Over 2,600 GW of generation capacity sat in U.S. interconnection queues at year-end 2023, with solar and storage making up more than 80% of that total, per Lawrence Berkeley National Laboratory 2024 Queued Up report. That backlog is why every solar interconnection queue reform lender needs to reread Order 2023 before signing a term sheet. Study delays now drive pre-completion risk more than construction schedules. This guide walks credit officers through what changed, what to underwrite, and where to place loan protections on residential solar and utility-scale portfolios alike, complementing our Order 2023 queue reform 2026 guide.
What FERC Order 2023 changed for solar interconnection queue reform lender diligence
FERC Order 2023 abandoned the first-come-first-served serial queue in July 2023 and replaced it with a first-ready-first-served cluster study process that requires higher up-front deposits, stricter site-control proof, and enforceable readiness milestones. For any solar interconnection queue reform lender, that shift moved several risks that used to sit in construction back into the underwriting phase.
The rule targets a documented backlog of roughly 2,600 GW of active queue capacity at year-end 2023, with utility-scale solar and storage carrying more than 80% of the load, per DOE and LBNL 2024 data. FERC's package also changed penalty economics. Withdrawing an interconnection request now forfeits deposits calibrated to the cluster study cost share, and later withdrawals can trigger reassignment of network upgrade costs to remaining projects in the cluster. That coupled cost model is what makes each cluster round a shared-risk event for every borrower in it.
Transmission providers must publish cluster study milestones on standard timelines and post penalty payments if study completion slips. Utility Dive coverage of the July 2023 order notes that these obligations are enforceable through FERC compliance filings, not aspirational deadlines. See our companion piece on Order 2023 developer-side interconnection reforms for the sponsor-side view.
How cluster study delays shape solar interconnection queue reform lender risk
Cluster study delays extend pre-completion risk that lenders previously priced at under three years and now must price at more than three years in PJM and MISO. That drag inflates carrying cost, interest during construction, and permit-refresh exposure, and can force sponsors to seek amendments to milestone-based advance schedules.
LBNL's 2024 Queued Up report puts average completion time for interconnection studies above three years in PJM and MISO by year-end 2023, and cases in ISO-NE and CAISO also sit well past historical norms. Every additional month between queue submission and executed interconnection agreement compounds two risks the term sheet must answer for.
The first risk is cost. Cluster restudies can reassign network upgrade obligations mid-cycle if a neighboring project withdraws or resizes. Any solar interconnection queue reform lender relying on a fixed network upgrade estimate at term-sheet time will find that number moving between Phase 1 and Phase 2 study. The second is commercial. Delayed commercial operation date compresses tax equity yield calculations and, in states with expiring net metering or SREC vintage windows, can strip revenue lines the base case counted on, per our earlier note on net metering policy risk and solar loan valuation.
Queue position metrics every solar interconnection queue reform lender should review
Every solar interconnection queue reform lender should verify queue position, cluster assignment, executed study agreements, deposit status, and site-control proof before the term sheet issues. These items are how the transmission provider proves the project is still eligible for its slot and are the leading indicators of whether a restudy will hit.
Cluster study milestones fall in a predictable order: application intake window, cluster study kickoff, Phase 1 results, Phase 2 restudy if triggered, and finally facilities study. Under Order 2023, transmission providers publish these dates and any slip triggers financial penalty, per FERC Order 2023 rulemaking. A lender's diligence file should have the interconnection customer's current position in that sequence with dated evidence.
Study deposits are the second checkpoint. Order 2023 raised the deposit tiers to align with cluster study cost share. A missed top-up call inside the ISO's cure window can drop a project out of the cluster. Loan covenants should require the borrower to escrow the next study deposit before it becomes due.
The third checkpoint is site control. Executed leases or purchase options must cover the full project footprint. A single expired option strip inside a cluster boundary can force restudy or withdrawal. Our companion guide on solar site control diligence details how title, options, and easement structuring interact with cluster study timing.
There is a full breakdown of this topic in Next day solar underwriting: what dealers should demand 2026.
How interconnection cost variability affects debt sizing and DSCR
Network upgrade costs under Order 2023 can move materially between Phase 1 and Phase 2 study results, and lenders must price that variability into debt sizing. Most 2024 project finance term sheets responded by adding cost-cap covenants, contingency reserves sized to the Phase 1 upgrade estimate, and mandatory prepayment triggers if the final invoice exceeds a defined threshold.
Prior to Order 2023, developers often carried a signed generator interconnection agreement with a fixed cost number by the time debt closed. Under the cluster model, restudies can shift that number as neighboring projects withdraw. For a solar interconnection queue reform lender, a rigorous DSCR test now runs three scenarios: base case at the Phase 1 upgrade estimate, downside at the Phase 2 restudy result, and stress case adding a material cost overrun on network upgrades.
| Scenario | Upgrade cost basis | DSCR effect |
|---|---|---|
| Base | Phase 1 estimate | Target DSCR met |
| Downside | Phase 2 restudy result | DSCR compressed |
| Stress | Phase 2 result with overrun | DSCR breach likely without cure |
Our earlier note on utility-scale solar debt sizing and DSCR 2026 walks through the mechanics of the stress case and lender cure options.
