As Virginia solar developers and Dominion Energy continue to clash over requirements for tying new small and mid-sized renewables into the electric grid, some environmental groups and grid experts say changing how the state approaches interconnection costs could ease long-standing issues.

“It’s a solution to a big problem that’s been stifling a lot of solar projects,” said Josephus Allmond, an attorney with the Southern Environmental Law Center.

Virginia, like other states that have adopted ambitious renewables goals, has seen increasing tension in recent years over interconnection, the process of connecting new power sources to the electric grid. Those issues have been particularly acute when it comes to distributed energy resources, or DERs, a category that includes small- to medium-sized projects like community solar, solar installed to power schools and government buildings and rooftop solar.

Cost has been one of the biggest points of contention. As new sources of power tie into the grid, upgrades are necessary to make sure existing wires and substations have the capacity to handle the greater amounts of electricity flowing into the system.

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But who should pay for those upgrades isn’t straightforward. In Virginia, upgrade costs are typically the sole responsibility of the developer whose project triggers the need for the upgrade—“even if,” as a recent state working group report noted, “earlier projects contributed to that need or later projects may benefit from the associated upgrades.”

Now, the same working group has suggested regulators consider a proposal floated in other states but not yet adopted anywhere in the U.S.: a special electric rate for distributed energy producers that would bring down interconnection costs by spreading them across a larger pool. Known as a DER tariff, the idea has links to the “cluster studies” approach to interconnection, where regulators evaluate groups of projects trying to connect to the grid rather than looking at every proposal individually, and then divide the study costs among all participants.

“I’ve been talking about this for several years, and nobody has taken any action,” said Dennis Stephens, an electrical engineer who works with the Wired Group, a consultancy focused on distribution grid planning, and has provided testimony in favor of the idea for the Southern Environmental Law Center.

While solar farms and massive wind turbines are the most familiar symbols of the energy transition, experts see distributed energy resources, a category that includes not only power generation facilities like rooftop and community solar but also energy efficiency measures, as a critical piece of the puzzle. By feeding power into the grid and helping consumers regulate their own energy consumption, DERs can decrease the electricity demand utilities have to meet, reducing the need for expensive new investments. Other benefits can include increasing grid stability and reliability.

Ron Nelson, the founder and president of Volt-Watt Consulting and an expert on rate design, said the DER tariff idea proposed in Virginia is part of a limited but growing interest in export tariffs—rates charged by electric utilities to individual and community power producers that feed electricity into the grid.

While right now, states charge facilities that transmit power onto the grid for the costs of interconnection, export tariffs shift the approach to charging producers for ongoing use of the system through a predetermined rate, Nelson noted. He has argued that approach increases transparency and predictability while also allowing costs to be shared more equitably over time.

“It just really addresses a lot of the pain points that utilities are experiencing, that renewable developers are experiencing,” he said.

Climbing DER Applications

In Virginia, interest in DERs spiked following the 2020 Virginia Clean Economy Act, a landmark law that sketched out a comprehensive path for the state to decarbonize its electric grid by midcentury. Among the legislation’s requirements was a directive for Dominion Energy, the state’s largest electric utility, to acquire or develop 1,100 megawatts of distributed solar or onshore wind by the end of 2023.

Since 2020, Dominion has told regulators, the volume of interconnection requests it has received “has increased dramatically.” Each one requires the utility to conduct a study on how the new project would fit into the existing electric distribution system and whether and what upgrades might be necessary to accommodate it.

“More than half of all projects studied as part of the company’s interconnection queue ultimately do not move forward past the study phase, resulting in substantial effort expended on projects that do not ultimately come to fruition,” the company wrote in an August 2022 filing with the State Corporation Commission, which regulates Virginia utilities.

DER developers—those building projects up to 3 megawatts in size, mostly in the form of solar—meanwhile have complained that the interconnection process is too slow and cumbersome, particularly in Dominion territory.

“The distribution interconnection process continues to be antiquated and ill-prepared for the 21st century grid,” wrote the Chesapeake Solar & Storage Association and the Coalition for Community Solar Access in a lengthy document sent to regulators the same month. “The existing procedures [are] not sufficient to enable the amount of renewable energy additions required by the Commonwealth’s transformational energy goals.”

Tensions came to a head in December 2022, when Dominion rolled out new interconnection rules for DERs. While Dominion said the requirements were critical to ensure the safety and reliability of the grid, developers said they unnecessarily increased the price of connecting smaller-scale solar from hundreds to millions of dollars, making many projects too expensive to build.

