How M&A Could Unclog PJM’s Interconnection Queue

What happens when a 20MW project triggers a $50 million grid upgrade? In PJM’s interconnection queue, the result is often a cascade of withdrawals and years of delay.

PJM’s queue for new generators is notoriously backlogged and slow, connecting a new power plant can take up to eight years, and nearly half of all projects entering the queue never reach commercial operation. This lag in adding new supply has real costs: capacity market prices have skyrocketed, and consumers are footing the bill. Pennsylvania’s governor recently lambasted the situation as “the largest unjust wealth transfer in the history of US energy markets,” pointing to billions paid to incumbent generators because planned projects remain stuck in limbo.

At the heart of the logjam is an uncomfortable truth: PJM’s interconnection process often makes individual developers pay for major network upgrades, new transmission lines, transformers, substations, needed to accommodate their projects. These network upgrade costs have spiked dramatically, from under $30 per kW a few years ago to around $240/kW for projects studied in 2020–2022. Many proposals are assigned such high upgrade bills that their economics implode; unsurprisingly, those tend to withdraw. (Projects that withdrew in recent cycles had average upgrade costs on the order of $600/kW, far above those that successfully connected.) The attrition rate speaks volumes: historically only about 20% of proposed generation capacity in PJM’s queue ever got built, and even under PJM’s new cluster study process, the first transitional cycle saw roughly two-thirds of its capacity drop out before the finish line.

Why are upgrade costs so high? One key reason is that many parts of the grid have little spare capacity after years of underinvestment. When a batch of new solar, wind, or battery projects tries to connect in a constrained area, even a relatively small addition can push the system over a critical limit, say, overloading a transmission line or a substation transformer. Crossing such a threshold means a multi-million-dollar reinforcement is required. It isn’t always the largest project that crosses the line; sometimes the smallest project is the proverbial straw that breaks the camel’s back. And under current rules, whichever projects contribute to that overload must pay for the fix.

Consider that hypothetical 20 MW project facing a $50 million upgrade, it’s not farfetched. Analysts have found that while most PJM projects incur less than $200/kW in interconnection costs, a few outliers face astronomical burdens; one recent case was hit with roughly $3,700/kW in assigned upgrade costs. For a modest solar farm, being told to fund a substation or line upgrade that costs more than the entire plant is essentially a project killer. The developer’s choices are bleak: somehow raise millions in unanticipated funds (likely impossible) or walk away, forfeiting years of work. Most walk away. Yet one project’s exit doesn’t solve the constraint, it often just shifts more costs onto the remaining developers and triggers a restudy. A single withdrawal can start a death spiral of rising costs and further dropouts. It’s a vicious cycle.

How a Small Project Can Drag a Whole Cluster

To see how a small project can jeopardize an entire cluster, consider PJM’s cluster study approach. Projects in a given area are studied together to determine what upgrades the whole group needs. Costs are allocated among the projects based on their contribution to any overloads. In theory this shares the pain fairly, but in practice it can yield bizarre outcomes. If one minor addition pushes a facility over its limit, it can saddle every project in the cluster with a chunk of an enormous upgrade bill. In effect, one small project can force all the big "fish" in the cluster to swallow an outsized expense.

Suppose the local grid can handle 300 MW of new capacity before a major upgrade is needed. Now imagine two large projects of 150 MW each and one small 20 MW project all in the same cluster, totaling 320 MW. That extra 20 MW pushes the scenario past a threshold and triggers, say, a $100 million transmission upgrade. PJM would allocate the cost among all three projects. The 20 MW project might be assigned about $6 million of it, and each 150 MW project roughly $47 million. For the small developer, $6 million translates to an untenable $300 per kW surcharge (likely blowing up its business case). The big projects aren’t much better off: $47 million each could add on the order of 20% to their project costs, imperiling their economics too.

If nothing changes, all three might withdraw, wiping out 320 MW of planned new supply and forcing PJM to redo studies for the next entrants. But what if the cluster could be saved by removing that one problematic piece? In other words, what if a bigger fish could swallow the minnow?

Mergers and Acquisitions as an Alternative

This is where creative deal-making comes in. Some developers are turning to mergers and acquisitions (M&A) as a tool to mitigate these queue logjams. The concept is simple: a larger project (or an investor with deep pockets) can acquire a smaller project that is triggering a costly upgrade, effectively taking it out of the equation before it wrecks the cluster’s economics. The bigger player pays the smaller developer a fair “developer fee” to bow out gracefully. It’s a pragmatic solution: remove one piece to save the rest.

In our 320 MW example, the two 150 MW developers would realize that if the 20 MW project drops out, the $100 million upgrade disappears. So they have every incentive to eliminate that trigger. They might approach the 20 MW project’s owner, who knows that paying a $6 million upgrade bill is a non-starter. A deal gets struck: the big projects buy out the smaller one’s queue position (or its development company) and compensate the small developer for their sunk costs plus a fair profit.