Loan agreement protections for a solar interconnection queue reform lender
Loan agreements for projects with pending or recently executed interconnection agreements need queue-position covenants, cost-cap thresholds, milestone-based advance conditions, and restudy triggers. These clauses give the solar interconnection queue reform lender an exit or reprice option if a cluster restudy pushes network upgrade costs past what the DSCR can absorb.
Standard covenant packages now include: (1) affirmative reporting of every ISO milestone, (2) cross-default triggers if the borrower fails to top up study deposits, (3) mandatory prepayment or equity cure if network upgrade allocation exceeds a percentage of the Phase 1 estimate, (4) material adverse effect language extended to cluster restudy outcomes, and (5) construction advance conditions keyed to an executed interconnection agreement, not merely queue position. Credit officers should also insist on borrower consent covenants that prohibit voluntary queue withdrawal.
American Banker asset securitization coverage of 2024 solar ABS issuance shows rating agencies increasingly asking about interconnection status on individual project pools, treating queue delay as a distinct risk factor from construction risk. Sponsor-side conversations tracked by SEIA 2024 market data and downstream EIA generation capacity reporting confirm the diligence bar has risen.
Frequently asked questions
When did FERC Order 2023 take effect and what did it replace?
FERC issued Order 2023 in July 2023, replacing the serial first-come-first-served interconnection queue with a cluster-based, first-ready-first-served process. Transmission providers had to file compliance changes and implement the new cluster study framework across affected ISOs and RTOs. The order raised financial commitment tiers, added enforceable study milestones, and set penalty amounts for late study completion. Utility Dive coverage of the order details the compliance filing timeline. For lenders, the effective date matters because any project that submitted a queue request before the cutoff sits under transition rules that differ from post-2023 cluster mechanics, per FERC.
How long do interconnection cluster studies now take in PJM and MISO?
Lawrence Berkeley National Laboratory's 2024 Queued Up report documents average interconnection study completion times exceeding three years in both PJM and MISO by year-end 2023. Those figures include projects that entered under the old serial queue and are transitioning into cluster study cycles, so the picture varies by ISO. Post-transition cluster cycles are expected to run tighter because Order 2023 requires transmission providers to hit defined milestone dates or pay penalty. Lenders underwriting deals with pending interconnection agreements in PJM or MISO should model at least three-year study cycles and stress downside scenarios longer, per LBNL 2024.
What financial commitments does Order 2023 require from developers?
Order 2023 requires interconnection customers to post study deposits scaled to project size and cluster study cost share, with additional top-ups tied to each study phase. Withdrawal from the queue forfeits some or all of the deposit and can reassign network upgrade cost obligations to remaining cluster participants. Site-control proof and demonstrated readiness are required before cluster inclusion. These commitments make the borrower's liquidity plan a first-order diligence item for any solar interconnection queue reform lender. Term sheets should require escrow of upcoming study deposits and prohibit voluntary queue withdrawal without prior consent, per FERC Order 2023.
How should lenders size contingency reserves for network upgrade cost overruns?
Base sizing on the Phase 1 upgrade estimate and layer a substantial contingency reserve to cover Phase 2 restudy adjustments. Add a mandatory prepayment trigger if the final network upgrade invoice exceeds a defined percentage of the base. American Banker asset securitization coverage of recent solar deals shows rating agencies looking closely at contingency sizing and covenant tightness on interconnection cost variability. Where a project sits mid-cluster with pending restudies, credit officers should ask for equity commitment letters covering the upside sizing case, not merely the base case, per ASR 2024 coverage.
Can a lender lose exposure if the borrower drops out of a cluster?
Yes. Withdrawal forfeits study deposits, can reassign upgrade costs to remaining cluster participants, and effectively resets the project to zero on schedule. If a borrower's covenant package does not restrict voluntary withdrawal or require prior consent, the lender can find the project outside the queue with the collateral pool devalued. Standard 2024 protections include prohibition on voluntary withdrawal without lender consent, cross-default triggers on missed deposit calls, and material adverse effect language covering cluster restudy outcomes, per Utility Dive 2024 coverage of the order.
How does Order 2023 interact with utility-scale solar and storage project financing?
Utility-scale solar and storage make up more than 80% of the 2,600+ GW in U.S. interconnection queues at year-end 2023, per Lawrence Berkeley National Laboratory. That concentration means Order 2023 cluster mechanics are effectively the primary pre-completion risk framework for solar project debt. Any solar interconnection queue reform lender underwriting a utility-scale portfolio needs to model portfolio-level queue delay assumptions, not just single-project schedule. Rating agencies reviewing solar ABS pools with unfinished interconnection agreements now weight cluster status as a distinct diligence item, per American Banker coverage of 2024 issuance.