Tyler Farrell of RMI joins Tom Heintzman, Vice Chair, Energy & Climate Finance, to discuss how U.S. grid operators are managing large load interconnection requests, including allocating the costs for large interconnections, how this phenomenon is shaping transmission investments, and why system-wide transmission planning is needed to make the wisest investments for the long term.
Tom Heintzman: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape. I'm your host, Tom Heintzman. Please join me as we explore today's most pressing issues with special guests that will give you some new perspectives and help you make sense of what really matters.
Pull Quote (Tyler Farrell): The idea of just being solely focused on a single customer and not really thinking about the bigger grid, when we're making the investments that we're making today really without thinking about those broader system benefits, is just this huge missed opportunity for the grid. And that's where I really think the system-wide transmission planning fits back into the picture.
Tom Heintzman: Welcome to our multi-part series on the role of electrification in the transition to clean energy. The series highlights the trends and market developments impacting the electrification value chain.
Today we're going to tackle a somewhat esoteric but important topic, namely the impact of the rise of data centers and other large industrial loads on the transmission infrastructure and ultimately on the operations and costs of our electricity system.
Listeners will remember that the transmission system connects or delivers the electricity from the generation sources to the distribution networks. Those distribution networks are what most businesses and homes pull their electricity from, but some large loads or large users pull their electricity directly from the transmission grid.
Rapid load growth and large interconnection requests, such as from data centers or large industrial and commercial users, are straining the grid, creating bottlenecks and reliability challenges. Addressing these issues requires substantial network upgrades and grid expansion, as well as significant investment.
In today's episode, we'll explore how U.S. grid operators are managing these large load requests, including allocating the costs for large interconnections, how this phenomenon is shaping transmission investments, and why system wide transmission planning is needed to make the wisest investments for the long term.
My guest today for this discussion is Tyler Farrell of RMI, formerly known as the Rocky Mountain Institute. Tyler is a manager in RMI's carbon-free electricity program, working with the clean competitive grids team. He works at the intersection of wholesale electricity markets, transmission, distribution, and deep decarbonization planning. Good afternoon, Tyler, and welcome to the show.
Tyler Farrell: Thanks Tom. I'm excited to be here and RMI is grateful for this opportunity to share our work and for our longstanding partnership with CIBC in this work and other work across our institute.
Tom Heintzman: Awesome. Well, let's start with the basics because this is complicated and I've probably already used a few terms that listeners won't be completely familiar with. So can you describe for our listeners how transmission planning and the process to interconnect large loads, works?
Tyler Farrell: Yeah, Tom, I really appreciate this question because transmission really gets super wonky, super fast. And it's really helpful to start at that ground level. And you gotta start with transmission, the high voltage backbone of the electricity system. It's moving large quantities of power across regions, across cities, and really just the major substations that we see all across in North America. And we're not talking about those distribution lines, the lines that connect your home to the street and your street to that major substation.
The transmission system really across North America is shaped by these planning processes. And they're really developed over decades and years to create the grid we have today and really ensure reliability and affordability for all customers, not just us and large loads. And today I'll focus on two types of transmission planning, the system-wide transmission planning and the large load interconnection process.
So system-wide planning really looks at the region and grid as a whole. So you all are in Toronto, so it looks at Ontario as a whole and it assesses how are loads changing over the next few years, how are generation changing, how are existing assets aging. And based off all those needs, what is the portfolio of all transmission solutions needed to keep the grid reliable over five, 10, 15, 20 years?
On the other hand, the large load interconnection process is a much more specific look at the grid. It asks whether a new load customer or project, typically over 20 megawatts, something that's going to connect directly into the transmission system can connect at a specific point of the grid at a specific time. And then it assesses what are the upgrades needed to maintain reliability.
Those key differences in scope, the interconnection process, really looking at one project at one time versus the system wide process, looking at the region as a whole, the grid as a whole, assessing many needs at the same times is the key difference and what we're gonna be talking about today on this podcast.
Tom Heintzman: Okay, so now let's move on to how transmission planning and the interconnection process changes when data centers and other large industrial loads are introduced in volume. Your team recently published a Path to Power series, which is a collection of articles exploring the implications of large load interconnections on the US grid. Your article cited that utilities in the US anticipate electricity consumption will rise 5.7% annually, which is quite a bit, between 2025 and 2030, and that 80% of this demand growth is forecasted to come from large individual loads, such as data centers, manufacturing, and resource extraction.
Now maybe you can explain to our listeners how the introduction of the large loads impacts transmission planning and the interconnection process and it's sort of a reconciliation of what you were talking about, the planning on a large scale, but the interconnection process on a very specific point in the grid.
