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Merchant developers fill 'void' in US interregional grid build-out


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Merchant developers fill 'void' in US interregional grid build-out

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Two recent reports highlighted how merchant developers are leading the way in US interregional electric transmission construction.
Source: Alexander Farnsworth/iStock via Getty Images

Private companies are playing a major role in adding new interregional transmission lines, an in-depth assessment by S&P Global Commodity Insights found. But as US policymakers consider ways to boost the nation's high-voltage grid capacity, industry experts said more needs to be done to remove barriers to development of high-voltage direct-current power lines on a merchant basis.

The push for policy changes comes as extreme weather events over the last two years have shown how interregional high-voltage direct-current (HVDC) transmission can help avert grid emergencies. Modern HVDC technology, which allows for bidirectional power flows with low line losses, enables neighboring grids to share large amounts of energy across long distances when supplies become scarce.

A September report by the consulting firm Grid Strategies LLC and advocacy group Americans for a Clean Energy Grid underscored how merchant developers have emerged as leaders in advancing interregional HVDC development. Merchant developers are behind all of the major interregional HVDC lines identified in the report that are either in advanced stages of development or under construction.

Much more interregional transmission will be needed assuming moderate growth in US power demand and high penetration of clean energy resources, a recent draft report by the US Energy Department found.

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A separate report released Sept. 19 by the American Council on Renewable Energy noted that the US now lags far behind Europe in interregional HVDC development.

European grid operators have deployed about 50 GW of modern HVDC technology in recent years with another 130 GW planned over the next decade, according to the report. North America accounts for 30% of planned modern HVDC technology worldwide, "mostly due to efforts by merchant transmission developers," the report said.

Merchant developers in the US have found success by sidestepping one of the most difficult challenges associated with building long-distance power lines: cost allocation. Instead of socializing a line's cost across a broad set of ratepayers, merchant lines are paid for by individual power suppliers that subscribe to the line's transmission capacity.

"In lieu of any effective joint interregional planning, I think merchant companies are filling the void," Grid Strategies President Rob Gramlich said in an interview.

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Developers seek policy changes

Despite the recent success, some developers are urging the Federal Energy Regulatory Commission to provide greater regulatory certainty for merchant HVDC lines.

In July 2022, Invenergy Transmission LLC asked FERC to host a technical conference to explore ways to clear barriers to interregional merchant transmission development. The commission, which oversees the nation's regional transmission organizations (RTOs) and independent system operators (ISOs), could help in several ways, said the subsidiary of Chicago-headquartered Invenergy LLC, a developer of both transmission and generation resources.

For starters, Invenergy said FERC could issue rules for RTOs and ISOs that streamline the interconnection process for merchant HVDC transmission.

In regions such as the 15-state Midcontinent ISO, merchant HVDC lines — which are capable of transmitting power to adjacent systems — must follow the same interconnection process that power generators use to connect to the power grid. Invenergy's 800-mile, 600-kV Grain Belt Express project has already received regulatory approvals in Missouri, Kansas, Indiana and Illinois but is still waiting to execute a transmission interconnection agreement with MISO after submitting an initial application in 2019.

Invenergy also filed a complaint (EL22-83) with FERC in August 2022 seeking a finding that MISO's transmission expansion planning process is unjust and unreasonable. MISO should be required to revise its tariff to account for advanced-stage merchant transmission in its long-range planning and analysis, Invenergy said.

Invenergy submitted additional third-party analysis in April 2023 showing that the analysis MISO used to support a $10.3 billion tranche of regional projects announced in July 2022 missed $1.9 billion in projected customer savings from Grain Belt Express. MISO's modeling also failed to account for the mitigation or triggering of more than 520 overloads tied to the project, Invenergy's analysis found.

MISO maintained that its standard for merchant transmission has always been the same. To be included in a transmission expansion plan, as well as the supporting analysis, the Grain Belt Express line must first have an executed transmission connection agreement or be included in a utility's integrated resource plan, MISO said in a response to Invenergy. Alternatively, the line would need to be included in a preferred plan by a MISO load-serving entity or a MISO state.

