Teri Viswanath: So why exactly is the U.S. running out of power for the middle of the country? The two system operators in that system, that is MISO and SPP, have identified the usual suspects – retiring coal plants, aging grid infrastructure and load growth. But what else is hampering getting power plants built? For the next two podcasts, we are going to examine building new supply with Spearmint Energy’s CEO Andrew Waranch and Senior Vice President of Project Development, Gina Wolf.
The interconnection queue for new generation projects is lengthy. It often takes five years or more to get a generator interconnection agreement. Additionally, community opposition to these new, large infrastructure projects is widespread and growing. That’s right, NIMBYism is alive and well. So, we are going to hear directly from a builder about just how difficult it is to bring new power supply to the market and maybe some reasons for optimism.
Hello, and welcome to Power Plays. I’m Teri Viswanath, the energy economist from CoBank, and as always, I’m joined by my colleague Tamra Reynolds, a managing director here at the bank. Hello, Tamra.
Tamra Reynolds: Hey, Teri. So, for the next couple of podcasts, We’re going to explore the U.S. regional wholesale power markets just to really better understand key developments that are occurring in these markets. It seems like every day you see a new headline about reduced reserve margins, power tightness, lack of reliability in some of these markets, and so I think it’s really a good time to be talking about some of the things that are developing there and looking at are price signals sufficient to get power supply developers off the fence and maybe start thinking about how they show up in some of these markets in particular.
Viswanath: Absolutely. We’ve entitled this podcast, or the two series of podcasts, A Masterclass in Wholesale Power Markets. For this conversation, I reached out to a friend of mine in the industry, Andrew Waranch. Andrew is the founder and CEO of Spearmint Energy, and he’s going to act as our guide. Andrew has more than two decades of experience as a power supply developer, portfolio manager, and a trader in the wholesale power markets. Andrew, welcome to our program.
Andrew Waranch: Thank you for having me.
Viswanath: When I reached out to you about this podcast, the first thing you did is you mentioned what would be fun on the conversation is to have Gina Wolf. Gina is a Spearmint senior vice president, and she’s involved in project development, so she’s really on the front line. She has about two decades in the trenches developing supply. Gina, I’m going to put you on the spot. Just repeat a little bit about your background that Andrew wanted to share.
Gina Wolf: Yes, thank you so much for having me on. I grew up in rural Minnesota, a third-generation family farm, and we were part of the Nobles County Electric Cooperative there. My dad has about 4,000 hogs he does a year and about 500 acres that he farms corn and soybeans there in southwest Minnesota. A little bit more on my background. Our journey in the renewable energy industry, as a family on our family farm, my dad got very interested back in 2002 about developing a project to be able to help power the farm, and that actually grew into something much, much larger. We ended up developing a six-and-a-quarter-megawatt wind project that’s been operating since 2006.
Viswanath: I love that story. I think let’s go ahead and dive in with this conversation.
Reynolds: Gina, and thanks for sharing that background. I love that. I also grew up on a farm, but in Texas, so opposite side of the country but grew up on electric co-op lines and love what I get to do every day. It sounds like you found a unique and interesting way to bring power to rural communities, and I love that.
I know we’re going to talk a little bit about several markets, but I think the best approach to starting this discussion, and Teri, I know you cued this up with Andrew originally, was starting maybe in the MISO market, and for those that maybe aren’t familiar with the acronym, Midcontinent Independent System Operator. From a developer’s point of view, why do you want to start there? What’s driving that, and where do you think starting in the middle of the country really brings us to kick this off?
Waranch: There’s a lot of reasons. For one thing, I’ll start by saying that in my 28 years, I have primarily been focusing on PJM. I’ve worked for two PJM utilities. I used to own three combined cycles in New Jersey, and like many in the financial and trading community, there is an over focus on the East Coast and the West Coast. And very often the financial community overlooks a bit of the mid-contintent. When we were launching Spearmint, day one, originally our belief was we were going to focus on the coasts, but what became very apparent after just a few months of digging in on the research side was that the greatest need was actually in the mid-contintent.
Yes, California had probably the more urgent short-term need, but over time, through retiring coal plants, aging grid infrastructure, load growth from oil pumping and other places that both MISO and SPP were forecasting dire inabilities to solve supply and demand in the coming years. And so we focused quite heavily on the research. We’re a research-driven firm, and the research shows both ours and MISO’s themselves, that by 2028, MISO is going to have a very difficult time balancing supply and demand.
