- Newsletter (211)
Recently there has been an explosion in the number of project developers, homeowners, businesses, apartment buildings and others across Michigan who want to connect solar arrays to the grid. This quick growth has strained electric utilities’ abilities to process applications for interconnection for these solar projects. While some growing pains are understandable as utilities adjust to this new and dramatically higher level of interest in solar, Consumers Energy, the second largest utility in Michigan, is proposing to severely delay many solar projects by partially waiving interconnection standards. These delays threaten to hurt solar developers who made significant investments based on the previously established interconnection timelines. Delays would cause problems for the solar industry in any context, but the problem is exacerbated as the federal investment tax credit – a major driver for solar development – is set to phase out over the coming years.
In April the Michigan Public Service Commission (MPSC) wisely denied Consumers Energy’s request pertaining to solar projects 150 kW in size or smaller (known as Category 1 and Category 2 projects, these are primarily residential panel arrays). But the utility is still requesting a partial waiver of deadlines for Category 3, 4 and 5 projects—larger projects that are typically commercial, such as solar farms that are built by private developers and sell power to utilities under contract.
If the MSPC grants this waiver, developers would suffer significant negative financial impacts, ultimately harming electric customers who want to use more renewable energy.
Here is the background: Every solar project that seeks to connect to the broader electric grid must go through an interconnection application process managed by a utility. Michigan law requires that utilities process interconnection applications in a specified timely manner. This January, Consumers Energy told the MPSC that the sharp uptick in solar projects has caused applications to come in faster than the utility’s personnel can process them. Consumers Energy reported a backlog of 800 outstanding applications. Consumers Energy asked the MPSC to waive several of the required timelines in which the utility must complete different stages of review.
The problem with the waiver is that these solar projects were developed with a specific timeline in mind. Delays in that process introduce uncertainty that can negatively affect project financing.
The timeline is particularly urgent given the schedule for the phase-out of the federal investment tax credit. In order to receive the full 30% credit, a solar project must commence construction by the end of calendar year 2019. For projects that commence construction in 2020, the credit falls to 26%, then 22% for 2021 projects, until reaching a permanent 10% for commercial and utility-scale projects that commence construction after 2021 (and 0 for residential projects).
“Commence construction” has a specific meaning from the IRS. To meet the definition and qualify for the investment tax credit in a given year, a project must in that year either begin physical construction work of a “significant” nature or incur costs adding up to at least 5% of the total costs of the facility.
A timely interconnection process is an important step in fulfilling either of these definitions of “commencing construction.” It helps to understand the timeline as it stands right now: under Michigan’s interconnection standards, once a developer files an interconnection application, the utility has 10 days to review the application to see if it is complete, and then an additional 10 days to determine whether an engineering study is required. If it is deemed to be required and once the developer provides payment, the utility has a period to complete the study that varies based on project size (for example, 25 days for a Category 4 project.)
Consumers Energy wants the MPSC to waive the deadlines for each of those steps.
Waiting for the engineering study can cause critical delays in a project’s progress. Those setbacks can not only affect investment tax credit eligibility, but it can also interfere with the land acquisition process, cause a developer to miss deadlines with contractors, among other issues.
For example, developer Riverside Solar is attempting to purchase land in Michigan from several owners to develop into solar farms. As Riverside Solar explained in comments submitted to the MPSC:
“We entered into land purchase agreements with them with the understanding that engineering feasibility studies were supposed to be completed within 25 business days. In most cases, closings were scheduled for six to nine months, which would allow more than enough time to receive the Engineering review report and complete other site due diligence.”
But a year after submitting applications, none of Riverside Solar’s five projects had received their engineering studies, the comments said. As a result, “none of the landowners have been able to complete the closings as expected and their property has been tied up for projects [whose] viability from an engineering standpoint remains unclear.”
Michigan EIBC member Geronimo Energy, which has developed solar and wind projects across the country, submitted its own comments to the MPSC. The company argued that Consumers Energy is “seeking an improper, retroactive waiver.”
“For instance, in planning its projects and entering into the interconnection queue when it did, Geronimo Energy relied on the timelines and deadlines set forth in the Commission’s published Interconnection Standards. If Consumers were to obtain a waiver of those standards, it would effectively change the rules after Geronimo Energy has relied on them.”
So what is the alternative? Consumers Energy’s own filings with the MPSC say that the utility has already made “substantial progress” toward reducing the backlog. In January 2019, Consumers Energy had 144 engineering reviews outstanding, but by April it had cut that number to 77. It had 92 distribution system studies in January, but three months later that number fell to zero.
The utility accomplished this progress by focusing efforts on an aggressive schedule, increasing employee skills and training and resolving technical issues, among other steps.
Rather than potentially introducing further delays by granting the waiver, the MPSC should make sure this progress continues. As Michigan EIBC President Laura Sherman said in comments filed with the MPSC:
“It appears that the fundamental shift to focus employee efforts on interconnection application processing and hire/train employees in this area was done in an attempt to meet required deadlines. It would, therefore, likely be detrimental to the Company’s continued progress to waive the interconnection timelines for large projects at this time.”
To have a thriving and successful solar industry in Michigan, rules and procedures need to be consistent and predictable for businesses. A partial waiver of the interconnection standards – particularly with the status of the federal investment tax credit – not only would hurt advanced energy companies with projects in the pipeline, but would also drive solar businesses, the related jobs, and the benefits to customers out of Michigan and to other states with friendlier markets.