It's no secret that electric utilities are challenged by ensuring they have sufficient generating capacity to meet rapidly climbing demand over the next decade. This potential shortfall is made worse by delays in connecting new generation to the grid. Now, regulators are encouraging grid operators to allow faster approval for projects that plan to use the excess capacity at many interconnection points where generators are producing less electricity than connections can handle. 

While the result might not make a huge difference, it could help shorten today’s lengthy interconnection queues and give grid operators more flexibility, especially as renewables become a bigger player in their portfolios. Along with grid-enhancing technologies such as dynamic line rating and power flow controllers, these surplus interconnection service (SIS) agreements can be an efficient way to reduce some stress on the grid.

An opportunity through backlog

The numbers behind the growing interconnection backlog are staggering. As of April 2024, almost 2,600 gigawatts (GW) of generation and storage capacity—almost twice today’s total U.S. generating capacity—was actively seeking interconnection approval. For most of these projects, this means establishing a new tie-in and possibly new transmission line. But others are seeking to piggyback onto existing interconnections with excess capacity through SIS agreements. Examples include coal-fired peaking plants that might only operate several hundred hours a year during high-demand periods, so their interconnection capacity sits unused for thousands of hours annually.

Such situations create an opportunity for, say, a battery energy storage system (BESS) to connect at the same location. The BESS could serve as a peaking-power resource, coordinate with the coal plant to optimize its output and minimize coal consumption and provide grid services, such as frequency regulation, when the peaker is offline. Similar arrangements also make sense for a BESS connected to either wind or solar farms, allowing the BESS to make up the difference in lost production when winds aren’t blowing or solar production is waning.

Implementing these agreements requires careful coordination. The original interconnection holder has first rights to the capacity, and any additional generators must ensure their use doesn’t exceed the agreement’s limits. Grid operators need sophisticated monitoring and control systems to manage these arrangements and prevent overloading of transmission equipment and lines. However, reviewing these projects is much less complicated than for entirely new interconnections, meaning SIS proposals that pass muster can be installed and operating much more quickly.

Why does this matter?

While this might seem like an in-the-weeds technical conversation, a dispute over allowing SIS interconnections could influence the monthly electric bills for millions of customers in the Mid-Atlantic and Midwest. The PJM Interconnection, which oversees grid operations across all or part of 13 states from Delaware to Illinois, faces one of the most consequential interconnection backlogs in the country. Several states in its territory are also hotspots for manufacturing and data center development, meaning their electricity demands are set to rise quickly over the next decade. As a result, prices also are set to climb in upcoming power auctions. An auction in July for the 2025–26 delivery year set capacity prices 10 times higher than current rates, with the total cost to ratepayers jumping to $14.2 billion, up from $2.2 billion in the previous auction.

Following those July results, PJM decided to put off its next scheduled auction to rethink restrictions that limited generators’ access to its market in several ways, SIS integration among them. Previously, regulations had prohibited BESS that recharged from the grid from SIS participation, stating concerns that such installations could inadvertently exceed an interconnection’s capacity. 

In December, however, the PJM reversed course, with a proposal removing most previous SIS limitations and allowing submission of those interconnection requests earlier in a project’s development cycle. PJM’s SIS approval process is separate from that for new interconnections and takes much less time to complete. A September report from energy consultants Gabel Associates estimates the move could free up an additional 26 GW of capacity—roughly 20% of the previous auction’s total—to enter the next auction, scheduled for July. 

The move brings PJM in line with two other leading regional grid operators. As of July 2024, its SIS interconnection queue has 4 GW of capacity either in review or pending review. And the Southwest Power Pool (SPP), which covers all or part of 14 central states, has been particularly successful with SIS interconnections with solar projects. 

SPP’s approach allows agreements even if some network upgrades are needed, as long as this work doesn’t negatively affect other projects in its traditional interconnection queue.

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