It was only natural for us to focus our attention and our development dollars into areas, one, where the need was greatest, but two, it was also a place that was overlooked by a lot of the East Coast developers. Now, we’re not the only developer in MISO or SPP for that matter, but relative to the coasts, there’s a lot fewer people playing in this sandbox, despite the fact that the opportunity is greater.
I think a lot of people chose to avoid MISO because, the time to permitting, and interconnect can be years, 7 to 10 years in some cases. And the down payments for interconnect deposit are so large. And so the combination of a focus on the coasts, long time, and high deposits, you just don’t have as many serious developers focused here. There’s certainly a lot in the queue, but quite a bit of those were people just speculating by putting stuff in with the hope of flipping it out, regardless of whether it actually made sense there.
Viswanath: I want to give our listeners a little bit of a lens, if you will, in what you’re talking about. Now, first, MISO, by land mass, we’re talking about a distance of spanning more than a million square miles. It’s the largest ISO from a landmass perspective,15 states and Canada, you’ve got 190 gigawatts serving about 45 million customers, but they have an interconnection queue of almost multiples, almost two times the amount of generation, so a sizable queue, and that’s after the operator took a pause as a way to ease the process. I want to ask you: Is the process eased from a developer standpoint in MISO?
Wolf: We’ve gone through a couple rounds of queue reform and would love to say that the outcome is that the process has gotten shorter, faster, cheaper. Unfortunately, it’s just gotten longer and longer and more expensive. Right now, when you apply to MISO, like their stated tariff and what they’ll put into their weekly updates on their queue timelines, it’ll take you a year and a half from application to getting a GIA, a generator interconnection agreement.
Unfortunately, the real timeline is five years or more, so it makes it extremely difficult for developers to invest in the market, to understand what their risk is going to be, understand what the timelines are, and to be able to pace their projects accordingly. So much can change in rural communities over a five-year period or in the market itself over five years. It’s just a very long horizon to plan around.
Reynolds: Last month, MISO asked federal regulators to approve an expedited resource addition study process with the goal to address urgent resource adequacy and reliability needs. But it sounds like there’s some concerns that the proposal could overcomplicate something that’s already complex and just really add some chaos to the system overall. Any thoughts on that?
Wolf: Yes, I agree. It is going to make the process more complex and create a lot more complications. Having the certainty of putting a project into the queue a few years ago, as we did with some of our early greenfield projects at Spearmint, and having this new proposal come and not being able to really evaluate how for our individual projects where we understood what was in the queue, we knew what went in beside us, having new generation or new projects come in, jump the queue, and trying to understand how that is going to impact our investment and our timelines is pretty difficult. It’s creating a lot of confusion and chaos for a lot of the participants currently in the queue and it is really yet to be determined if it’s going to solve the problems that they’re looking to solve.
Waranch: Further, what I would say, because we first saw this in California, our strategy as a business is to rely often on the wholesale power market, which is one of the cornerstones of deregulation. Many of the proposals in MISO, PJM, CAISO, and others are focused more heavily on utility-negotiated deals or utility RFPs. Those are essentially where the utility puts out a sign, “Hey, we need power. Please apply.” Those RFP processes take years, they are very expensive, often increased costs to developers, and many of the developers don’t win. But once they’re awarded to the utility, that is a valuable contract.
We understand why developers do that, but it requires developers to spend lots of time and money on projects which go nowhere. By trying to allow those specific projects to jump the queue in various ISOs, you significantly undermine the concept of an unregulated wholesale power market. I know there are some folks that prefer that, but you can’t have it both ways in the same market. As a firm that doesn’t really apply to those RFPs, that builds power plants where we want to build them, where the market tells us to build them, it’s frustrating to see other people try and jump the queue around us.
Viswanath: There’s an opportunity cost of queue waiting that we’ve already surfaced. There’s another problem, though, just as a developer. We know that the quickest way that we can provide a power supply response is probably going to be with a solar or a battery project. We know that within the last 18 months, we have five utility-scale solar projects that were canceled in Ohio alone. Andrew, you talked a little bit about this in terms of trying to get community support that boots on the ground for building assets.
Waranch: Yes. This is mostly the work that Gina and her team focus on, but there are understandably a lot of people who don’t want projects in their backyard, and we understand that, but there needs to be a balance. You can’t have year after year of load growth, especially recently when you’re accelerating demand growth, without also adding generation.
