Last week, I posted about the core reasons why new investment in the transmission grid is needed. I’m continuing with a series of posts about ways developers can select project sites to minimize interconnection costs. One of the most common strategies employed by major renewable energy developers is pursuing projects with the largest scale possible. Maximizing the amount of power generated at a single location allows the developer to optimize the project’s economics by spreading out fixed costs over the largest possible capital value.
In serial interconnection queues, there are capacity thresholds that cause incremental upgrades. Each time an upgrade is assumed in a study, the project can add additional megawatts to the grid for the same cost until the next threshold is reached, creating a "stair step" effect. This trend is also present in cluster queues, but the effect is diluted since most upgrades are shared among other projects in the cluster. Each stair step represents a fixed cost until you reach the next capacity threshold where an upgrade would occur. This means that when a study shows that a costly upgrade is needed, such as a major line reconductor, the developer is incentivized to adjust the queue position to stay just below that mark. On higher voltage lines like 230 and 345 kV, the capacity thresholds are higher and thus the developer will tolerate larger upgrade stair steps to accommodate a larger capacity project.
In addition to interconnection, a project’s size can also be constrained by land availability, utility/regulatory policies, or offtaker demand. Areas in the middle of the US like ERCOT, MISO, SPP, and the Southwest are the locations where 200+ MW solar/wind/BESS projects are the most common. The other costs aside from upgrades that are more efficient for larger projects are: development costs like permitting, consultant studies, and legal; EPC costs like design, high voltage, and construction management; and transaction and financing costs. Beyond purely economic advantages, large scale projects are attractive for major developers because the level of effort required to achieve the same margins is ostensibly lower.
While 200+ MW wind projects were common before 2017, solar and BESS projects at that scale were rare. The shift was due to a combination of the technology improvements and demand from offtakers. In the 7 years since, there has been a gold rush of developers searching for project sites that can scale into the hundreds of MWs. The main challenges with siting large scale projects now are the scarcity of available land in the right locations and the interconnection queue timelines. The strategy of pursuing large scale sites to minimize interconnection costs is certainly proven, but developers must understand the challenges if they are looking for new greenfield sites today.