In the face of a tight deadline, technical studies can help wind developers avoid critical delays.
To benefit from the Production Tax Credit (PTC), wind projects must be online by December 31, 2020. Unfortunately, long queues could make it difficult to meet that impending deadline. Armed with technical studies and an informed understanding of the queue, however, wind developers can help projects reach financing in time to qualify for the PTC.
Wind Projects Are Chomping at the Bit
Wind projects across the Midcontinent Independent System Operator (MISO) are stalled in the interconnection queue.
The queue is a prioritization of projects created by the Independent System Operation (ISO). The ISO conducts technical studies and assigns costs based on the queue position. Unfortunately, many projects are sitting in queues that are delayed—often a result of incomplete studies. Insufficient studies prevent projects from receiving the Large Generation Interconnection Agreement (LGIA) necessary to receive project financing.
87% of MISO cluster studies are currently delayed.
MISO, for example, conducts three consecutive studies that take approximately 500 days to complete. In 2016, MISO changed its tariff and proposed conducting the studies as a cluster in specific periods. At the moment, MISO has 35 scheduled studies in process, 27 of which are delayed. Often cited as the major driver of the delays are affected system studies wherein PJM and SPP must provide inputs on their network overloads associated mitigation costs.
Scheduling and Financing Hurdles for Wind
The sleeper issue is that financing for these projects needs to occur much earlier than projected (according to current agreement timelines). The scheduling for wind projects depends on placing significant monetary deposits at least a year before beginning construction. These deposits trigger debt financing that is provided by major banks. Debt financing is a low-risk transaction.
A threshold risk element is a certainty around the interconnection as defined in the Large Interconnection Agreement (LGIA). In addition to allowing the generator to connect to the transmission system, the LGIA also details the costs of system upgrades that enable the generator to deliver its output. In addition, the upgrades can themselves require a long lead time e.g., reconductoring several miles of transmission.
To make up in the delays of these studies and agreements including the LGIA, ISOs will provide a Provisional Generation Interconnection Agreement (PGIA) for wind projects, but a PGIA alone is not necessarily sufficient to receive financing.
Powerflow Studies Help Clear the Hurdle
The solution for wind developers looking to get financing may be an independent third party powerflow assessment. A powerflow assessment is similar to the interconnection studies performed by the host and affected systems transmission operator. By having reputed third parties perform detailed studies within a reasonable schedule, developers can forecast the likely upgrades and opine on the severity of the final study.
Combined with the powerflow study, debt or equity investors can have reasonable visibility into the costs. While this information does not guarantee funding, it does provide an informed understanding of the investment risks.
Above all, a PGIA could allow projects to energize their turbines and qualify for the PTC. Under a PGIA, project developers would have the ability to energize their projects in 2020. Projects without any agreement in place, on the other hand, would miss the 100% PTC cut off.
A similar agreement to the PGIA is a conditional Generation Interconnection Agreement (GIA). The main difference being that a conditional GIA allows a project to proceed on condition that allocated network upgrades take place (and paid for) and confirms that the project output is limited prior to that time. The Financing community much to the developer community’s relief has accepted Conditional GIAs.
Moving the Needle on PTC Progress
The PGIA allows for generators to be pro-active and potentially accelerate their ability to energize the project. It requires an application, and a series of studies, which, of course, take time as well. Combining the PGIA with a detailed powerflow study, however, gives banks and financial institutions the data they need to make an informed decision on proceeding with a project before December 2020.