The rapid growth of distributed energy resources (DERs) plus digitalization of devices and artificial intelligence (AI) is leading to increased interest in virtual power plants (VPPs). The fundamentals are straightforward: aggregate large numbers of smart devices such as rooftop solar panels, smart thermostats, electric vehicles, home batteries, electric water heaters, heat pumps etc., and manage how they generate, use and store energy. Such a portfolio of managed assets can, in principle, operate pretty much as a flexible power plant – if used as a source of generation – or as a gigantic battery soaking up excess solar and wind generation, depending on the circumstances

Instead of relying on a physical natural gas-fired peaking unit to meet the peak demand, or an expensive utility-scale battery, the VPP can be employed to reduce/increase demand by the same number of MWs for a short duration and at a fraction of the cost, its proponents claim, as illustrated below.

VPP can offer better value than the real thing if you believe the proponents’ numbers

For example, small adjustments to the temperature settings of millions of smart thermostats can yield hundreds of megawatts of peak demand reduction.

Similarly, large numbers of participating EVs, with their large batteries, can store large amounts of solar or wind energy and potentially feed some of the stored energy back to the grid at other times. These are mere examples of what can be achieved if large portfolios of diverse DERs can be aggregated and utilized as a VPP (visual). 

As previously reported in this newsletter, the economics of VPPs can be quite attractive, certainly on paper. A recent study by the Brattle Group found that VPPs can provide many of the services offered by conventional physical resources such as gas peakers or utility-scale batteries but at lower costs, potentially at 40-60% of the cost. If applied to scale in the US VPPs, they claim that VPPs can meet as much as 60 GW of resource adequacy needs at a cost saving of $15-30 billion. Moreover, VPPs provide additional societal benefits, such as greenhouse gas emission reductions worth $20 billion over a 10-year period.

Virtual power plants: Simple on paper, not so simple in practice

In a Utility Dive post, Ryan Hledik and colleagues at the Brattle Group point out that VPPs are not subject to the interconnection queue delays that are limiting deployment of utility-scale renewable resources including utility-scale battery storage projects.

“As an aggregation of small individual resources that are distributed across the grid, VPPs do not impose an acute local impact on the transmission system. Essentially, VPPs can be ‘built’ as quickly as customers can be enrolled in the VPP program. And, unlike building new generation resources, which can be a 20- to 40-year investment commitment, VPPs can be scaled down if it turns out that we have overestimated capacity requirements, thereby avoiding investment in a resource that isn’t needed.”

Hledik and colleagues mention a few examples and suggest that VPP schemes can be scaled up quickly. Voltus, a demand response aggregator, claims that it can build over 500 MW of controllable VPP capacity in a single year. The company has assembled 5 GW of DER capacity since its inception in 2016. Another company, Uplight, focused on the residential sector, has enrolled nearly 50,000 customers of a single utility in a demand response program using smart thermostats to manage 30 MW of load. It claims it can easily double the numbers or do even better.

The Utility Dive article mentions a few utilities with successful VPP programs incuding

• Otter Tail Power, a utility in the Midwest, claims to control 15% of its system peak demand through a demand response program;
• Duke Energy has over 1,500 MW of demand response capacity from nearly 1 million residential customers;
• Xcel Energy has over 500 MW of capacity from a portfolio of residential programs; and
• Arizona Public Service has over 50,000 customers enrolled in its smart thermostat program, with plans to expand to 100,000 participants.

Another compelling feature of VPPs is that “… they are the only resources that put money directly back in the pockets of consumers.” These tangible savings contrast with charging customers to build and operate physical power plants or battery storage systems.

Given all these pluses going for VPPs, why aren’t we seeing more of them and in much bigger scale? As always, there is a catch. In this case, recruiting and engaging customers, large and small, to enroll and actively participate in the programs. A second catch is to make sure that all the protocols for communicating with the devices are in proper working order, have been previously tested, and can be reliably deployed when the actual need arises. As it turns out, these details pose significant challenges and risks, which in turn limits the applicability and reliability of VPPs in practice.

Despite the challenges, many are trying to make VPPs work including several pilot projects in the Electric Reliability Council of Texas (ERCOT). According to the Public Utility Commission of Texas (PUCT) 2 experiments involving residential Tesla Powerwalls have already completed testing and have been qualified to participate in ERCOT’s wholesale market.

Altogether 8 VPPs totaling 7.2 MW of capacity are expected to participate in ERCOT’s Aggregate Distributed Energy Resources pilot, known as ADER. Another 6 have completed initial registration steps and are in the commissioning process.

