Price-first interconnection

When we think about meeting our growing demand for energy, the interconnection process is as important as the plants themselves. Interconnection determines how the grid will evolve to accommodate more energy—what infrastructure must be upgraded and who will foot the bill. The future of our grid hinges on our ability to interconnect new generation and maintain our infrastructure efficiently.

Many of the troubles our grid faces today have roots in the interconnection process. Insufficient energy to support datacenters? Interconnection adds 2-3 years on top of other planning, permitting, and construction tasks with current approaches—a power plant proposed at the same time as a datacenter wouldn’t come online until years after the datacenter was completed. Aging grid infrastructure that has been pushed to its limits? Interconnection today encourages developers to squeeze in power plants where grid upgrades can be minimized, kicking the can down the road instead of managing healthy transmission infrastructure. The scale of load growth we face now is larger than anything that can be squeezed in on the edges.

These issues signal the need for continued innovation in the interconnection process. At Forward Market Design, we believe that system operators can improve interconnection by adopting a price-first approach. What does that mean? Price-first means that grid operators assess what the grid needs and put a fair price on interconnection before developers propose their projects. Up-front pricing eliminates the lengthy rounds of restudy that add years of delay. It also enables grid operators to capture the fair costs of infrastructure over a longer horizon. Not only do existing projects move through faster, more projects are submitted because developers face lower risk and friction. A price-first approach can unlock the supply needed to meet growing demand as well as help us maintain our grid.

Cluster studies and FERC Order 2023

To understand price-first, we need to understand the current three-phase cluster study process that forms the current or planned basis of interconnection at most RTOs/ISOs, including MISO, CAISO, PJM, SERC, and others.

In 2023, the Federal Energy Regulatory Commission (FERC) issued Order 2023 that codified a few important updates to the interconnection process: (1) projects should be studied in batches or clusters, (2) network upgrades should be identified to support the cluster, and (3) upgrade costs should be shared among projects proportional to their impact on the grid. One round of these steps represents a cluster study. This order brought big changes to RTOs/ISOs that were not yet running cluster studies and smaller changes to the ones who had already built cluster-based processes.

Cluster studies naturally lead to an iterative process. An RTO/ISO starts with a batch of proposed projects, determines the minimal network upgrades required to support them, splits the costs among the projects, and then goes back to developers to see if they are okay with the costs. Inevitably, many developers withdraw their projects, triggering another round of study since fewer upgrades will be necessary and costs will need to be split again.

Unfortunately, developers often find themselves waiting years in this process. Due to the time and effort required for system impact studies, as well as inevitable cascading delays, the time from submitting a proposal to having a signed generator interconnection agreement is often 3 or more years. Interconnection remains an arduous and uncertain process, stymying the developers it is aiming to serve and frustrating their efforts to bring more capacity to the grid.

Price-first

We propose that system operators be proactive in a key way—system operators should set interconnection prices before projects join. Instead of determining costs in reaction to projects submitted, system operators should develop algorithms to compute and post fair prices up front that developers commit to paying when they submit projects. On average over time, interconnection prices will cover the cost of upgrades; the transient difference can be handled by the load or through any other mechanism available to the RTO/ISO. With developer commitment up front, only one round of study is necessary and developers need only wait 6 months.

Not only will price-first make interconnection faster, it will improve incentives for developers and enable system operators to plan network upgrades. Today, unlucky developers get stuck paying for large upgrades and often withdraw; with price-first, the system operator can set prices so as to fairly spread the cost across all the projects that benefit. Moreover, system operators can develop a long-term network upgrade plan and build appropriate costs into interconnection prices.

SPP is already taking steps towards the price-first paradigm. In SPP’s new consolidated planning process, developer payments include an entry fee called GRID-C that covers regional and subregional transmission upgrades. GRID-C does not cover all upgrade costs, but packaging the regional and subregional ones into a known fee substantially reduces uncertainty in the final costs, and SPP estimates its new process will reduce average developer waits to 7 months. SPP’s particular implementation will not work for many other RTOs/ISOs—SPP relies on an integrated plan of generation and transmission upgrades to set GRID-C—however the price-first paradigm is still applicable and the benefits are plain.

We believe that a shift to price-first is critical to the future of our power grid—it will help ensure that capacity can be added in a timely way to support resource adequacy, and it will also help ensure that upgrading our aging grids does not stand in the way of new development.

Learn more

We believe that improving the interconnection process is critical to the future of the grid and are invested in helping RTOs and ISOs develop them. If you have thoughts—about price-first or other ways to improve the process—we would love to hear from you. Email Chris Wilkens (chris.wilkens@forwardmarketdesign.com).

We have also submitted public comments to FERC’s recent Technical Conference on Resource Adequacy (Docket AD25-7) here: https://elibrary.ferc.gov/eLibrary/filelist?accession_number=20250527-5096, https://elibrary.ferc.gov/eLibrary/filelist?accession_number=20250707-5020

Thanks to Peter Cramton, Darrell Hoy, David Malec, and Hector Lopez for contributing to this post.