When Should You Walk Away From an Interconnection Queue Position?

September 27, 2026 · Dezzmond Team

Energy Markets Interconnection: From Site to IA Interconnection

A project has already spent $6 million on development. The latest interconnection result is ugly. The next posting is $4 million. Network upgrades are now high enough that the project barely clears the sponsor's hurdle rate, and another restudy can still move the number.

Should the project post the $4 million? The $6 million already spent is almost irrelevant to that decision.

That is the part development teams hate. Interconnection creates a very strong sunk-cost trap because the project gets more "real" every time it spends money. Land is controlled. Studies are done. A PPA may be signed. Engineers have worked on the site for two years. The queue position took forever to obtain.

None of that makes the next dollar a good investment.

Treat each major posting as a new investment decision

The right question is not "do we still like the project?" It is:

What do we get by spending the next $4m?

Maybe the answer is valuable. The next study could remove a large amount of uncertainty. The project may be one step from an executed IA. A pending design change could cut upgrade costs. A revised PPA could restore the economics.

Or maybe the $4 million simply buys another year of exposure to the same problem. That is the distinction I would force into every interconnection investment memo.

For the next decision point, show:

new cash or LC capacity required;
what information or right the posting buys;
what amount is recoverable if the project later leaves;
current project NPV;
current network-upgrade estimate and range;
current COD estimate;
current withdrawal cost;
next point at which the sponsor can reassess.

If the memo spends two pages on historical development progress and one line on the next capital at risk, it is upside down.

Sunk cost belongs in reporting

Assume:

Development spend already incurred        $6m
Next required posting                     $4m
Remaining development spend               $3m
Current project NPV before future spend  $10m
Recoverable deposits if withdrawn         $1m
Withdrawal / unwind cost                  $1m

The historical $6 million matters to the development P&L. It does not make the project worth $6 million more today.

From today's decision date, the project either has enough expected value to justify another $7 million of forward development spend or it does not. That is easier to say than to do because development organisations are built around progress. Killing a project feels like admitting the prior work failed.

Economically, killing a bad project early is part of the job. A pipeline where nothing ever gets abandoned is not necessarily a great pipeline.

Know the project's kill price before the next study arrives

The current upgrade estimate tells you where the project stands. The more useful number is how much worse it can get before the sponsor should stop.

Call it the kill price, break point, maximum acceptable upgrade burden, whatever terminology works internally. Suppose the latest model says:

Current network-upgrade burden       $55m
Current sponsor NPV                  $18m

NPV at $65m upgrade burden            $9m
NPV at $75m                           $1m
NPV at $80m                          -$4m
``` The important result is not that the current study says $55 million.

It is that the project has about $20 million of economic room left before the investment case disappears. Now the team can look at the range of possible restudy outcomes and make an informed decision about the next posting.

Without the break point, every new study creates a fresh debate.

### Cost and delay belong in the same decision

Upgrade dollars are only part of the downside. A $70 million upgrade case with no COD delay can be better than a $55 million case that pushes the project back a year.

So the decision table should use both. For example:

| Upgrade burden | No delay | +6 months | +12 months |
|---|---:|---:|---:|
| $50m | continue | continue | review |
| $65m | continue | review | exit |
| $75m | review | exit | exit |
| $85m | exit | exit | exit |

Those labels are illustrative. A real project should calculate NPV or IRR in the cells.

The table is useful because it forces the discussion away from "interconnection cost is high" and toward the actual combination that destroys value. It also makes engineering trade-offs easier to evaluate. If a design change saves $10 million but adds nine months, the answer is in the project economics rather than in the engineering budget alone.

## Withdrawal penalties matter, but they do not rescue a bad project

Order 2023's cluster framework includes withdrawal penalties when a project leaves and materially affects equal- or lower-queued projects, subject to the applicable rules and exceptions. The idea is to discourage speculative requests and compensate for some of the harm a withdrawal can cause to the rest of the cluster.

From the sponsor's perspective, the penalty is simply one more exit cost. If leaving costs $1 million and continuing has an expected loss of $12 million, the existence of the penalty should not produce a philosophical crisis.

Paying to stop can be the better investment decision. This is where legal and finance teams can end up solving different problems. Counsel may be focused on whether a penalty applies. Finance should run the decision both ways:

```text
Exit value if penalty = $0
Exit value if penalty = $1m
Exit value if penalty = $3m

If the answer is "withdraw" in all three cases, the tariff debate is important for value but it is not important for the go/no-go decision.

