About this Report:
Current grid queues prompt action to ease the grid congestion, including the rethinking of the grid access regime we used so far. The default grid access regime in the EU is based on:
- universal third-party access…
- …that is firm…
- …and allocated on a ‘first-come, first served’ basis…
- …as one user per connection.
The lack of power grid capacity is evolving to be one of the key barriers in the energy transition. Power grids are the main integrators of future energy systems, fundamental vehicles for the swap from fossil to renewable generation capacity, and electrification facilitated by maximum flexibility. Grids, as regulated monopolies, have long development lead times, whereas investment decisions of prospective grid users are made relatively fast. The different governance and time horizons create coordination challenges.
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Moving to a forward-facing power system means introducing new grid users at new locations and an overall higher demand for electricity, resulting in increased demand for the transport of electricity. Behind-the-meter distributed energy resources are important contributors to meet power demand and – if integrated in a system-friendly way – they benefit both the system and local grids. They are not an adequate substitute for modernising and extending grids both at distribution and transmission levels, however.
Failure to proactively plan grids and stay ahead of the resource transition means that grid shortage — manifested in clogged queues, rising congestion management costs, and rising curtailment of renewable energy sources (RES) — is increasingly the new normal in many parts of the world. Connection applications are suspended for years, and capacities in the grid queue often surpass total generation capacity, signalling the magnitude of the problem (even if we know that queues include multiple applications for potentially the same investment). To illustrate the grid conundrum:
- Norway: No new grid connection in Eastern Norway until 2035.
- Netherlands: Virtually no grid capacity for new large users for both infeed and consumption.
- U.S.: By the end of 2023, 2.6 TW capacity was in the queue; solar and wind (>1,400 GW) exceeded the total installed U.S. power plant fleet capacity and the estimated 1,100 GW needed to approach a zero-carbon electricity target.
- UK: Around 400GW of projects hold transmission connection agreements, compared to ~70GW of generation currently connected, resulting in renewable energy developers and other users receiving connection offers into the 2030s.
Congestion slows down the integration of renewables and limits the available, but much needed, flexibility within the power system. We must not aim for a grid without any congestion; yet we need new grids (at the right locations) and – importantly – must improve the use of what we have now. The good news is that technology development opens the door for an increase in virtual grid capacity (smart grids) and the system-friendly integration of millions of distributed energy resources, somewhat reducing the pressure for newbuild.
Grids are essential for decarbonizing the power sector and the overall economy, hence all options — from quick fixes to more fundamental solutions — are worth considering. Grid development in new geographies, most notably offshore grids, and the capacity extension of existing grids are somewhat different tasks. The former requires long-term planning and anticipatory investment. The latter is, ideally, driven by the minimization of system cost through the optimal portfolio of wire and non-wire solutions. Transparency and the right incentives are the cornerstones of this regulatory challenge.
The following table, while not an exhaustive list, provides examples of tools that can be employed to ease grid congestion. Some are already in operation and others are in the planning stage. To provide the reader a more structured view, the tools are grouped by their aim: utilization of existing grid capacities, (re)allocation of remaining grid capacities, and creating new grid capacities. Click on the tabs (the + sign) to see the table under each grouping.
The table indicates how quickly each tool can be implemented using a colour code. The description of some of the tools is complemented by a reference to the relevant EU legislation or policy (in italics). The examples are mainly regulatory, but some important project examples are included as well.
Disclaimer: The aim of this table is to show the wide range of regulatory options for national regulators, network companies and grid users with a few examples. The assessment of these options is beyond the scope of this brief report. National Regulatory Agencies have the mandate to implement what is best suited to their context.
Time horizon of implementation – legend:
Utilizations of existing grid capacities
Options and implementation time
Description and relevant EU legislation
Examples (regulations + projects)
Shared connection / hybridization / colocation / pooling
Sharing of a single connection point to utilize the complementarity of resources and better use of land. This transfers the optimization of grid use from the network operator to users.
NL: Allowing storage in cable pooling, next to wind and solar.
PL: Pooling of two or more renewables.
DK: Joint location for generation and consumption.
US: Allowing more than one generating facility to co-locate behind the same point of interconnection and to share an interconnection request.
AUS: Allows for a combination of all technologies sharing a single connection point.
ES: Allows hybrid facilities, provided that at least one is renewable or storage.
Setting up a congestion management platform
Organised platforms for network operators to procure flexibility for congestion management.
Mobilising participation in congestion management
Engaging additional grid users to offer their flexibility. Awareness-building on the revenue option.
Alternative connection contracts
Limiting continuous access to grid, such as through fully flexible connection agreements, time-limited firm connection agreements or any combination of the two.
Alternative connection contracts in Europe have been considered temporary solutions until grids are upgraded and/or local flex markets – are developed (ED Art 32 of 2019). The EU Action Plan for Grids and the EMD agreement of 2023 consider them as potentially permanent features.
Rethinking grid assessment
Relaxing some of the conservative assumptions in grid capacity assessment.