For the small developer, selling out is far better than walking away empty-handed, at least they recoup their investment and maybe earn a modest profit. For the large projects, the math is compelling: spending a few million on a buyout is vastly cheaper than absorbing tens of millions in upgrade costs. The troublesome 20 MW is removed from the cluster, and the remaining 300 MW can move forward with manageable, far smaller network upgrades.
Keeping the cluster intact has broader benefits. PJM’s grid gets 300 MW of new capacity online sooner, helping meet demand, and the $100 million upgrade is avoided. That spares ratepayers from an expensive piece of infrastructure that wasn’t truly needed yet. In essence, a private business deal achieves what the official process could not: a more efficient outcome for the system.

Real-World Patterns and Precedents

These scenarios are not just theoretical. PJM’s recent interconnection studies have indeed produced cases where a single project was tagged with an upgrade costing tens of millions of dollars. (In one cycle, a battery project was assigned over $50 million in network upgrades; in another analysis, a small project faced a staggering ~$3,700/kW cost burden. When such an outcome appears, it doesn’t go unnoticed, developers quickly identify which cluster member is the financial albatross.
Quietly, some developers have started cutting exactly these kinds of deals. If a cluster’s study reveals that one or two small projects are responsible for a huge upgrade, those projects become prime buyout candidates. The simplest approach is for a larger developer
in the cluster to purchase the troublesome project (or its LLC) and then withdraw it from the queue.

It’s a twist in a normally competitive arena: developers are finding that sometimes the best way to compete is to collaborate, essentially consolidating projects to avoid a mutually damaging outcome. Rivals in the queue have an incentive to work together (or merge) because the “pie” of grid capacity is limited and one project too many will spoil it for everyone. Through M&A, they can collectively ensure the bridge doesn’t break under too much weight, to use an analogy. It’s an emergent, pragmatic response to the constraints of the system.

Regulatory and Financial Implications

Are these maneuvers allowed? Generally, yes. PJM’s tariff permits projects to change ownership or assign their queue position, as long as the technical particulars don’t change. There’s nothing in the rules that forbids a developer from selling their project (and effectively bowing out). The Federal Energy Regulatory Commission (FERC) has shown no qualms so far, if anything, FERC’s push for queue reform is about improving efficiency, and private deals that reduce withdrawals and speed up interconnections could be seen as helpful.

The prospect of buyouts does introduce a new dynamic to project finance. A small project in a congested area now carries an implicit option value: if it triggers a big upgrade, it might get bought out for a premium. That raises the specter of some developers filing projects mainly to extract a payoff. It’s a kind of arbitrage that could clutter the queue. However, this strategy isn’t guaranteed, if no one offers to pay, a speculative project would be stuck with its impossible upgrade bill and likely perish. In practice, a buyout will only happen if that project is genuinely standing in the way of much larger viable investments, so the “trigger fish” gambit is a gamble.

For the larger developers, this becomes another strategic calculation: is it cheaper to pay for a new transmission line, or to pay a competitor to vanish? We may see more consolidation in congested areas, with big companies buying up small projects to manage their cluster costs. This could reduce the number of independent players in those pockets, trading some competition for more certainty that at least some projects get built.

A Sharp Tool, Not a Silver Bullet

M&A is a sharp tool, but not a silver bullet for PJM’s interconnection woes. Ideally, we’d expand and reinforce the grid so that clusters of new projects aren’t in a zero-sum fight over limited capacity. Long-term solutions lie in proactive transmission planning, grid-enhancing technologies, and fair cost-sharing mechanisms so that critical upgrades get built without depending on a single developer’s wallet.

For now, though, these deals are gaining traction because they deliver results that the formal process couldn’t. It’s essentially the market self-correcting when the official rules
reach a stalemate. Of course, this tactic can’t fix everything. If an entire cluster is fundamentally uneconomic due to a weak grid, no amount of horse-trading will make the needed upgrades disappear. And not every troublesome project will find a willing buyer, perhaps the other developers are cash-strapped, or even after removing the small project, some expensive upgrades would still be required.

There’s also a fairness question: should the ability to write a check determine who gets to connect to the grid? One could argue it stacks the deck in favor of deep-pocketed developers. On the other hand, if a small project was never going to be built under the weight of huge upgrade costs, a compensated exit leaves that developer better off than a collapse, and it clears the path for capacity that can get built. It’s a trade-off between the ideal of open access and the reality that someone has to pay for infrastructure.

Conclusion

Ultimately, the saga of PJM’s interconnection queue shows that when traditional processes falter, market creativity fills the void. The use of M&A to sidestep upgrade nightmares is a prime example, a corporate finance technique repurposed as a grid optimization tool. It’s a thought-provoking workaround that gets more generation built in spite of systemic constraints.

The takeaway isn’t that we should plan on buyouts as a permanent solution. Rather, it’s that when rules yield perverse outcomes, participants will inevitably hunt for clever escapes. The onus is on regulators and planners to refine the process so that such backdoor fixes aren’t needed to connect vital new resources.

Until that happens, we shouldn’t be surprised if developers keep one eye on their project portfolio and the other on their checkbook, ready to make a deal when a small project stands between them and the finish line.

Alexandre Alonso Carpintero works on market design and commercial structures for large loads, including data centers. He focuses on renewable integration, settlement risk, and mechanisms that improve bankability while supporting reliability.
https://www.linkedin.com/in/alexandrealonsocarpintero/