US grid connection requests jump 40%; Solar costs diverge as scale matters

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U.S. grid operators have been inundated with renewable energy applications, delaying approval times. (Image: REUTERS/Peter Cziborra)

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US grid connection requests jump on surging solar, storage

U.S. annual grid interconnection applications hiked by 40% in 2022 to over 700 GW as demand for solar and storage projects soared, the Lawrence Berkeley National Laboratory (Berkeley Lab) said in its latest annual interconnection report.

Most new solar applications include energy storage and combined they accounted for over 80% of new capacity entering grid queues in 2022, the data from Berkeley Lab shows.

Power capacity in U.S. grid connection queues

                                 (Click image to enlarge)

Source: Berkeley Lab, April 2023

The U.S. must rapidly expand its power grid to achieve President Biden's target of a decarbonised power sector by 2035 and the soaring number of new applications comes despite growing delays to approvals as grid operators struggle to keep up with demand.

The average time from connection request to plant operations rose to around five years in 2022, Berkeley Lab said.

Total applications surged despite two key markets not accepting new requests as they processed the backlog. California's Operator CAISO did not accept any requests in 2022 while PJM, operator of the largest network, paused new reviews until at least 2025.

The biggest increase in requests was seen in the West region outside of CAISO's network, Berkeley Lab said.

Much of the capacity will not be built, and an increasing number of developers are withdrawing their applications at a later stage, which can disrupt other projects going through the process, it said.

Applications are likely to increase further as developers take advantage of tax credits in the Biden administration's Inflation Reduction Act, increasing the pressure on approval authorities.

“The large backlogs, increasing wait times, and high withdrawal rates in the queues suggest growing interconnection and transmission challenges and highlight the need to improve institutional processes,” Julie Kemp, a research scientist at Berkeley Lab, said.

U.S. solar costs diverge as larger developers leverage scale

The range of costs for U.S. utility-scale solar power plants has widened massively since 2021 as smaller developers have incorporated higher supply chain costs while larger developers have minimised cost increases, investment bank Lazard said in its latest Levelized Cost of Energy report.

The levelised cost of utility-scale solar ranges from $24/MWh to $96/MWh on an unsubsidised basis, compared with a range of $30/MWh to $41/MWh for crystalline solar panels in the last report in 2021 and $28/MWh to $37/MWh for thin-film, Lazard said.

Most new solar projects are being coupled with battery storage and costs range between $46/MWh and $102/MWh, the bank said.

The cost of solar components has risen on the back of rising materials costs, logistics issues and U.S. import tariff policies while rising interest rates have pushed up the cost of capital.

Larger developers have been able to use economies of scale and global supply networks to minimise cost increases. This trend will continue and will lead to "ongoing consolidation across the sector as well as development of evolved business models and strategies to address supply chain and scale considerations," Lazard said in a statement.

U.S. solar installations fell in 2022 as developers suffered delivery delays and volatile markets deterred investors. Deployment is set to rebound in the coming years on the back of tax credits for solar and wind in the Biden administration's Inflation Reduction Act.

Solar installations must triple to 60 GW/year by the middle of the decade to meet President Biden's goal of a decarbonised power sector by 2035, the Department of Energy (DOE) said in a report in 2021.

The inflation act includes tax credits for new solar and wind manufacturing facilities which will reduce developers' reliance on imports from Asia but are not expected to reduce costs.

Germany solar bids bounce back after price limit raised

Germany's utility-scale solar tender was oversubscribed for the first time since June 2022 after state authorities increased the maximum price limit.

Solar developers bid an unprecedented 2.9 GW of projects for 2.0 GW of available contracts, the Federal Network Agency said.

The network agency increased the maximum price limit for the tender to 74 euros/MWh ($81.1/MWh) and the price of allocated projects was between 53 euros/MWh and 73 euros/MWh, it said. The average volume-weighted price was 70 euros/MWh and projects on farm and grassland accounted for 851 MW while projects on the side of railways and motorways accounted for 755 MW.

