The Grid Is Becoming an Allocation Market: Why Connection Rights Will Matter More Than Land Rights

“Electricity markets are no longer constrained by where projects can be built. They are constrained by which projects are allowed to connect. As grid access tightens, connection rights; not land, capital, or demand have become the decisive asset shaping what gets built and what never does.”

The Market Everyone Is Measuring Wrong

Most energy market analysis still treats the grid as a neutral conduit. Generation is modeled as something that follows capital, policy, and demand. Interconnection appears as a line item, not a gate.

That assumption no longer holds.

In practice, access to the grid has become the scarce asset that determines which projects exist and which never leave a spreadsheet. The difference between a viable project and a stranded one is no longer technology, cost of capital, or offtake interest. It is whether a project can secure and hold a connection right through years of queue friction.

This change is elusive since it does not announce itself through dramatic price disruptions or policy reversals. Instead, it appears through timelines that silently stretch from months into years, through projects that exit without public failure, and through queues that grow even as completion rates collapse.

What looks like a deployment lag is, in reality, a change in market structure. The grid is no longer simply enabling build-out. It is rationing admission, and rationing is governed by rules, sequencing, and administrative capacity, not by demand alone.

This is not a temporary bottleneck. It is a structural shift from a build-out market to an allocation market, where outcomes are shaped by queue rules, study capacity, and timing arbitrage rather than demand signals.

Planned Capacity Is Not the Same as Capacity That Can Connect

A binding differentiation is routinely blurred in power market analysis; the difference between planned capacity and capacity that can actually connect.

Planned capacity consists of projects that are announced, permitted, financed, or placed in interconnection queues. Capacity that can connect incorporates only those projects that can effectively secure grid access and reach operation within operational timelines.

Treating the former as a stand-in for the latter inflates supply expectations and masks execution risk. As queues increase and completion rates drop, this gap becomes the dominant source of forecasting blunder and not the uncertainty around demand or capital availability.

Until this distinction is made obvious, most market predictions will continue to describe ambition rather than deliverable outcomes.

Interconnection Queues Are the Real Signal

The strongest evidence of this gap does not come from forecasts or policy targets, but from the interconnection queues themselves.

Interconnection queues have emerged as the most precise real-time indicator of grid stress, yet they remain widely misinterpreted. By the end of 2023, interconnection queues in the United States surpassed 2,600 gigawatts; more than twice the country’s existing power generating capacity. Despite multiple reform initiatives, queue volumes continued to grow by roughly 30% year over year. The average timeline from interconnection request to commercial operation now exceeds 4 to 5 years, up from under two years before 2007.

Europe faces a parallel limitation. According to a new research by Beyond Fossil Fuels, E3G, Ember and the Institute for Energy Economics and Financial Analysis, approximately 1,700 gigawatts of renewable capacity remain stuck in interconnection queues across 16 countries, with Germany among the most choked markets. Grid electrification demand is fast-tracking faster than transmission build-out, while study data remains structurally limited.

As per a Berkely Lab report, Queued Up: 2025 Edition, more than 70 to 80% of queued projects in the U.S. are pulled back before completion. In the 2024 queue cycle, withdrawal rates surpassed 50% within a single year. Project developers progressively cite interconnection delays, escalating upgrade costs, and rule changes as the prime reasons for cancellation.

Yet most market forecasts still translate “queued megawatts” as future supply. Timelines are normalized, masking tail-risk delays that silently destroy project economics. Reform impacts are presumed to arrive on schedule. Grid access is treated as a static input rather than an active constraint. The result is a long-standing gap between planned capacity and connectable capacity; now the leading source of error in power market projections.

Why Grid Access Now Determines Outcomes

Taken together, these data point to a deeper shift, grid access is no longer a background condition, but the driving factor that now determines which projects exist at all.

Projects can be sanctioned, financed, and contracted and still fail if they cannot maintain a queue position long enough to reach the construction phase. Grid access now dictates which projects will expand and which will never materialize.

This reality functions across three layers concurrently. Physical limits restrict how much power capacity specific nodes can absorb. Operational limits impose a ceiling on how many studies utilities can process. Regulatory rules determine sequencing, cost allocation, and eligibility.

Together, these layers transform grid access into a competitive filter. Projects do not fail because electricity is unwanted, they fail because inclusion to the grid system is rationed through delay, uncertainty, and evolving regulatory rules.