Tyler Farrell: So what we're seeing today really focused on the large load interconnection process, and we're probably gonna need to dive just a little deeper into what is going on there. The interconnection process really looks at two things. First, it assesses the grid as it is today and assesses can this large load interconnect to the grid?
And if yes, then that large load can connect and they might identify some facilities to connect it from the load to the grid. But if not, then it assesses what are the upgrades needed. And those upgrades can be new transmission lines, new substations, new transformers, all these getting more engineering design problems on what is needed on the grid. But what we call all those upgrades are network upgrades. They are upgrades to the grid beyond the point of interconnection. And that's where the story really is focused with large loads because that network upgrade piece is the bottleneck holding up large loads from coming onto the grid in a timely and affordable manner.
And the large load interconnection process really used to be a minor issue.it worked relatively well when load additions were small over the past two decades or so and utilities were really dealing with maybe a handful of new requests.
What has changed is those stats that you just talked about in in the intro to this question. What has changed is that the volume of new load requests has increased, and then the scale of those network upgrades identified in the large load interconnection process studies has grown significantly. And this is caused by a couple of things. One, simply new loads are larger than we've ever seen before. Some of these new requests are the size of a small city in the context of the grid. Two, though, even smaller new loads are connecting to an already constrained grid that hasn't had the needed investment over the past decades. Both are now leading to outsized cost and long timelines for network upgrades. And on top of this, these utilities are really dealing with hundreds of new requests.
So, what we're seeing overall in the transmission planning process is it's becoming the bottleneck for new capital deployment and all these other sectors. So, we're seeing these headlines like data centers can't come online because these network upgrades can't get built in the timeline that is expected of the load customers and large loads that want to come online in a timely manner. If we don't make the grid a opportunity for these large loads, they're probably gonna go to behind the meter solutions, which we see as really a lose-lose opportunity for everyone. We lose the opportunity to make the right grid investments, we lose the opportunity on climate. And even for these large load developers, they'd much rather be online than offline and with off-grid solutions.
Tom Heintzman: Okay, so let me play it back and just make sure that I've got it. Over the last two decades, you would have had a small number of large loads connecting. And so it was manageable from the point of view of the transmission providers. But now you've got many more connecting and they're very big. And each one requires its own or may require its own transmission upgrades. And so one of the problems is you've got rather than comprehensive planning of what transmission upgrades are required, you've got all these little isolated requests that each require some transmission upgrades, but no one's really looking at the totality of the problem. Is that is that a fair assessment?
Tyler Farrell: I think that's a fair assessment of where we're at today and some of the issues that we're seeing in some of the grid regions across the US, that it is a lot of these small additions that are really overwhelm - they're not small, but the individual additions that are really overwhelming the grid operators in in in the US right now.
Tom Heintzman: Now from the perspective of the transmission provider, they're seeing this surge in load interconnection requests. How does it affect the costs of running a transmission system and how are these transmission providers dealing with this issue?
Tyler Farrell: Yeah, so we're really seeing this surge in network upgrades. And what we found before, like we were just talking about, is that there used to be a really small slice of the overall investment picture when we talked about transmission upgrades in the US.
In PJM, for example, which is the grid operator in the mid-Atlantic and parts of the Midwest, it was around five percent of total investment from 2005 to 2019.And then since 2019, they've averaged around 18% and peaked at 28% in 2024. Similarly, in the Midwest in the US, with the grid operator called MISO, we saw transmission spending from large load interconnection peak at 30% just last year.
Tom Heintzman: And just that's thirty percent of what?
Tyler Farrell: Of all transmission investment in the Midwest region is coming from the load interconnection process.
Tom Heintzman: Got it.
Tyler Farrell: So what we're finding is that these load interconnections and the network upgrades associated with them are now no longer a niche category of spending. They're now the major driver of capital spending for transmission across utilities in these grid regions.
Now, it's probably not surprising that this is a huge driver of investment in these grid regions given the stats that you cited the 5% load growth annually per year and 80% of it is coming from large loads. And what is surprising though is the scale of the investment that is coming from each individual load request and therefore each individual network upgrade.
So we found historically network upgrades were mostly smaller incremental upgrades. So, in our report, we defined incremental as under 10 million dollars. But today what we see is that those upgrades are now totally flipped. And now sixty percent of upgrades are what we call material or transformative upgrade. And to give that some context. One load in the Midwest was 1.3 gigawatts, which is a huge load, but it's triggering now a $1.3 billion transmission investment last year, which is a huge magnitude larger than the types of network upgrades we've seen over the past two decades.