Solar developers have faced rising costs and delivery issues following the pandemic and Russia's invasion of Ukraine and industry officials have called for power authorities to factor in inflationary pressures in tender criteria.

Germany is Europe's largest solar market but installations must accelerate fast to achieve the government's goal of 80% of power from renewable energy sources by 2030.

Germany installed 7.9 GW of solar last year and aims to quadruple installed capacity to 200 GW by 2030, in particular through a massive expansion of rooftop solar.

                       Forecast largest EU solar markets in 2023-2026

                                                               (Click image to enlarge)

Source: SolarPower Europe, December 2022

The next utility-scale solar tender will be held in July and "it is important to maintain this high level of bids in order to push ahead [with Germany's long-term growth plans]," Klaus Muller, President of the Federal Network Agency, said in a statement.

UK grid delays 'significant brake' on economy, adviser warns

The UK must urgently upgrade its transmission grid to accommodate new renewable energy capacity as delays to grid connections are increasingly becoming the "rate-limiting factor" for offshore wind growth and a "significant brake" on wider economic activity, independent adviser Tim Pick said in a new report for the UK government.

The development of a new 54 billion-pound ($67.0 billion) grid expansion proposed by the National Grid must "proceed at pace, on almost a wartime footing given the growing impact of grid access constraints across the economy and the potential negative impact on investor confidence," Pick said in his report published on April 5.

The proposed holistic network design (HND) will reduce transmission costs by 5.5 billion pounds compared with radial links that offer less overall network capacity, National Grid said last year. The network operator is due to complete a review of the design later this year.

Appointed as the first UK offshore wind champion last year, Pick also said the remit of energy regulator Ofgem should be adapted to focus more on the UK's 2050 net zero target.

In a response letter, energy and climate minister Grant Shapps said the government would "consider the recommendations" in the report.

The UK aims to quadruple offshore wind capacity to 50 GW by 2030 and speed up onshore wind and solar build but developers fear delays in the permitting and grid connection phases. The government is reforming planning rules and grid connection regulation but developers want more specific targets and milestones to make stakeholders accountable.

Developers also want tax allowances and subsidy contracts that will compete with the U.S. and EU and mitigate inflation, fearing key sectors such as offshore wind could lose investors.

Last month, the government's Climate Change Committee (CCC) warned the UK must rapidly reform planning and regulations for renewable energy and publish a cohesive long-term strategy to achieve its goal of a decarbonised power system by 2035.

The government has not provided a "coherent strategy to achieve its goal, nor provided essential details on how it will encourage the necessary investment and infrastructure to be deployed over the next 12 years," the CCC said in a report published on March 9.

UK government commitments on nuclear and renewables are insufficient and a "rapid overhaul of the planning system and regulations is needed," Lord Deben, Chairman of the CCC, said.

                                 UK electricity generation by fuel type

                                                                (Click image to enlarge)

Source: UK Department for Business, Energy and Industrial Strategy (BEIS), 2021.

The CCC urged the government to "clarify urgently and formalise the institutional responsibilities" of the recently-created future system operator (FSO), energy regulator Ofgem and government ministers, for the strategic planning and delivery of a net-zero power system.

"It is not clear where the responsibility lies for the design and operations of our modern energy system," Lord Deben said.

A UK strategy for decarbonising power was delayed when the government focused its efforts on protecting consumers against record high energy bills following Russia's invasion of Ukraine, the National Audit Office (NAO) said in a statement on March 1.

The energy ministry had planned to establish a clear pathway to decarbonisation by October 2022 but "scaled back its work" because it was "focusing attention on responses to record-high energy bills," the NAO said.

"The lack of a delivery plan risks diminishing the confidence of industry stakeholders, who have increasingly expressed concerns about how all the change and investment that is needed across the power sector will be brought together without a strategic vision," the audit office said.

"Similarly, the absence of a clear plan and the perception that there could be changes in government policies could deter external investors from providing funds for new infrastructure or lead them to increase the rates of return they require, ultimately increasing costs for energy consumers."

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