Renewable energy projects face significant feasibility challenges due to rising interconnection costs, which introduce financial uncertainty, delays, and systemic risks. Here’s how these costs impact development:
Financial Strain
- Cost disparities: Renewable projects incur higher interconnection costs than natural gas plants, with withdrawn projects averaging $373/kW—five times higher than completed projects.
- Proportional burden: For completed wind/solar projects, interconnection costs account for 6–8% of total project costs, but rise to 30–37% for withdrawn projects, jeopardizing their economic viability.
- Regional variability: A quarter of projects face costs below $25/kW, while another quarter exceed $250/kW, creating unpredictable financial planning.
Queue Withdrawals and Cascading Risks
- High withdrawal rates: Only 24–27% of projects in MISO and PJM queues between 2000–2016 reached operation by 2021.
- Cost cascades: When projects withdraw, network upgrade costs shift to remaining developers, causing further withdrawals (e.g., $599/kW average for withdrawn PJM projects vs. $240/kW for active ones).
Operational Delays
- Study backlogs: The surge in distributed renewable projects overwhelms grid operators, extending wait times for interconnection studies.
- Regulatory hurdles: Outdated “first-come, first-served” processes historically exacerbated delays, though reforms like clustered studies and “first-ready” approaches are being adopted.
Systemic Consequences
- Transmission shortfalls: Lack of proactive grid expansion forces renewable projects to fund localized upgrades, akin to “building new highway lanes” for grid access.
- IRA measures: The Inflation Reduction Act aims to mitigate costs through tax incentives and transmission planning, but interconnection remains a bottleneck.
In summary, escalating interconnection costs directly undermine project economics, amplify regional disparities, and slow the renewable energy transition despite policy interventions.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-high-interconnection-costs-impact-the-feasibility-of-renewable-energy-projects/