Similarly, though, this isn't just a massive load problem. We're also seeing smaller loads trigger similarly sized investments. So In Virginia, a very constrained portion of the PJM grid. We saw a 77 megawatt data center load trigger 140 million dollars of investment. So now what we're talking about is more significant large investments for each load request. And this growth in spending is really concerning because the load interconnection request, like I said earlier, it's really focusing on the isolated customer and how we can get that online. And it would really primarily built out to identify small incremental upgrades to the grid with the expectation that maybe there'll be occasional larger upgrades.
The load interconnection process was never designed to really plan transformational upgrades that fundamentally change the power flows across the regional grid.
That is really where system wide planning fits in. And to give you some context to this, like here in Colorado, system wide planning, regional planning across the Colorado grid identified the Power Pathways project, which is a huge regional project that costs $1.7 billion and is really gonna serve all Coloradans, versus that project that we were talking about in the Midwest, which is $1.3 billion, same order of magnitude, but it's only serving one customer.
Tom Heintzman: Fascinating. And I can see how the processes for grid-wide planning would not be suited or well suited to just planning the interconnection of one large load.
Your article, Path to Power, highlights that large scale transmission investment is exposing limitations or shortcomings in the current interconnection process. And I think that's what you're what you're driving at in the last few responses. What are some of the potential inefficiencies or risks of using the traditional process to manage the novel situations posed by data centers and other new large industrial loads, especially from a ratepayer perspective?
Like how could this add more cost to the system?
Tyler Farrell: Thanks for that question. We really talk about a handful of concerns in our articles, including the risk that these costs are going to be allocated across other rate payers. We talk about the regulatory oversight of the load interconnection process compared to the system-wide process is lower. But the core inefficiency that we really get to in these articles is that piecemeal planning, one by one planning of the load and interconnection process is just inherently inefficient.
So if we study each large load in isolation, the first customer comes along and triggers upgrade A. The second customer comes along and triggers upgrade B. The next customer comes along and triggers upgrade C. When we believe here at RMI is that there might be a better regionally planned project that could have served all three. And then also be designed to deliver broader reliability and market benefits to others on the grid.
Tom Heintzman: That’s sort of the Colorado example you gave previously where a statewide solution was one point seven billion and one interconnect was one point three and I understood that it was in a different grid, but still, point being like if you add up a bunch of individual requests, you could end up with price tags that are much bigger than a wholesale planning of the system.
Tyler Farrell: Yes, absolutely. the idea of just being solely focused on a single customer and not really thinking about the bigger grid, when we're making the investments that we're making today really without thinking about those broader system benefits, is just this huge missed opportunity for the grid. And that's where I really think the system-wide transmission planning fits back into the picture. So we're seeing, like I said, the system-wide approach as the preferable alternative to relying on the load interconnection process to meet load growth alone. And it's kind of a balance between these two processes, like strong system-wide up planning might reduce the size of the network upgrades that are identified through the load interconnection process. And in some regions, we're starting to see some promising signs of this proactive planning.
In regions like Texas, where the grid operator ERCOT just identified huge new 765 KB lines. Similarly, we're seeing the same trends in the Great Plains states in SPP and in the mid-Atlantic with PJM. All of these large high voltage lines are gonna be those better design projects that are really thinking about the broader reliability concerns as a whole. But it's not a quick, easy solution to just rely totally on system wide planning.
And we're also seeing some grid operators kind of reform how they're looking at the load interconnection process altogether and taking more of that top down view. So in Nevada, for example, they're experiencing huge amounts of load growth and two clusters, one around Reno, Nevada and one around Las Vegas. And they're trying to identify how can we bring on incremental waves of infrastructure and then identify how much load can come within each of those waves. So you can imagine by 2028, we can build this and that will enable this amount of load to come online.
Tom Heintzman: So here are your examples of large statewide projects, but sort of I guess tactically or like how does this work? Will they start saying to large loads, no, we can't consider your request because statewide or grid wide planning takes priority? Or conversely, will they start saying, Hey, we need to do grid wide planning more frequently every year, every other year? So there's more attention paid to like a practically how will that play out?
