Sharing the Burden and the Benefits: the Quandary of Allocating DER Interconnection Costs
In part 6 of our interconnection series on GreenTech Media, Erica McConnell, former special counsel and Laura Beaton, associate with Shute, Mihaly and Weinberger LLP, attorneys for IREC examine how to fairly allocate costs for grid upgrades among DER customers.
Imagine you’ve just moved to a new neighborhood and you’ve signed up for your new internet service. You’ve paid an initial fee to connect your home to the network, and all systems seem to be a go. As you eagerly await the installation so you can catch the long-awaited season 7 of Game of Thrones and order some new home necessities online, you receive a notice from the provider that — surprise — your internet connection is going to overload the network in your neighborhood, which will slow down everyone else’s service.
You will pay for needed network upgrades, to the tune of thousands of dollars, or you can’t have internet at all. You alone must pay for the network upgrade, though everyone in the neighborhood will benefit from the faster internet, including anyone who moves to the neighborhood after you. As the unlucky one whose connection request caused the tipping point, you are on the hook for paying the cost of the upgrades — or no internet, no online shopping, and no Game of Thrones.
While this scenario sounds unimaginable — one that most consumers would not stand for — that’s often the reality of connecting distributed energy resources (DERs) to the grid. As explained in our last Connecting to the Grid article on cost certainty and predictability, the interconnection of DERs to the distribution grid is generally a “cost-causer pays” system. In other words, a resident, business, school or hospital seeking to install solar has to pay for any distribution system upgrades that may be deemed necessary to accommodate the project, even when the upgrades will very likely support the interconnection of additional projects in the future. What’s more, those future projects won’t have to pay for those upgrades, but they will likely benefit from the investment in the grid infrastructure.
Economic cost allocation and fairness theories aside, this practice can kill perfectly viable and beneficial projects that haven’t budgeted for high upgrade costs, and it can also cause major delays in the process for all involved. If an applicant receives a bill for upgrades that she can’t afford, she may spend time trying to figure out a way around paying the costs, grinding the interconnection queue to a halt for that circuit until a solution is found or she drops out. And then the next applicant repeats the same process, until someone eventually can pay. Or, no one attempting to connect to the circuit may be able to afford the cost of upgrades, effectively closing the circuit.
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