UK: More realistic modelling of the network impacts of batteries.
NL: Exemption of certain grid users from the N-1 operational principle at high voltage.
US: Incorporation of operating assumptions that reflect the proposed charging behaviour of batteries.
AUS: Plans to use dynamic operating envelopes, i.e. time-varying grid import and export limits, based on the available capacity of the local network.
Grid enhancing technologies (GETs)
New technologies that enhance the existing transmission grid infrastructure creating new ‘virtual’ capacity and hence reduce the need to build. Most important mature technologies are dynamic line rating, FACTs, smart grid topology, grid-integrated storage, etc. They can be implemented more quickly than building new grids.
US: Transmission providers have to evaluate a predefined list of GETs in the connection process.
DE and FR: ‘Storage-as-transmission to improve grid utilization and manage grid failures.
UK: Modular Power Flow Control.
Dynamic line rating for real time grid ampacity estimation: BE, FR, IT, NL.
Incentives for network operators
Making network operators indifferent to the type of solution (wire versus non-wire) they use for managing congestion by neutralising the CAPEX-bias and introducing performance/output-based regulations to incentivize them to pursue predefined goals and metrics.
Electricity Regulation urge NRAs to consider performance-based regulation (Art. 18). The Electricity Directive calls for adequate incentives for non-wire solutions for DSOs (Art. 32) and TSOs (Art. 40).
Better scarcity signals for grid users (time and location)
Dynamic network tariffs and/or connection charges optimize the use of grid (in time) and can provide locational signals for new connections.
Electricity Regulation ask for the consideration of time-of-use network tariffs (Art 18).
ISO
System operators — not owning the grid — can deliver more efficient grid services because they are not subject to an incentive to favour new build as a solution to congestion problems.
US: Two-thirds of power load is served by ISOs or RTOs.
UK: National Grid ESO.
AUS: AEMO.
BR: ONS.
(Re)Allocation of Remaining Grid Capacities
Options and implementation time
Description and relevant EU legislation
Examples (regulations + projects)
Managing ‘contractual congestion’
Reallocating the unused share of contracted capacities of current grid users: use it or lose it.
NL: grid user not able to demonstrate that the full contracted capacity is necessary and will be used within two years must give it back.
Priority Lanes
Some projects stagnate or have multiple applications taking away opportunities from other projects. Priority can be granted to more advanced investments on a first-ready, first-served basis, and/or to projects with higher social or system benefits. This means a move away from first-come, first served principle.
NL: For projects of national importance or with significant social benefit.
US: Additional financial readiness and site control requirements on interconnection costumers.
UK: ESO’s five-point plan allows energy storage projects to connect quicker by removing the requirement for non-critical enabling works to be complete before they connect.
UK: Triage process to ensure the most strategically important projects receive the strongest possible support and priority.
SA: Budget quote for grid connection to ‘shovel-ready’ electricity generation projects, based on a set of evaluation criteria.
Cleaning the queue
Amnesty to leave the queue and/or measures to discourage non-viable projects entering the queue often due to hoarding of capacities for future rent seeking.
UK: One-off amnesty provided for projects in the queue with no penalty.
UK: Higher entry requirements to deter speculative connection applications for connecting to the transmission grid and contract termination against milestones
UK: Insert milestones into pre-2017 generation connection contracts and extend the insertion of milestones into demand connection contracts at distribution level.
US: Penalty to project developers if they withdraw their requests from the interconnection queue.
BR: Amnesty to leave the transmission grid queue to release capacities from speculative projects applying before the end of the RES subsidy scheme.
ES: Grid permit revoked if environmental permit is not obtained within 31+6 months.
More transparency on the available capacities
Frequently upgraded granular maps that provide location-specific information on available hosting (connection) capacities of the grid and, potentially, the estimated connection cost and time. This enables investors to factor in grid availability to their investment decisions.
EU plans to create an EU-wide hosting capacity map (EU Grid Action Plan). Required also in the final text of the recast Electricity Regulation (Art. 57(3)).
US: Transmission providers have to maintain a publicly available visual representation (a heatmap) of available transmission capacity.
UK: Maps offered by several DSOs, for example UK Power Networks, SSEN.
PT: DSO map on the available capacity of each HV/MV substation.
BE: TSO map on available grid capacity per year, technology and curtailment level.
BE: DSO map indicating the expected lead time, connection cost, and available capacity for offtake and injection.
SA: Map on available capacity for the connection of new generation at the main substations.
Better governance
Actions to speed up the process: parallel permitting for grid connection and other permits, more efficient grid assessment process, accountability and process standardisation.
US: Financial penalties on transmission providers who fail to meet study deadlines. Cluster approach that groups projects by location and time of queue entry and studies them together, instead of running a separate study process for each. project.
UK: Twelve month fast-track approval process for all electricity transmission infrastructure in England and Wales.
ES: Connection contract conditional on reaching successive administrative milestones. Any non-fulfilment will entail the automatic expiry of the access and connection permits, as well as the immediate enforcement of the financial guarantees.