Wolf: The complications that have really been occurring is that you have a lot of areas where first wind came and wind was developed, and then in the same areas, solar was developed, and now batteries are being proposed. You have different communities that have addressed those proposed projects in their environments in very different ways. If they opposed wind, they very quickly opposed solar. We had the initial theory that, oh, battery is such a smaller footprint, we aren’t going to be impacting near as many neighbors, we can site them very strategically to have minimal local impact while also bringing a great tax revenue base to the local community.
It seems like a win-win for everybody. We’re helping their grid, we’re helping relieve congestion in the area. It seems like that should be a positive for everyone, but we’ve seen in a lot of places where there’s just a lot of fatigue. They’ve seen wind come, they’ve fought that, they fought solar immediately, the response is, “Please go find somewhere else to develop.”
Since so many areas across MISO have had that experience, we are seeing it pretty prevalently and trying to find areas where people are still open to listening and you can educate them on batteries and the difference in the technology and the difference on how it is going to be helping the grid and some of these issues, takes a lot of on-the-ground communication. We’ve been heavily investing in that as well as in areas that potentially haven’t had as much of that development in the past, in these smaller pockets where we’re seeing the congestion that we can help the most.
Reynolds: The other thing, I think that’s something that we are always thinking about or concerned with, maybe is that you have capacity that isn’t left stranded.
MISO has recently proved the largest transmission investment in U.S. history. Roughly 488 projects covering more than 5,000 miles across 15 states at around $30 billion from an investment standpoint. But history’s proved that building interstate transmission isn’t quick or easy, a decade can fly by before you really see anything material happen. How are you guys thinking about this development, and what’s top of mind for you all?
Wolf: With these transmission lines, a lot of them are situated to help with those high congestion areas. That’s really been a significant portion of what’s driving the building of those lines, but as you know, they’re so costly, they take so long to build. In our case, batteries can be a much more of a scalpel approach of trying to relieve some of those issues in a much quicker timeframe. We still have to deal with the long queue timelines, as we mentioned in MISO, but you still can do it far quicker than long transmission lines that are very, very difficult to get the right approvals to approve and all of the land rights to get them done.
We see the transmission lines coming. We’re certainly trying to address – they’re in the long-term planning cases, we’re planning for them accordingly with where we’re siting our projects, but definitely aren’t banking on them being in there in 10 years. Expect, as you noted, it’ll probably be many years after that before they actually get built and can help with some of the problem. If load growth continues, as folks are expecting, it’s also a question of will it be enough in time, or by the time they arrive, will it actually relieve the congestion permanently or for very long?
Viswanath: I think the next area, the tour that I really want to take is on is to focus our attention on the second largest ISO from that landmass perspective. SPP, the Southwest Power Pool, has a footprint that covers 546,000 square miles, about half of what the MISO covers. It’s approximately 61,000 miles of transmission, 756 generating plants totaling 64 gigawatts, serving 19 million people. Their connection queue, once again, it’s about double. I’d like to get a big picture perspective. Andrew, you talked about the focus being on the coast from a developer standpoint over the last 20 years, we’re once again in the middle of the country. Give us perspective on SPP.
Waranch: SPP has a lot going for it from a development point of view. First, there is significant load growth, and there is I would say, older coal plants that are retiring more because of age than any other reason. When you combine a lack of generation build-out, a little bit of retirements, and a lot of load growth, plus the ISO has changed a little bit of the accounting of how it looks at reserve margins, all of a sudden, SPP is very, very tight for the next five plus years. That, to us as a storage developer, is a great thing because we believe we can relatively quickly, once we get permits and interconnect approvals, build batteries and solve some of that volatility.
The amount of wind is a good pairing for storage. The relatively cheap, clean overnight hours, we can charge the battery store and then use that power during the peaks. We think it’s an ideal place for storage, despite the fact that the market is actually submitted a relatively small amount into the queue.
One of the reasons SPP is a great opportunity for us is there are relatively few batteries, despite the obvious fundamental need. When you run your stack models, which are hour-by-hour forecast tools for supply and demand, you see price volatility which could easily be solved with storage. And so we think it’s a very attractive market. Again, I think it’s just a lack of focus on the region, which is why it’s been overlooked.
Reynolds: That’s a great point, Andrew. SPP’s leadership team last summer highlighted some of the critical challenges that they’re seeing in this region. I had the pleasure of hearing Lanny Nickell yesterday, CEO of SPP, day two on the job speak at Tri-State’s annual meeting this week on their generational challenge.
