A Virtual Power Plant Tour
How climate adaptation, electric vehicles and even 5G can set the foundations of a distributed energy future.
This week’s issue is a collaboration with Steven J. Hand. He has more than 35 years of telecommunication product development and deployment experience and is the owner of over a dozen telecommunication network optimization patents.
Opportunity Overview
One of the important changes happening to the electricity sector today is the rapid penetration of distributed energy resources (DERs). These are electricity generating, consuming or storage assets, such as solar panels, batteries, controllable HVAC systems and electric cars. As of September 2020, California has nearly 5 GW of DER capacity, enough to meet one-tenth of the state’s peak power demand. California’s DER capacity is expected to more than double by 2025.
A virtual power plant (VPP) aggregates multiple DER units to mimic the power supply provided by a traditional power plant. VPPs benefit the electricity grid through the flexibility they provide. For instance, VPP companies helped prevent grid outages in California last year by simultaneously reducing electricity consumption of the DER units they control.
In this article, I give a brief tour of VPPs and summarize the types of assets that are emerging today. I then hypothesize that the proliferation of batteries - from home backup systems, electric vehicles and even 5G base stations - will create more avenues for VPPs to be deployed.
Current Landscape
A VPP bundles DERs to serve as a dispatchable resource to the grid, i.e. one that the grid operator can turn on and off. This can manifest in two ways:
VPPs aggregate DERs to act as one large, but distributed generator. For example, battery backup systems from hundreds of homes can be pooled to deliver power when needed. Sunrun and Southern California Edison (SCE) announced a pilot of this type last year.
VPPs aggregate DERs to act as one large, but distributed load. For example, smart EV chargers can shift the times when a fleet of EVs charge to avoid peak demand. Enel X provides this type of service to the California grid today.
Although VPPs, by definition, can pool multiple types of DERs together, many recent pilots involve battery storage (including battery EVs). Storage-based VPPs deliver value to the grid in two ways. First, there are behind-the-meter (BTM) resources, which serve the power needs of a local site (e.g. a home). BTM resources benefit the grid by reducing the total load that needs to be served. Second, VPPs can be used in conjunction with a Net Energy Meter program to export energy back to the grid. One example is a California VPP pilot that Tesla recently announced. Sunrun appears to be testing this as well.
In both VPP types, the net effect is the same: the aggregated DERs can rapidly respond to the changing capacity demands of the grid. To illustrate how VPPs work, I organize existing pilots into four groups:
Residential energy storage. Home battery backup systems can be grouped together to act as a single VPP. Examples include Swell Energy, Sunrun’s Brightbox and Tesla’s Powerwall. In some cases, entire residential buildings are either being built new or retrofitted to provide this capability.
Commercial and industrial energy storage. This functions similarly to the category above, except the batteries serve commercial and industrial customers. One example is Nexus Energy’s storage project for PG&E, where the batteries are hosted by a manufacturer in Northern California.
Demand response (DR). DR is when electricity consumers shift their usage to avoid peak demand periods. Although not new in concept, DR can be considered a type of VPP. One emerging DR application is managing when large load devices charge to provide demand flexibility. The DTE Smart Charge program is an example to control EV charging. OhmConnect is another provider, but implements DR through controlling in-home smart devices (e.g. smart thermostats) in lieu of electric cars.
Vehicle-to-grid (V2G). V2G is a bold, long-term vision for how EVs can be tapped to provide energy to the grid. It is a step beyond the managed charging above by allowing bi-directional power flow to and from a vehicle. There are a number of companies testing the technology out, such as Nuvve. However, the field in general still faces significant barriers before wider adoption.
The table below are examples of VPP pilots in the US that have been awarded or seeking contracts to serve their jurisdictions.
The pilots above needed the leadership of the utilities sponsoring each program, as well as the approvals of state regulators. At the federal level, recent orders by the Federal Energy Regulatory Commission (FERC) are removing barriers for VPPs to participate in wholesale markets (i.e. bulk power markets across the US, with the exception of Texas). These new rules are expected to spur the growth of the VPP market.
Customer Value and Carbon Benefits
VPPs serve three sets of stakeholders:
Utilities - VPPs can help shave peak demand, as discussed in the examples above. Utilities not only benefit from avoiding less efficient “peaker” plants, but also from deferring costly infrastructure upgrades (e.g. more transmission capacity).
Grid operators - VPPs also provide grid services (e.g. black start units to restore electricity in case of an outage). Tesla’s 50,000 home VPP helped maintain grid stability when a coal generator went out of service.
End customers - The end customer (e.g. a residential consumer) can benefit from VPPs in multiple ways. For example, they can save money by reducing consumption during peak times. Customers can also be paid for their participation in VPP pilots.
To understand the net carbon footprint of VPPs, I use residential energy storage as a proxy. I initially thought batteries bring a clear decarbonization benefit given their importance to supporting a clean electricity grid. However, David Roberts - citing research by Eric Hittinger and Inês Azevedo - reports that batteries may actually increase emissions if not deployed strategically. For instance, in some subregions in the US, batteries could be charged overnight by a dirtier source (e.g. coal).
Nevertheless, the decarbonization benefit of storage will strengthen as more renewables are introduced. For instance, storage can help reduce solar curtailment in California (i.e. the duck curve problem), which is when there is too much solar produced that the grid operator has to sell it off at a loss. Storage can absorb this excess clean power and be ready to deliver it back when needed.
Potential Market Opportunities
Going forward, I expect the market for DERs - and VPPs in general - to only get larger. Not only is EV adoption accelerating, but climate adaptation is also driving demand for residential energy storage.
Hence, I ask, what new VPP avenues might open up as the electrification and energy storage trends continue?
Steven J. Hand has more than 35 years of telecommunication product development and deployment experience and is the owner of over a dozen telecommunication network optimization patents. He sees a unique VPP opportunity tied to the roll out of 5G edge data centres and 5G base stations:
The massive rollout of 5G networks over the next several years, along with a convenient convergence of 5G and VPP requirements, presents an opportunity for 5G to participate in the VPP market. The need for faster and more reliable networks given more frequent extreme weather related outages results in the need to invest in large-capacity, high-density energy storage systems (ESS) for 5G. The requirements of 5G ESS also necessitate a transition away from lead-acid to li-ion technology.
Grid-connected 5G ESS can contribute to grid health through load shifting telecommunication usage away from peak periods. Regulators have the responsibility to establish TOU pricing that encourage better utilization of available resources during off-peak times. Driving such infrastructure efficiency benefits all consumers and society. Regulators can (and should) go further by allowing 5G ESS to participate as VPPs. 5G ESS can use the fraction of their capacity not reserved for local backup to absorb excess energy (especially renewables that would have been curtailed) and to provide capacity in order to avoid new “peaker plants.
Policymakers can further accelerate decarbonization through carbon taxes. VPP technology will immediately respond to this reprioritization and help accelerate the transition to a distributed and greener electric power grid.
From where we are today, I think the market for virtual power plants can only ramp up. 😉
Interested in exploring more ideas around power plants — both real and virtual ones? Subscribe for weekly issues on decarbonization business opportunities.