Tyler Farrell: I think there's a little bit of that of the like, let's slow down and rethink and from a more top down level.so that example in Nevada, I would say, is a good example of that, where they kind of looked at all their load requests and they're saying, you know, instead of doing this individual one by one process, we're gonna just plan for all you all at once and then evaluate how much we can bring on in the next three years, five years, six years, etc. Similarly, we're seeing other grid operators take different approaches. So where you all are in Canada, up in Alberta, the grid operator is taking that approach of, we can't get all this new load online tomorrow, but we can probably use some of our spare capacity on the grid to get some of it online. And what they did is they assigned new capacity based off a set of criteria to that excess space that is on the grid. And then they're gonna now evaluate in phase two what does it look like to expand that grid capacity beyond that small amount of, I think it was somewhere between one and two gigawatts of capacity in Alberta.
Tom Heintzman: Makes sense. So Tyler, I understand that FERC, which is Federal Energy Regulatory Commission, is currently shaping nationwide principles on how large loads like data centers connect to the grid. What's the latest on this FERC initiative and does it have the potential to be transformational? And if so, how?
Tyler Farrell: Yeah, so this is like very recent now. Just this past Thursday, FERC issued the show-cause orders for the six regional grid operators under its jurisdiction. And what it did is it directed them to justify whether their current rules and regulations, their tariffs are sufficient or propose reforms for how large loads connect to the grid.
And the key things that FERC are looking for are a standardized large load interconnection process that is better. One that looks at alternative transmission technologies and really evaluates all alternative solutions and not just the traditional solutions.
The second thing that FERC is looking for is speed to power options. So new types of transmission service. So today we really look at firm transmission service like you're 100% deliverable 100% of the time. And what FERC is proposing is maybe a load could be flexible and not run when the grid is most stressed. What if the load had generation co-located at the same point of interconnection on the grid?
And then finally, they're looking at options for how generation and load can come online in an electrically proximate location that could maybe reduce those network upgrades that the large load users are facing.
Now the final thing that they are proposing is around rate payer protection. And I talked about this very briefly. There are some concerns about how these network upgrades are coming online. And they for what FERC is looking for from these regional transmission operators is more data transparency into how these network upgrades are coming down through rates and impacting all retail rate payers as a whole.
To answer the second part of your question, though, here on like what is transformative about what FERC is proposing, it really is the flexible load service piece that is really gonna change how we think about the grid. And it will allow some of these large load customers to come online faster. If they can really credibly reduce demand when the grid is stressed.
The example that FERC gives is a proposal that's coming out of the Southwest Power Pool in the Great Plains. What this might look like is a data center has network upgrades that need to be built in five years, but they're gonna allow them to come online today instead of waiting for those network upgrades to get built, but they'll have to curtail their power during peak grid conditions to ensure reliability.
Tom Heintzman: Got it. Okay, last question. And I'd like you to look into your crystal ball, look out into the future, maybe 10 years. What do you think the most significant changes in our transmission infrastructure and processes will be? And how will these changes affect our electricity system?
Tyler Farrell: Yeah, I mean, I don't think we need to even look 10 years. I think the grid is just changing so quickly right now. But the two things that I'll try to keep it short and sweet because we covered them already are flexibility and what I will call consolidated system-wide planning. so we talked about flexibility a little bit in the last question, and FERC is asking for this from all the regional grid operators today. And like I said, the Southwest PowerPool is really leading on this front with their high impact large load proposal that allows these large loads to come on conditionally while they wait for firms transmission service.
The other piece of this though is the consolidation of planning. SPP, again, is the leader here and really consolidating all these different types of planning. So I know we talked about system-wide planning and the large load interconnection process, but there are other types of planning that a grid operator might do. On any given year, it might be market efficiency, it might be generation interconnection. And what SPP is trying to do is really consolidate this. So they're evaluating all the needs as a whole. And I think we're gonna see grid operators really lean into this and move in that direction over the coming years. And hopefully in 10 years, we'll see that across the United States and really have grid operators identify those most regionally significant, regionally beneficial lines.
And maybe to close us off, I really see us heading in this direction. like I said, I don't even think we'll have wait 10 years. The grid is just changing so rapidly. It's really that strategic platform for economic growth and enables other sectors to build quickly and inefficiently, whether that's the generation side or the load side.so these different grid operators are all almost competing to attract load and not be the bottleneck to grid connection.
Tom Heintzman: Fantastic. Well, thank you, Tyler, for taking the time to join the show today. It's a complicated subject, but you did a great job of breaking it apart into digestible pieces. And thanks to the listeners for tuning in.
Tyler Farrell: Thanks for having me, Tom. It was a really great time.
Tom Heintzman: Please join us next time as we tackle some of sustainability’s biggest questions, providing you different perspectives to help you move forward. I’m your host, Tom Heintzman, and this is The Sustainability Agenda.
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