From Expansion to Allocation

When access governs outcomes, the market stops behaving like an expansion system and starts to operate as an allocation system. This transition is consequential because allocation markets behave fundamentally differently from expansion markets.

Expansion Market vs. Allocation Market

In an expansion market, outcomes scale directly with demand, capital, and policy support. Time is a planning variable. Delays are troublesome but rarely fatal.

In an allocation market, time becomes the pricing point. When admission is controlled administratively, delay substitutes for price. Projects compete not by offering cheaper electricity, but by accommodating longer timelines, higher risks, and escalating carrying costs. Optionality favors those with financial capacity to wait.

This is why capacity can appear abundant on paper while remaining scarce in reality. Planned megawatts grow even as deliverable megawatts remain stagnate.

Connection Rights as Strategic Control

Once the market moves from expansion to allocation, the value of a connection right changes fundamentally.

Connection rights do not simply determine whether a project connects; they increasingly decide who controls value across the development cycle. A secure queue position reorders bargaining power before capital is deployed. Developers with durable access can negotiate offtake terms with greater confidence, knowing delivery risk is bounded. Utilities, in turn, treat these projects differently, prioritizing coordination and study resources around participants that are unlikely to exit.

This dynamic has begun to impact capital allocation and association. Projects with advanced queue positions attract high-class valuations in secondary transactions, even when underlying assets are otherwise interchangeable. On the other hand, projects without secured access struggle to finance late-stage development, regardless of resource quality or policy support. The scarcity is not generation equipment, rather it is due to permission to grid connection.

As grid access stiffens, the distinction between access and control becomes pivotal. Sponsors use them to hedge future scarcity, sequence portfolios, and reserve optionality across markets. Well-capitalized developers position connection rights as strategic assets as they can absorb multi-year delays, adjust project configurations, and carry non-productive capital without much financial stress. Smaller developers and merchant projects often cannot. They fail not because their projects are mediocre, but because they cannot finance the waiting period levied by queue uncertainty.

The market thus rewards endurance and balance-sheet strength over speed or efficiency. What appears as delay is, in practice, a selective mechanism reallocating control toward those best positioned to wait. A queue position is no longer just a procedural landmark. It functions as a long-term option on future system participation. The longer and more uncertain the queue, the more important that option becomes.

In this environment, connection rights start to behave like infrastructure assets preserving optionality, and strengthening bargaining power with utilities and offtakers.

Delay As The Hidden Price for Connection Rights

In the absence of clear markets, connection rights are priced indirectly through delay. Delay is not nonaligned. It impacts project economics asymmetrically.

A one-year delay affects internal rates of return, increase the financing costs, and pushes projects to policy, pricing, and cost volatility. A two-year delay can cancel offtake agreements. A four-year delay can make original assumptions irrelevant. Large officeholders and balance-sheet-backed sponsors can absorb this delay. However, merchant renewables, smaller developers, and first-of-kind projects often cannot.

As a result, delay serves as a non-transparent auction mechanism. The winners are not necessarily the lowest-cost or most system-aligned projects, but those most capable of waiting.

Why Queues Collapse Under Load Growth

This pricing-through-delay becomes most visible when new sources of demand enter systems already operating near their limits. At that point, delay ceases to be a passive cost and becomes an active mechanism that reshapes queue outcomes.

Interconnection systems were designed for incremental progress. They are now absorbing simultaneous surges from generation and load.

Data centers show the imbalance clearly. By the end of 2025, data centers are likely to drive roughly 22% growth in grid power demand. These loads often connect faster than generation, immediately triggering network upgrades.

These upgrades are often allocated retroactively causing projects already in the queue to absorb costs caused by load additions later, even though their original assumptions were sound. This weakens project economics mid-process. Hypothetical behavior further compounds the problem. Queue entry remains relatively inexpensive compared to the option value of holding a position. Utilities respond defensively. Some pause new interconnection requests entirely. Others levy higher deposits or special tariffs to discourage speculative entries. These actions stabilize planning but freeze capital already committed upstream. Therefore, outcomes are capped not by market, but by administrative bandwidth and rule design.

