Virtual power plants (VPP) coordinate distributed resources and demand for a more sustainable, cost-effective energy transition. And they are gaining traction in the US.
VPP pilot programs have been running for years in the United States. The market is maturing as the technology competes with centralized utility power plants as a low-cost alternative that benefits both the grid and end users.
A VPP is a virtual combination of small-scale, distributed energy resources (DER), including solar power, energy storage, electric vehicle chargers, and demand-responsive devices such as water heaters, thermostats, and appliances. VPP technology has shown immediate promise to replace natural gas “peaking” plants on grids, providing additional capacity during peak electricity demand.
Over the past decade, the US has spent more than $120 billion on 100 GW of new generation capacity, mainly due to resource sufficiency. According to a study by Boston-based consulting firm Brattle Group, utilities could save $35 billion by 2033 by focusing on VPP services for peak capacity.
“By using grid resources more efficiently, consolidating distributed resources lowers the cost of electricity for everyone, especially VPP participants,” said Jigar Shah, director of the U.S. Department of Energy’s (DoE) Loan Program Office.
Brattle Group’s 400MW resource adequacy study found 1.7 million residential customers benefited. The power company had a gross peak demand of solar and wind resources of 5.7 GW and a net peak demand of 3.6 GW. Its goal was to produce half of its electricity with renewable energy sources by 2030. The study found that using VPP peaks would be 40 to 60 percent cheaper than alternatives, including gas peaks and grid-wide batteries.
The Brattle Group estimates that 60 GW of VPP deployment could meet US resource sufficiency needs through 2033 for $15 billion to $35 billion less than the cost of alternatives. This level of VPP deployment could also generate more than $20 billion worth of emissions and sustainability benefits over a decade.
“VPPs do more than provide carbon emissions and network services – they increasingly give network operators a scale and utility-class option for next generation and system construction through automated efficiency, capacity support and non-wireless options,” says Shah.
Project Hestia
The DoE Loan Programs Office has supported VPPs and recently proposed a $3 billion conditional loan to energy service provider Sunnova to implement its “Project Hestia” project nationwide. The aim of the plan is to increase the availability of solar and VPP services for communities in a weaker position, which would otherwise not be able to secure solar loans for apartments. Sunnova receives indirect, partially guaranteed cash flows from cash loans in customer accounts.
Eligible households must use Sunnova’s energy management system, which can be accessed via smartphones or other electronic devices. The system recommends demand response behavior, allowing customers to lower energy costs and balance the grid during peak demand.
If awarded, the DoE package would support lending for solar, storage and other Sunnova adaptive home technology with VPP features. The guarantees could lend up to $5 billion, which would save on interest and reduce the weighted average cost of capital.
“The Hestia project would enable a historic private sector investment in disadvantaged American communities and energy infrastructure,” said Sunnova CEO William J. Berger.
Market tailwinds
Changing US market conditions continue to promote the adoption of VPP. The $369 billion in climate and energy spending under the Inflation Reduction Act includes many requirements to serve energy communities: disadvantaged communities critical to a just energy transition. Projects of designated energy communities are entitled to an additional tax credit of 10%, which supplements the basic credit of 30% for renewable energy projects.
Other states have begun to follow California’s lead by reducing or eliminating net energy metering (NEM), the pricing mechanism that has been critical in kick-starting the U.S. residential solar market. Older NEM prices offered customers full value for every kilowatt-hour fed into the grid. California’s NEM 3.0 rate essentially kills the value of exported energy, and other states will follow suit. Solar installers have warned that this could create a self-consumption market for batteries, which does little to improve grid resilience. However, VPPs provide online services, including demand response, peak demand removal, and more. Customers can be encouraged to reduce energy use or export electricity during network peaks, when the network is more agile.
Flexibility
VPPs also strengthen the grid’s resilience in areas affected by climate change-related extreme weather conditions. Residential solar installer Sunrun has been selected to deploy 17 MW of solar energy-increasing VPP grids in Puerto Rico.
After Hurricane Maria in 2017, the Caribbean island’s government created a framework for DERs with the Puerto Rico Energy Policy Public Policy Act of 2019.
Sunrun is signing up Puerto Rican customers this year to begin VPP operations next year. The company says customers save on electricity costs and are compensated for providing battery storage capacity to the grid, which is now managed by US-Canadian joint venture LUMA Energy. The 10-year VPP program allows customers to opt out, Sunrun says.
“We’re solving the island’s energy security by changing the model so that solar energy is generated on rooftops and stored in batteries in each home, then shared with neighbors, creating a clean, shared energy economy,” says Sunrun CEO Mary. Powell.
