RealClearEnergy first published this opinion piece.

Data centers, advanced manufacturing, and other drivers of economic growth are increasing demand for electricity across the U.S. Meeting that demand will require new sources of electric power—and quickly. Unfortunately, the grid operators responsible for connecting power supplies to the grid face outdated regulations and often lack the technology or incentives to bring new power online.

PJM, the country’s largest regional grid operator, recently removed a 750-megawatt project from its current interconnection study cycle after flagging several technical and procedural defects. The decision will likely delay the project by at least 14 months, costing consumers a valuable new energy supply to meet surging demand. Oklo, the project developer, says it could fix the reported problems, but PJM argues that the rules give developers only one chance to correct deficiencies and Oklo is out of chances.

The dispute involves more than a single project. Oklo proposes combining advanced nuclear reactors, fuel cells, and natural gas into a single 750-megawatt project, but PJM’s interconnection rules were not designed for that combination. According to Oklo, PJM’s project application process lacked an appropriate category for the project’s fuel cells, forcing Oklo to use a workaround. In short, the outmoded rules are not flexible enough to accommodate new generation combinations or evolving technologies.

Oklo claims it addressed initial concerns but was subsequently removed after PJM found more issues. PJM says that allowing multiple rounds of corrections would slow the entire interconnection queue. And that is a legitimate concern. But it only emphasizes the need for grid operators to anticipate new technologies and have clear ways to evaluate them before problems arise.

To assist that effort and prevent unnecessary project delays, the Federal Energy Regulatory Commission (FERC) should set broader performance standards for how grid operators handle interconnection applications, particularly for projects using unfamiliar technologies or configurations. Operators like PJM should identify problems early and give developers a reasonable opportunity to fix them, including holding timely technical meetings when projects use unfamiliar technologies or configurations. Grid operators should also prepare for new generation technologies before projects reach the interconnection queue and ensure that their rules and procedures are flexible enough to account for rapid innovation. FERC should require more transparency when projects are rejected or removed from a study cycle, and projects improperly removed should be restored to their original place in the queue.

PJM has strong incentives to avoid approving projects that could threaten grid reliability because it will be blamed if something goes wrong. But the risks and costs of delaying a viable project are less visible and do not fall on PJM, even when delays reduce electricity supply and raise consumer prices. That imbalance naturally encourages over-caution.

For years, the cost of that caution was negligible and easy to overlook. Electricity demand across much of the country was relatively flat, and grid operators were largely integrating familiar forms of generation. Those days are over.

Artificial intelligence and data centers are driving up electricity demand in parts of the country. Advanced manufacturing and electrification could push electricity use even higher. Energy sector developers are investing in new ways to meet that demand, including small modular nuclear reactors, fuel cells, longer-lasting batteries, and new combinations of power generation technologies. And that’s good.

As demand and innovation accelerate, PJM and other regional grid operators must adapt. The current system must improve and the risks of connecting new energy sources must be managed. Federal and regional rules and incentive structures have to change so that viable generation can come online. America cannot afford unaffordable electricity, and the price of a megawatt should not rise simply because old rules reject new power.
 
Aswin Prabhakar is an economic research analyst at The Buckeye Institute with a focus on energy policy.