"It takes about 18 months and a lot of work to put these plans together," MISO CEO John Bear said during a summer meeting hosted by WIRES, an industry group that represents North American transmission owners.

"If we have to do scenarios and include everything that someone is thinking about, we're never going to get it right," Bear said. "If we do it once, we'll have to do it for everybody."

But Shashank Sane, Invenergy's head of transmission, questioned whether RTOs and ISOs are up to the task of interregional planning without further direction from FERC.

Interregional transmission planning has largely ground to a halt since FERC's Order 1000 became effective in 2013. The rule, which encouraged interregional planning but stopped short of requiring it, has prompted incumbent transmission owners to focus on smaller regional projects eligible for a regulated rate of return.

"Overall, I think it's unlikely that significant interregional projects are built through traditional RTO planning processes. History certainly speaks to that," Sane said in an interview.

Sane acknowledged that most HVDC projects will inevitably result in winners and losers as cheaper sources of electricity like wind and solar are brought to market.

"It's on bodies like FERC to look above those individual impacts and really be thinking about whether a project will be beneficial for the grid at large, rather than letting individual interests potentially drive these decisions," Sane said.

Invenergy's request for a technical conference and complaint against MISO are pending before the commission.

"We are in active negotiations on the transmission connection agreement with MISO and expect to have a final agreement in place very soon," an Invenergy spokesperson said.

Grid United LLC, a Houston-headquartered developer, was one of multiple independent developers to support Invenergy's request for a FERC-led technical conference.

The request was also backed by SOO Green HVDC Link ProjectCo LLC, the developer of a 2,100-MW, 525-kV underground HVDC line sited along an existing railway that will connect the PJM Interconnection LLC and MISO markets once complete. The project secured approval from Iowa utility regulators in September, but it has also been plagued by PJM grid study delays.

"Merchant transmission has to get cost certainty around the network upgrades that they would have to pay for," said Beth Soholt, executive director of the Clean Grid Alliance, a nonprofit that advocates for renewables across the Midwest. "That's no small challenge to overcome."

In its comments supporting the technical conference, Grid United urged FERC to include a panel focused on structural and market barriers to interregional HVDC facilities.

Solving challenge of renewable energy integration

Merchant developers typically start with the question, "How do I solve the challenge of renewable energy integration?" Grid United CEO Michael Skelly said in an interview.

The answer has led to projects such as the 550-mile SunZia line in New Mexico and Arizona, the 730-mile TransWest Express line between Wyoming and southern Nevada, and the Grain Belt Express line, Skelly said. Construction on SunZia and TransWest Express, first proposed in 2006 and 2007, respectively, finally began this year.

"If you're an incumbent and you ask yourself the renewable energy question, the answer you come up with will be in your service territory, and the transmission solution around that will be in your service territory because that's the world you understand the best," Skelly said.

In a potential model for other developers, Grid United is partnering with companies such as Allete Inc. The Duluth, Minn.-headquartered energy company is a MISO member with subsidiaries that provide retail electricity and has business units that invest in clean energy projects.

Grid United and Allete plan to jointly develop the North Plains Connector, a $2.5 billion, 385-mile HVDC line running from central North Dakota to Colstrip, Mont. The line would add 3,000 MW of transfer capability between the Western Interconnection and Eastern Interconnection.

"It's a great partnership for us because they've been active in North Dakota for 100 years," Skelly said. "They have experience with HVDC technology, and they're active participants in MISO, and they develop renewable energy projects."

Julie Fedorchak, a commissioner on the North Dakota Public Service Commission, stressed that merchant-developed lines are often easier for regulators to approve because they avoid complicated cost allocation "jumbles" at RTOs and ISOs.

"Merchant lines help connect costs to cost causers, which is also a really important principle of utility rate-making," Fedorchak said.

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