Where Forecasting Logic Breaks

Most forecasts assume grid access as a background input. Queued capacity is converted into future supply with limited attrition adjustment. Average timelines conceal tail risks. Reform timelines are assumed to align with investment cycles. These assumptions however fail during execution.

What Forecasts Assume vs What Actually Happens

Connection rights are priced indirectly through time rather than openly through markets. Forecasts that ignore this systematically exaggerate deliverable outcomes.

How Projects Fail in Practice

Projects fail at the interfaces, not at the headline assumptions.

Interconnection studies become moving targets as new loads enter faster than generation, retroactively changing upgrade scopes and cost allocations. Developers absorb delays and escalating costs without any change in underlying demand or policy support.

Queue governance breaks under volume. Utilities pause intake, regulators revise rules mid-cycle, and speculative projects distort timelines for serious ones. Even disciplined developers are exposed to delays caused by unrelated queue participants.

Execution risk compounds across handoffs. Site control timelines mismatch study cycles. Financing commitments expire before queue positions mature. Grid operators optimize for system reliability, not project bankability, and the gap is absorbed by developers.

None of these failure modes appear in market sizing models. They only surface after capital is committed and schedules are locked.

Why Queue Reforms Don’t Restore Deliverability

Regulatory reforms to interconnection backlogs progressively focus on queue discipline rather than system capacity. Cluster studies, higher deposits, site-control requirements, and “first-ready” rules are intended to discourage speculative entries and accelerate serious projects through the process.

In theory, these reforms seem to improve efficiency. In reality, they change queue behavior far more gradually than they restore delivery.

Cluster studies decrease serial restudies, but they also concentrate risk. When assumptions shift within due to new loads cost allocation and upgrade scope can change for every project in the group. This increases uncertainty rather than decreasing it.

Higher deposits filter out some hypothetical projects, but they do not expand study throughput or transmission headroom. Financially well-backed participants adapt easily; smaller developers are screened out regardless of project quality. Queue discipline advances, but in reality, admission remains limited.

Implementation further weakens impression. Rule adoption lags issuance, enforcement differs from region to region, and utilities retain decision to pause or throttle intake when volumes overpower processing capacity. The net effect is incremental improvement in queue hygiene, not a step-change in deliverability.

These reforms address symptoms. They do not materially increase the system’s ability to admit large-scale projects.

How Allocation Distorts Market Outcomes

As the access to connection grid become rigid, market behavior adjusts to it. Land is being repriced relative to substations. Data centers focus on power-first sites over land availability. Utilities assess buybacks and auctions for connection rights. Gas moves forward to fast-track rules while renewables absorb higher upgrade costs.

Capacity markets reflect the stress, with clearing costs rising steeply due to connection delays rather than demand alone. These indicate an allocation regime asserting itself.

Over time, this restructures investment behavior. Developers prioritize queue positioning over project quality. Capital flows toward assets that can connect, not those that best serve long-term system goals. The market adjusts itself but not in the way policy or forecasting market models forestall.

Why More Transmission Does Not Mean Faster Outcomes

Transmission developments routinely take a decade or so from planning to operation phase. And on top of that, engineering labor is scarce. Cost allocation is politically challenged. Local opposition delays siting. Even accelerated programs fail to line up with the pace of load growth. Moreover, new transmission does not immediately clear withstanding queues. It often reshuffles them, changing upgrade assumptions and triggering new studies that cause further delay. As a result, allocation dynamics continue even during heavy investment cycles.

The next phase is defined by execution risk. If reform introduces operational lags while load growth accelerates, backlogs may persist or worsen. If past completion rates of roughly 19% hold, or deteriorate further, deliverable capacity will deviate sharply from planning assumptions.

The system’s restraining factor is no longer willingness to build. It is the speed at which connection rights can be taken up, enforced, and transferred.

Reframing the Market

This market should not be evaluated by how much capacity is planned, financed, or announced. It should be evaluated by how connection rights are allocated, enforced, and traded over time.

Until grid access is treated as the primary scarce resource, forecasts will continue to overstate deliverable outcomes and understate execution risk. The relevant question is no longer how much capacity the market wants, but how much the system can actually admit, under real rules, at real speed.

Thus, in an allocation market, land is optional. Capital is abundant. Demand is clear.

Connection rights are everything.

Author:

Bharti Biruly

Research Analyst

https://www.linkedin.com/in/bhartibiruly/