It was “a tenfold difference in magnitude in terms of cost,” said Tony Smith, president and founder of Secure Solar Futures and a member of the Virginia Distributed Solar Alliance, which has been fighting the new rules.

In September, the State Corporation Commission sided with the developers, finding Dominion had overstepped its authority , although it later allowed the utility to temporarily impose some restrictions on a smaller set of projects.

‘Last Man In’

The debate is by no means over. Developers, environmental groups and utilities have continued to fight in working groups and regulatory proceedings over a host of interconnection problems, including the question of who should be paying for upgrade costs.

Critics say the current system, where the developer whose project triggers the need for an upgrade in a particular part of the grid must bear 100 percent of its cost, has effectively boxed out projects from certain areas where electrical substations have reached capacity. Because any new project will trigger massive upgrade costs, no one wants to go any further, and schools or communities in those areas eyeing solar find themselves out of luck.

Officials in Charlottesville, Fairfax and Arlington, among others, have written the State Corporation Commission to complain interconnection problems are hamstringing their efforts to move their buildings onto renewables.

Sometimes called the “last man in” approach, the present system has traditionally been viewed as a way to avoid saddling ratepayers with extra costs for projects that non-utilities develop for profit. But that view has been increasingly challenged as policymakers try to encourage the growth of smaller-scale solar as a way to decrease reliance on fossil fuels.

Charging a single project for all of the upgrade costs is “not exactly fair either, because somebody got it for free, and somebody had to pay,” said Stephens.

The interconnection working group convened by Virginia regulators has said creating a DER tariff could help and recommended that the State Corporation Commission investigate the idea further.

“Allocating the cost to interconnect DERs via a dedicated DER tariff is one possible way to more fairly distribute upgrade costs,” noted a final report from the group written by the Great Plains Institute, which helped facilitate discussions.

Allmond, who was part of the working group, said utility and other working group members’ reaction to the idea was “interest and intrigue.”

“I think it was the first time maybe they were hearing that concept,” he said. “I certainly didn’t hear, ‘No, that’s a bad idea, we shouldn’t go forward with it.”

But the working group also noted Virginia utilities had “mixed perspectives” on the possibility. After publication of the report, Dominion filed comments saying it “does not endorse” the solution in the absence of further details about the proposal. In a previous filing, the utility has said it is investigating whether a “cluster study process” could help reduce interconnection barriers.

That approach “would allow interconnection costs to be allocated among multiple small-scale solar projects, ultimately reducing the cost paid by each … and allowing for easier access into the market,” Dominion wrote. “If costs were to be allocated among multiple solar generating facilities in this fashion, many projects that may otherwise be canceled due to cost may also become viable over time.”

The company declined an interview for this story, noting the interconnection case at the SCC remains open.

However it might be designed, Allmond said a DER tariff has the potential to benefit not only developers by reducing steep upfront costs and providing greater certainty about financial commitments, but also utilities.

“The utilities then get to rate base and earn a profit on all the facilities that were installed to handle that DER capacity,” he said. Furthermore, he added, “under this approach, they would have to process a whole heck of a lot less of exploratory applications. That last man in problem wouldn’t be sort of killing projects at that late stage and leaving a lot of man-hours on the utility side.”

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Nelson said creating export tariffs like DER rates would provide a more “durable” solution for utilities trying to deal with an influx of interconnection requests by streamlining the existing process.

“An export tariff would just apply equally across the system,” he said.

Others are more skeptical. Virginia’s Office of the Attorney General noted it would have “no objection” to regulators investigating a DER tariff further and observed the current system of assigning costs “may result in subsidization: one DER project paying for costs that other DER projects will benefit from.”

However, the office warned, “it is possible, of course, that a solution that spreads costs more broadly may ‘overcorrect’ and result in subsidization in the other direction; that is, cost responsibility could be newly imposed upon entities who will not receive proportional benefits from the upgrades at issue.”

Smith of Secure Solar Futures called the current system “totally inequitable,” but said he believes interconnection costs should be borne by everyone because of the benefits DERs bring to the grid.

“The whole assumption is that the developer should pay the cost whether it’s the last man or the cluster of last people,” he said. “And it should be the ratepayers, because they benefit from the proposal.”

Whatever regulators decide in Virginia right now, Nelson indicated the ongoing transformation of the electric grid will eventually require some reforms.

“At some point you’re going to have to try something different,” he said. “There’s always risk.”

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