | Utility Dive