They have a mandate to ensure that they have sufficient generation. They’ve obviously got a plan that they’re looking to execute on, but they have to meet this growing demand, and it’s harder and harder to do that. Wind has really been the region’s fastest-growing generation resource, growing faster in SPP than frankly anywhere else in the U.S. They’ve had more than 33 gigawatts of wind resources as of July. Wind energy varies, of course, and availability, but you look at the charts and they serve anywhere from less than 1% with wind, up to 95% of SPP’s needs with wind, which requires a lot of balancing on the side and responsive generations that fill that gap.
They’ve got an interesting and unique challenge to address. Like I mentioned, he laid out a robust plan that is going to require a lot of collaboration and communication amongst their members and amongst partners within their regions. The thing that was the most unique, I think, about some of the conversations this week was that they highlighted the fact that Bonneville Power announced its decision to join SPP Markets+. That is something that they think is going to be a strength and an opportunity, especially when you think about how far and how across different climates and regions that stretches now. From your perspective, how does this profile influence maybe resource investment and support some of the things that you’re looking at?
Waranch: I think SPP+ is a fantastic opportunity, and even us here at Spearmint haven’t been aggressively pursuing a lot of the states yet. We’ve been developing there, but not as aggressively, waiting for the market to play itself out and for us to determine where is best. We are the largest developer currently in the Dakotas, and I think overall in SPP, we’re one of the largest standalone storage developers in total.
I think as I work with Gina and the team to direct our development growth in the future, I see that interior west, where SPP+ is, as one of the primary growth areas for storage, and as we’ve said many times, it’s very underdeveloped and there’s great opportunities. Bonneville is one of the largest power generators in North America, and so having them a part of the market is really a fantastic step forward for the market’s growth.
Viswanath: I guess I’m just curious, because as we think about this, now, first, SPP probably has as much wind generation, maybe the most in the country. Then we’re just talking about a large hydro resource. Andrew, you just told me that in terms of battery application, we are not seeing heavy battery application in this region. I find that surprising because it seems like that natural fit, hydro wind resource. In fact, crazy part is that wind energy varies so much. It can serve anywhere than less than 1% to 95% of SPP’s needs at the moment. I’m just curious, why have we not seen battery introduction en mass in this region?
Wolf: Why has it not happened to date? I think some of it is definitely the developers that have been focused in SPP have been primarily those wind and solar developers. They’ve done a lot of solar plus storage, adding those, tacking those onto their models, but they aren’t battery developers at heart. They aren’t siting projects in those congestion areas to be helpful with the volatility that’s present or that is going to be coming as more and more wind comes online as well as the load growth.
As far as other standalone storage developers like ourselves, Andrew is talking about the focus on the coasts has been so heavy. There’s projects that have been in the queues for a very long time in PJM, ISO New England, New York ISO, and just don’t see that in the volume in SPP since folks have just been focused on the coasts and in California.
Reynolds: NERC has rated MISO at a “high” risk of blackouts under normal peak conditions starting as early as this year but as we’ve heard directly from our Spearmint guests, the solution to this problem is complicated and delays to generator construction are a major contributor to this problem. MISO has implemented substantial reforms to interconnection procedures, such as utilizing a cluster (first-ready, first-served) rather than a serial (first-come, first-served) approach.
Viswanath: But as Gina tells us, this approach still means that the real timeline for getting a generator interconnection agreement is five years or more, making it extremely difficult for developers to invest in the market and truly understand their risks.
Reynolds: Turning to SPP, I was interested to see what Andrew and Gina had to say about the comments I shared from Lanny Nickell, who was a keynote speaker from the Tri-State annual meeting I attended. Nickell pointed out that wind has been the fastest-growing generation resource in SPP and that the variability of this resource requires a lot of balancing with responsive generation sources.
Viswanath: Which is fascinating, right? Because SPP has fallen behind in getting battery energy storage built. And if we’re honest, energy storage has not been a cost-competitive solution for either MISO or SPP. But that’s changing and investors are taking note, as we’ve discussed today. Storage will not only be used as a viable balancing resource but might also solve specific transmission issues.
Reynolds: I hope all of you have enjoyed this conversation and will tune in next month as we continue the conversation, turning our attention to ERCOT and PJM. Goodbye for now.
