Virtual power plants (VPPs) leverage the spread of renewable energy, storage, automation, and digitization to redefine the energy sector.
TL;DR
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A VPP can consist of hundreds or thousands of individual assets that are interconnected and centrally dispatchable, effectively turning dispersed assets into one (albeit virtual) power plant.
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VPPs can be scaled up to the gigawatt level, offering the same generation / curtailment capacity as legacy coal, natural gas, and even nuclear plants.
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Assets that are bundled together to create a VPP are under centralized control but they remain independent in both operation and ownership.
You’ve heard of VPs, VIPs, and VPNs but there’s another acronym starting with V that you need to know and that’s VPP, which stands for virtual power plant.
Currently, generators that want to connect to the grid need to be able to provide a minimum amount of generation capacity, which is often far too high for new entrants and owners of smaller scale assets. What a virtual power plant does is it enables disparate assets like electric vehicles, rooftop solar, battery storage, and smart buildings (among others) to be bundled together and respond as one unit.
One example is the 1,400MW VPP created by Centralschweizerische Kraftwerk AG, a Swiss power company and ABB that combines 110 assets ranging from run-of-the-river hydro plants, waste-to-power plants, and renewables to conventional power plants, and industrial sites with controllable loads.
It’s important to remember that a VPP does not have to incorporate utility-scale generation sources. A more simple VPP arrangement is Rocky Mountain Power’s (RMP) battery offer in Vermont, which pays consumers $15 a month to have a battery on their property and to provide the utility with access to said batteries.
What are the benefits of VPPs?
Not only do VPPs come in far more forms than traditional generating facilities, VPPs are also far more responsive and precise than these legacy assets. You can’t fine tune traditional baseline generation, but since VPPs are made of so many smaller assets, operators are able to make adjustments at the kilowatt level.
This helps alleviate some of the drawbacks of inflexible and expensive peaker plants and traditional fossil fuel and nuclear generators.
Amit Narayan, CEO of Autogrid – a provider of Energy Internet applications – explains that “the value proposition comes when you aggregate these batteries and market [them] as a generation unit […] When you add these up, it is better than a large-scale plant. It is like going from mainframe computers to laptops.”
Just like it’s safer to store your data on multiple computers, grids that use VPPs are more resilient than those that solely rely on a few large generators.
The distributed nature of VPPs means that they are less prone to total failure, and more secure against damage, sabotage, cyberattacks, and extreme weather. Decarbonization is leading to changes in the demand curve with less power required during the day, while at the same time climate change is increasing HVAC demand.
At the same time, electrification – which is not limited to vehicles – is increasing demand, leading to even steeper demand spikes in the mornings and evenings. As a result energy markets need to welcome new technologies, such as VPPs, in order to be able to respond to future demand curves.
VPPs in action
VPPs typically have three ways to participate in energy markets. The first way involves trading power production on the energy market using weather and load management forecasts, together with real-time and historical usage data to adjust bidding and commitments.
The second way is to control unit production and to meet obligations during the day in response to market price signals. Thirdly, VPPs can provide balancing power to transmission grid operators during times of peak demand.
One market that is focusing on VPPs is California, which has aggressive renewable energy goals and suffers from frequent power outages and wildfires.
The distributed nature of VPPs tempers the threat from extreme weather and fires, and the reduced need for transmission infrastructure saves money and means there are fewer transmission assets (e.g. utility poles) that can be knocked out during fires or storms.
While buildings can always be retrofitted to become part of a VPP, it is always easier to ensure more comprehensive integration by designing buildings and neighbourhoods with VPPs in mind from the beginning. One example of such an approach is Soleil Lofts, a 600 apartment unit VPP in Utah. Soleil Lofts is the result of a collaboration between RMP, Sonnen, and Wasatch Group.
The project incorporates 5MW of solar and 662 individual batteries with a collective capacity of 12.6MWh, the largest aggregation for a community in the United States: RMP et al are planning an additional seven such communities.
VPPs have been around since 2012 with the advent of smart thermostats, and they are poised to increase market penetration in the coming years.
The way Soleil Lofts works is that the developer monetizes the VPP at an internal rate of return of 9-11% over 25 years, which potentially includes a battery and inverter replacement. Tenants can leave whenever their lease is up, so they are not tied to the property. This is because the investor is underwriting the apartment complex owner and ultimate manager of the VPP, not the tenant.
VPPs have been around since 2012 with the advent of smart thermostats, and they are poised to increase market penetration in the coming years.
In the United States, VPPs have been able to access the wholesale market since 2018 when the Federal Energy Regulatory Commission (FERC) allowed storage resources to participate. The ruling also mandated that VPPs receive the same compensation as traditional power suppliers.
Creating a level playing field for VPPs and renewables in general is vital for wider adoption, but “the biggest challenge is that the integration of the products with the markets is not seamless.
There are no standards for the market. It is a very multi-step structure to create the VPP that can be bulky and cumbersome [sic],” explains Ram Narayanamurthy, technical executive of decarbonization of buildings and communities at the Electric Power Research Institute.
As with many things in the energy sector, the main barrier hampering wider VPP adoption is industry and government regulation which is perpetually playing catch up. 5G, and Internet of Things sensors are already here, as are the batteries and distributed generation sources that VPPs need to operate.
Much of the modern economy has already been digitized, and virtual commerce is the mainstay behind recent growth – it’s time for the grid to join them.
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