Competitive allocation of grid capacities
Scarce resources are best allocated to those who value them most. This means moving away from the first-come, first-served principle to auctioning grid capacity. Often it is not a separate grid capacity but RES support auctions being location specific. The lower the support need for an RES project, the more CfD auctions are about allocating scarce grid access.
TR: Bidding for the ’contribution margin’ of congested grid connection points between 2011 and 2017.
PT: Bidding for grid capacity at predefined locations in 2019 and 2020, either as a discount from the predefined CfD strike price or payment for the interconnection point.
ES: Connection capacity tenders to new RES and storage at transmission nodes where capacity is released or new nodes to be developed. Awards based on time-, technology, socio-economic, demographic and environmental criteria.
NL: Offshore wind tenders for prepared connection sites.
Creating New Grid Capacities
Options and implementation time
Description and relevant EU legislation
Examples (regulations + projects)
Contestable built
Competing for the buildout can bring down costs and accelerate the process. Grid elements can either be owned by the developer and operated by an ISO or transferred to the public grid.
AUS/Victoria: Transmission grid can be built by other than the incumbent Declared Transmission System Operator.
UK: Plans to extend contestable grid development, currently available for offshore wind, to onshore transmission grid.
NL: Investigating the option of contestable grid built.
Anticipatory planning/RES zones
The development of new grids and new users is a circular dilemma: one gets built only once the other is committed to building. The welfare loss from delayed grid buildout needs to be balanced with the risk of a new asset remaining underutilised. Coordination can be facilitated by defining zones with good endowment, proximity of load, land availability and building transmission; the grid is sized for the capacity of full RES potential in the zone.
Conditions for anticipatory planning to be set out in the EU (EU Grid Action Plan).
US/Texas: Competitive renewable energy zones (CREZ) defined in parallel to the needed transmission buildout spread among many transmission providers with a single deadline for completion.
AUS/Victoria: State government agency (VicGrid) coordinating transmission development based on Renewable Energy Zones.
India: Transmission grid plan to integrate over 537 GW renewable capacity in predefined renewable energy zones by 2030.
UK: Strategic Spatial Energy Plan to define the optimal location of generation and infrastructure required to meet forecast demand and our 2050 targets.
Co-opting/buying-in of local communities
Financial compensation paid to local communities and/or property owners affected by the new grid element can speed up the development.
EU Engagement Act (EU Grid Action Plan).
DE: TSO compensation for municipalities affected by new high voltage grid.
BE: TSO compensation for property value loss, and option to buy the property within 100 metres from high voltage grid.
UK: Electricity bill discount for properties located closest to transmission grid and a wider community benefit to be co-developed by the project developer and local community; engagement with communities hosting transmission infrastructure on the choice of design.
Locational marginal pricing
A wholesale electricity market design, whereby the price paid to feed in a kWh from a specific location on the transmission grid and the price charged to withdraw a kWh at a specific location reflect the real costs of grid congestion affecting those locations. Failure to reflect locational costs in wholesale prices can aggravate congestion in the short term and obscure the relative value of investment options for reducing grid congestion. Reviewing and/or splitting the current bidding zones is a second-best option, due to quickly changing congestion topology in a RES-based power system.
Argentina, Chile, Mexico, New Zealand, Peru, Russia, Singapore and nine of ten ISO/RTO regions in the US. and Canada.
Conclusions
The grid problem is currently in the political spotlight, with legislation and strategies flourishing. FERC in the US issued a landmark order in July 2023 to improve the connection regime to transmission grids, and is to reform regional transmission planning in 2024. In November 2023, the EU launched its Grid Action Plan to trigger better implementation of the relevant legislation, partly by providing guidance and harmonization across Member States. The UK saw a series of action plans such as the Transmission Acceleration Action Plan and Connection Action Plan in November 2023, ENA Action Plan for distribution grids and the ESO’s 5 Point Plan for transmission, and the National Grid Congestion Action Programme in the Netherlands … just to name a few.
There are many options to tackle grid scarcity. These options might include trade-offs, interdependency, or have different implementation timelines and challenges. It is important to be aware of the benefits and drawbacks when considering a regulation ‘cocktail’. A clearly no-regret option is to make better use of existing grids; this would require suitable incentives for both network companies and grid users. Network companies need to be indifferent to the type of solutions they choose (getting away from the currently dominant capex bias) at a minimum, but even better if they receive targeted financial incentives from the regulator for innovative resolutions to grid scarcity. Sounds easy, in theory. In practice, grids are running behind the changes at the end of the wire; regulation and institutions are running behind the missing grids. So, we need all hands on deck to find solutions!
The author would like to acknowledge and express her appreciation to Joost Greunsven (TenneT), and Michael Hogan, Jaap Burger and Bram Claeys (Regulatory Assistance Project) who provided helpful insights into early drafts of this analysis. Responsibility for the information and views set out in this paper lies entirely with the author. Special thanks to Erica Falkenstein and Tim Simard for their editorial assistance.
Publishing date: May 13, 2024