Texas, like California, has a growing number of small battery systems, backup generators and a myriad of distributed energy resources located behind-the-meter at homes and businesses. The PUCT says the aggregated capacity so far could be as much as 300 MW. 

Similar schemes are being trialed elsewhere. In Vermont, customers who opt for another aggregation scheme are given a Tesla Powerwall battery by the local utility for $55 per month, with no money down. The monthly payments stop after 10 years, at which point the customer owns the battery for its remaining life, if any. For customers who prefer to buy their own, the utility offers up to $10,500, a substantial chunk of the cost for popular battery models.

The same dynamics are spreading in other countries with large penetration of distributed generation, EVs and stationary batteries, notably in the UK and Australia.

In the UK, the regulator OFGEM recognizes demand flexibility as a coveted commodity as it attempts to engage domestic consumers in offering their demand flexibility. OFGEM is seeking views on what is needed to enable consumers to transition to flexible energy consumption. The regulator highlighted that the key for large scale engagement is an attractive, simple, and seamless customer experience and said it was seeking views on what this would look like for customers. Not all regulators are as supportive of new initiatives to engage customers in balancing supply and demand.

 The OFGEM’s call for input follows the ongoing efforts to reform the electricity market and government structures while upgrading infrastructure to enable domestic Demand Side Response (DSR), as well as bolstering prior internal and external work which has considered domestic consumer engagement in DSR.

In response, the UK’s Energy Networks Association (ENA) recently published figures that show electricity network companies tendered 4.6 GW of capacity on Great Britain’s local flexibility markets last year, with 2 GW contracted. It added that more than 70% of the contracted flexibility is made up of low-carbon technologies, such as stored energy, solar and biofuel.

ENA stated that it believes these record figures suggest that GB already has one of the biggest flexibility markets in the world. It also highlighted that local flexibility services allow for the storage of energy at periods of low demand and the release of energy at periods of high demand.

Retailers are pitching in with schemes of their own. Octopus Energy announced that 16,000 customers took part in its first ‘Power Ups’ event on 18 Aug 2023. The ‘Power Ups’ scheme offers selected Octopus customers, within the Southeastern and East of England distribution networks, free electricity during periods of excess generation of renewable power on the grid. Octopus Energy plans to roll out the service across the UK, providing opportunities for customers outside of the South and East of England to participate. Getting rid of excess renewable generation is among the aims.

Similarly, OVO says it will pay customers to shift their energy usage out of peak times through their Power Move scheme.

The scheme, which has started to test over the winter period, could see 1.5 million OVO’s customers rewarded £10 per month ($12.50) for reducing their electricity consumption to 12.5% of their daily usage, between the peak hours of 4-7pm.

OVO added that the challenges and rewards would be changed each season to align with the time of year and average consumption rates, so rewards would be maximized for participating customers.

With the rise of rooftop solar, electric vehicles and home storage, more and more consumers now own their own generation assets – an underutilized resource that platform business models can tap into.

As an example, Airbnb’s core value is making use of consumers’ idle capacity and managing the complexity of millions of transactions among those offering and using services. With the rise of rooftop photovoltaic, electric vehicles, and home storage assets, more and more consumers now own their own generation assets — a resource that is ripe for platform business models to manage and eventually monetize. The parallels are hard to miss.

Early adopters have already launched platform-based businesses in the power industry. The Brooklyn Microgrid operates a platform on which consumers can sell their excess energy produced in their rooftop PV to their neighbors. Tesla partners with Octopus Energy to bundle multiple home batteries into a virtual power plant. Silicon Valley based start-up Fermata Energy is developing a digital marketplace linking EVs with grid operators to stabilize the grid or with electricity providers to balance their generation. EVmatch provides a plug-sharing platform that connects EV users with the wall-box in your garage. Others will undoubtedly follow.

Another example comes from Octopus Energy which recently announced that it will be offering financial incentives to customers with an electric vehicle (EV) and solar panels, by allowing them to combine their ‘Intelligent Octopus’ and ‘Outgoing Octopus’ tariffs.

The former is a flexible charging tariff that guarantees customers 6 hours of off-peak charging for EVs at 7.5 pence per kWh each day. The latter is a fixed export tariff that is open to all energy exporting households. It estimates that some 4,000 customers will benefit from the scheme by receiving 4 times the payment they were before for exporting electricity, estimated at over £150 ($188) a year for the average household. The number of customers participating in such schemes is likely to multiply over time. n

https://www.utilitydive.com/news/virtual-power-plants-vpp-distributed-energy-resource-adequacy-der-distributed-energy/691135/

This article originally appeared in the October 2023 issue of EEnergy Informer, a monthly newsletter edited by Fereidoon Sioshansi who may be reached at fpsioshansi@aol.com“