Renewable Energy Project Development
Contemporary industry practices and their influence on project timelines
The scope of project development for a new renewable energy project entails many elements, all of which are critical to a project’s success. Perhaps most relevant to those who operate in the transmission planning space, interconnection analysis is only one aspect of renewable energy project development. While Pearl Street’s software and services focus primarily on interconnection analysis from a system planning and modeling perspective, we believe project development and analysis professionals involved at all stages in a project’s life cycle can benefit from a more comprehensive understanding of how their role fits in the context of development practices.
In this article we’ll define these elements and explain why they’re important for anyone interested or involved in project development or interconnection studies. Additionally, we’ll explore how these elements can impact a broader renewable project development timeline and how some of the requirements considered during the interconnection process might impact the overall success of the project.
Development definitions and timeline
In a previous article, we shared details about interconnection study processes and defined various aspects of them. Additional elements of renewable energy development include site permitting, resource assessment, land negotiations, energy contract negotiations, and equipment procurement, among others. Below we define these elements, and provide a timeline to show where they fit in the scope of developing a new project.
Site permitting is the coordination of necessary permits with appropriate jurisdictions (county, state, and/or federal), and the translation of those permitting requirements onto the project such as setbacks, areas of avoidance, and/or construction timing restrictions.
Resource assessment is the process of taking the physical location of the energy producing devices (wind turbines, or solar panels) and extrapolating out expected energy production for the lifetime of the plant (20-30 years) utilizing historic and forecasted weather data.
Land negotiations relate to the identification of land on which the project’s equipment will be located, and subsequent contracts to provide use of the land to the project developer (the typical contracting mechanism is a lease).
Energy contract negotiation is the competition among developers to be awarded a long-term contract (typically 10+ years) for the purchase of the energy from the operational plant; these contracts are commonly referred to as Power Purchase Agreements (PPA).
Equipment procurement is the activity of negotiating contracts with vendors and manufacturers for equipment (wind turbines, solar inverters, solar panels, transformers, cable, etc.) used for construction of the plant.
These main aspects of project development can be roughly fit into the following timeline:
A successful project must fit each aspect of project development together to ultimately achieve an in-service project.
What makes for a successful renewable project?
The success of a renewable energy project is ultimately determined by its construction and injection of power into the grid. However, it isn’t as easy as just building the renewable project out in an open field. Utility-scale projects can range from tens to hundreds of millions of dollars to construct, with equipment costs (wind turbines, solar inverters, solar panels, transformers, cable, etc.) making up the majority of the total cost. These costs are directly related to procurement, and typically a loan is required to construct a renewable energy project. Some large developers can utilize their balance sheet to fund the construction, but this is uncommon.
Ideally, financing is done as close to Commercial Operation Date (COD) as possible to minimize project uncertainties and risk to the developer during construction. Financiers typically evaluate a project based on its Generation Interconnection Agreement (GIA), power purchase agreement(s) (PPAs), resource assessment, land contracts, and other aspects of the project. It’s worth noting here that the GIA is the ultimate outcome of an interconnection study. Financing a project can be near-impossible if any of these items are incomplete. Procurement of major equipment or even some level of design beyond a preliminary status is not completed prior to financing, because equipment cannot be procured until engineering designs have reached an appropriate level of maturity and adequate engineering design maturity is funded from the construction loan.
Most projects do not make it to the financing stage. Many factors can influence the success of a project, but the most common are those related to the following:
Absence of a GIA;
Absence of an energy contract, as historically a project’s long term revenue cannot be guaranteed without the contract being in place;
High uncertainty in the energy production from the project;
Land negotiation issues, where the project isn’t able to obtain the rights to the land needed.
Ultimately, each renewable energy project is unique and may have other aspects distinct to it which may serve as a hurdle too high for the project to continue to the financing stage.