Another project can change your answer

Cluster studies create shared exposure. A neighboring project can leave and change the study set. The network solution can move. Cost allocations can move. Your project can get worse without changing a single assumption in its own design.

That is one reason to preserve decision headroom. A project that only works if the current study estimate is exactly right is not a robust development asset.

The sponsor may still continue. There can be strategic reasons, sale value, portfolio value or a credible path to reduce the exposure.

But the investment memo should say that explicitly. "Current study says $60m" is not a risk analysis.

The portfolio can say no even when the project says yes

A $5 million cash posting costs $5 million of liquidity. A $5 million LC posting may cost much less in direct fees, but it still uses bank capacity.

For a developer with a large pipeline, that capacity has an opportunity cost. This becomes important when projects are evaluated one at a time. Each project can look positive in isolation while the portfolio quietly runs out of cash or LC headroom.

I would therefore add one portfolio metric to the decision:

Expected project value
÷
scarce corporate capital / LC capacity consumed before financing

It does not need to become a formal ratio. The useful distinction is to ask whether preserving this project prevents the company from preserving a better one.

That is a real cost even though it never appears in the project IRR.

A marginal project can still have option value

This is where the sunk-cost rule can be taken too far. A project with a slightly negative current NPV can still have option value if the next milestone is cheap and genuinely resolves uncertainty.

Suppose the next study costs $500,000 and there is a credible chance it removes a $30 million upgrade. The project may be worth carrying to that study even if today's central case is marginal.

But the analysis needs to be specific. I would write it like this:

Cost to reach next study          $0.5m

40% chance revised NPV            $20m
60% chance revised NPV            -$5m Expected value before next cost    $5m

Those assumptions may be wrong, but at least the decision is visible. "Let's stay in and see what happens" is not the same thing.

Sale value can keep it alive

A project that no longer clears the sponsor's return threshold may still be worth something to another buyer. The buyer may have a lower cost of capital, a different view of congestion, an adjacent portfolio, a strategic need for the site, or a better route to transmission capacity.

So the walk-away analysis should include a realistic development-stage sale value where one exists. But use market value, not historical spend.

A lease that cost $500,000 is not worth $500,000 because the sponsor paid it. A queue position that consumed three years is not automatically valuable because it took three years.

The buyer pays for resolved risk and future economics. Sometimes the latest interconnection study increases sale value because it removes uncertainty.

Sometimes it proves the project is bad.

The one-page decision memo

I would make every major interconnection posting come with the same page:

CURRENT
Study stage
Assigned upgrade burden
Expected utility-ready date
Current sponsor NPV
Security already posted

NEXT DECISION
New posting required
Form: cash / LC / surety
Recoverable amount
What new information this buys
Date of next decision gate BREAK POINTS
Upgrade cost that kills the project
Delay that kills the project
Combined cost/delay case that kills the project

EXIT
Withdrawal penalty
Recoverable deposits
Residual land / PPA / study value
Potential sale value
``` That page should make it possible to decide without rereading the project's whole history.

Interconnection development is expensive partly because the information arrives in stages. That is also the advantage. The sponsor gets repeated chances to stop before construction equity is committed.

Use them. A queue position is valuable when the project behind it still works. Once that stops being true, the years already spent acquiring the position are a terrible reason to keep buying it.

**Sources:** [FERC — Order No. 2023 Fact Sheet](https://www.ferc.gov/news-events/news/fact-sheet-improvements-generator-interconnection-procedures-and-agreements) · [FERC — Order No. 2023 Explainer](https://www.ferc.gov/explainer-interconnection-final-rule) · [FERC — Order No. 2023-A Explainer](https://www.ferc.gov/explainer-interconnection-final-rule-2023-A) · [FERC — Large Generator Interconnection Rules](https://www.ferc.gov/electric-transmission/generator-interconnection/final-rules-establishing-and-revising-standard)