While the traditional energy system relies on centralized power generation, feeding energy into the grid (think hub-and-spoke model), the grid of the future (ideally) is decentralized, resilient, flexible, and clean, with the primary source of energy being renewables — which still faces challenges with intermittency and increased pressure from extreme weather. A newcomer to the toolkit of solutions are Virtual Power Plants (VPPs) which consist of aggregated, controllable Distributed Energy Resources (DERs) and can provide an essential layer of flexibility. DERs such as rooftop solar + battery storage systems and heat pumps, as well as demand responsive devices such as smart thermostats (ex: Logical Buildings, Nest) and appliances come together to form these VPPs. VPPs can also integrate electric vehicle batteries and charging systems, particularly with the advent of vehicle-to-grid (often referred to as “V2G”) technology — in case you needed another acronym.
Virtual power plants are growing in popularity as major utilities coordinate with residential solar and battery system operators, exemplified by PG&E’s partnerships with Tesla and Sunrun which respectively represent two forms of VPP participation in the grid. In Tesla’s case, Powerwall owners participate in response to demand spikes (appropriately named “demand response”), receiving payment in exchange for firing up their batteries and offloading energy for grid stabilization. This program was launched following the grid emergencies in 2020, dispensing gigawatts worth of energy into the system and saving the California state grid operator from having to order rolling blackouts. On the other side, Sunrun acts as “permanent load shift”, rather than demand response, meaning its contributions occur consistently with preplanned injections of power rather than just during emergencies.
In addition to these bilateral contracts between utilities and technology vendors, VPPs can also interact with grid operators that run wholesale energy markets — participation in which was approved by the Federal Energy Regulatory Commission (“FERC”) in 2020. Texas is piloting a VPP program, allowing up to 80 MW of capacity from assets in homes and businesses to bid into the state’s wholesale markets, operated by ERCOT. In my home state of Utah, the regional utility Rocky Mountain Power operates thousands of batteries across customers’ homes and pays them directly for their batteries’ contributions to the grid via the Wattsmart program. Given the state’s abysmal net-metering policy which was overhauled in 2020, residential solar by itself is now a tough economic sell for homeowners with little reward for offloading excess energy. This has strengthened the case for solar + battery systems and allowed substantial growth of Wattsmart’s VPP program.
While VPPs present substantial benefits — from cost reductions, reduced emissions, and greater resilience — key challenges remain for their ultimate mass market scale. The complexity of managing a decentralized grid means operators are in need of software that “virtualizes the grid” and allows for interoperability and bi-directional communication of DERs and IoT assets. A number of companies have stepped up to the plate with compelling solutions (and a number of exits), including Enbala (acquired by Generac) and AutoGrid (acquired by Schneider Electric), among others. We’ll be watching this space, anticipating more action in 2023 as DERs continue to rolled out, with increased tailwinds from the IRA, a greater focus on energy independence and security, and consumer demand.
Madelyn O’Farrell, Associate
PearlX, which describes itself as a “Sunrun for renters” as a provider of smart grid infrastructure systems, raised an undisclosed amount of funding for a majority stake from Antin Infrastructure Partners. The company rolled out a unique multifamily virtual power plant for renters late last year following its $70m Series B.
The energy system of the future consists of clean, renewable energy continuously being optimized on an intelligent grid, ensuring maximum efficiency and resiliency. This entails the ability of batteries to respond within seconds to signals of energy needs and supply, enabled by software such as OhmConnect. (OhmConnect’s members received $2.7m for conserving energy during a 9-day summer heat wave in CA in 2022) If you’re a consumer interested in VPP participation but you want more control over your battery’s energy movements, Amber’s platform provides customers with notifications of optimal times to dispense energy based on market pricing (i.e. demand), which the individuals can then approve. While this more manual approach can certainly be less efficient at scale, it may provide a solution that’s appealing to customers who desire a bit more autonomy.
For more on virtual power plants, check out this podcast with Jigar Shah, the current leader of the Department of Energy’s Loan Office and previous founder of solar company SunEdison and later Generate Capital.
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