Importance of the interconnection study to a project
A successful interconnection study is arguably one of the most important factors for executing a GIA, making it a critical milestone for project financing. Even if all other aspects of a renewable energy project are perfect, if the project doesn’t have a contracted online date from the Interconnection Service Provider (ISP), so much uncertainty exists that the project is unlikely to receive financing. Additionally, the interconnection study can be a particularly competitive aspect in project development, because the developer might want to interconnect the project in the same time frame as competitors within a regional footprint – the decisions made by one developer impact the costs and interconnection timelines of others. The best positioned projects with respect to interconnection can have an advantage over competitors’ projects.
Today, assuming a project experiences minimal delays, execution of a GIA generally takes place around two years before the project goes COD, and projects typically apply for interconnection onto the grid between two and four years before their GIA is executed. This means that developers provide data for projects that are potentially six years from coming online to interconnection service providers for the purpose of conducting an interconnection study. This yearslong process might correspondingly result in substantive changes to the project itself from interconnection application to COD (e.g., design considerations), so most renewable energy project developers complete minimal design for interconnection applications. They will generally wait to spend more dollars on developing this project as long as interconnection study analysis, a main component to its success, is not complete.
Active proposals and recent updates to address interconnection timelines
The timeline by which a GIA can be executed and its interconnection schedule finalized is a core component to a successful project. Recent updates to interconnection processes in the United States are related to addressing queue backlogs and the time developers spend within the interconnection process. Additional requirements necessary for a project to apply for interconnection on to the grid have been discussed to reduce the time projects spend in interconnection queues. The determination of these requirements should not be considered in isolation to the interconnection of the project as they have major, broad impacts to the project.
One commonly expected requirement for submitting an interconnection application is site control. In a project development context, site control pertains mostly to land negotiations and most often stipulates that a contract providing the developer with sole land rights and allowing for a future COD to be achieved (i.e., the contract has not expired by the proposed COD) has been executed. The purpose of this requirement from an interconnection perspective is to reduce the likelihood that a less viable project wastes limited resources of generation interconnection study groups and slows down a group study for more viable projects. This interconnection requirement broadly impacts the project by requiring land negotiations to occur earlier in the project development timeline, causing the developer to incur additional costs sooner than they would otherwise. Traditionally, a developer could rely on weak land contracts (i.e., a “Letter of Intent”) to obtain land rights for their project, and the developer assumed the risk throughout the interconnection study process without being able to conclude land negotiations. This could eventually lead to an unsuccessful project.
Recent discussions have entertained the idea of requiring executed energy contracts before projects can enter into interconnection queues. Again, this requirement would reduce the number of projects that would be studied in an interconnection process which could make the process more efficient for the projects able to meet this requirement. The requirement to have an executed energy contract would adjust the typical renewable project timeline, shifting conclusion of energy contract negotiations to before the interconnection study begins. At a high level, this could make interconnection and energy contract negotiation, which have historically happened in parallel, sequential processes. This would naturally extend the timeline of a renewable energy project. However, this could be considered a net positive if the interconnection study schedule is able to be adequately compressed. Furthermore, it should be considered if the risk associated with executing an energy contract is reasonable with the interconnection study not being completed. For example, a major component to an energy contract is the date on which delivery of energy commences. Without an executed GIA, risk mitigation to align the COD of a project in the GIA with the initial delivery date in an energy contract may be impossible.
Renewable energy project development is a multi-year, multi-part process.
While interconnection analysis is a critical element, much more is required to make a project successful.
Process includes site permitting, resource assessment, land negotiations, energy contract negotiations, and equipment procurement.
All of the elements of development play a role in determining a project’s success.
Contingent on investment and capital availability, study results, and contractual agreements.
Each project is unique, and so are the eventual set of success-determining factors.
As interconnection queues grow, updates to interconnection request requirements are underway.
While intended to ease the burden of work on studies departments, these new requirements will have a material impact on the development timeline and process for renewable energy projects.
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