How Virtual Power Plants Can Accelerate Clean Energy Adoption
Here's why climate and energy experts are excited about VPPs
Virtual Power Plants are the newest climate solution you have probably never heard of.
Electric vehicles and their chargers, home battery packs, rooftop solar and scores of smart devices from thermostats to water heaters and heat pumps are quickly becoming mainstream at a time when renewable energy is growing at breakneck speed.
A Virtual Power Plant (VPP) can be used to collectively manage these smart devices ― also known as “Distributed Energy Resources” ― to boost the amount of renewable energy that enters the grid at times of peak production, and lower electricity demand when clean energy is scarce. Thus they can allow wind and solar to take center stage, regardless of whether the wind blows or the sun shines.
One of the main challenges of decarbonizing the power sector is that renewable energy depends on the strength of the wind and the sun’s radiation, both of which fluctuate depending on the seasons and the time of the day. Because solar and wind are “intermittent,” once clean energy accounts for the lion’s share of electricity generation, the grid will likely become more unpredictable.
This will happen amid an increase in power demand, with the Energy Information Administration forecasting that U.S. residential electricity consumption will jump by 22% from 2022 to 2050.
This new demand for power will fluctuate during the day, and could very well peak when solar radiation and wind speeds are low. Traditionally, this so-called “peak demand” was served by natural gas power plants but, in order to meet the federal goal of decarbonizing the power grid by 2035, we need to stop burning fossil fuels to produce electricity, which accounts for 25% of all the country’s carbon emissions.
With the use of advanced software, VPPs can regulate the amount of electricity these smart devices use to ensure that renewable energy generation can meet power demand at any given time.
Jigar Shah, the Director of the Loan Programs Office at the Department of Energy and one of the most outspoken proponents of VPPs, told Distilled that consumers are set to benefit from enrolling in these programs.
VPPs already exist in Texas, the state with the highest wind generation capacity. Consumers receive generous payouts when they enroll their smart devices.
“The reason they're able to do that is because in Texas, the wind is blowing pretty hard at nighttime. Power is practically free at night, so if they can move some of the demand to nighttime … the consumer is going to be able to buy that power at a low rate.”
Something similar happens in California, which has more battery capacity than any other state, explains Vinnie Campo, the co-founder and CEO of Haven Energy, which runs a VPP program in the Golden State.
“The way it works in California is that power is very cheap overnight when wind is produced, typically 20 cents a kilowatt hour, but at times of peak demand it is 60 cents a kilowatt hour. So we help homeowners charge their battery overnight, and discharge that energy to fully run their house during the day, when prices are higher. And we see that battery owners can offset their electric bill $100 to $200 per month by adding a battery.”
Peak demand and transmission challenges
The federal government estimates that by 2030, peak demand will increase by 200 gigawatts (GW) and argues that the bulk of that new demand could be supplied by VPPs. But for that to happen, the U.S. would need to add between 80 GW and 160 GW of VPPs, tripling the current level.
Some of that additional power demand will come from electric cars. Under a federal target, half of all the new cars sold by 2030 should be electric. On top of that, ride hailing, car rental, and delivery service companies, as well as the federal government, have announced plans to electrify their vehicle fleets. That means that in the next decade, millions of drivers will be charging their cars overnight, which will demand a lot of electricity.
However, even though the cars may be plugged in at nighttime, they only need a few hours to charge. VPPs can match their demand for power with highs in solar and wind generation to maximize the use of renewable energy and cut costs for consumers.
They can also inject energy stored in residential battery packs into the grid if demand peaks when renewable energy generation is low.
Efforts to decarbonize the power system face another huge challenge: transmission. New grid infrastructure worth tens of billions of dollars needs to be built to ensure that the power produced by solar and wind plants, which are often located far from urban and industrial centers, can reach consumers.
But transmission investments are lagging due to NIMBY opposition and permitting delays. There are more than 2,000 gigawatts of renewable energy generation waiting to be connected to the grid, twice as much as the current U.S. power capacity.
It will take many years until all that transmission system gets built, but VPPs can help bypass some of these challenges by balancing supply and demand near urban centers, where most electricity is consumed, which avoids the need for more transmission infrastructure. The Department of Energy estimates that VPPs “could save on the order of $10 billion in annual grid costs and will direct grid spending back to electricity consumers.”
VPP roll out
The good news is that utilities have already rolled out VPPs in much of the U.S., even though some of these programs are, for now, only pilot projects. When it comes to the adoption of VPPs, Shah says that there are about 25 states that are “ahead of the curve,” including North Carolina, Florida, West Virginia, Vermont, and Massachusetts, in addition to Texas and California.
North Carolina Electric Cooperatives offers customers the possibility of enrolling in programs that allow its co-ops to adjust internet-connected thermostats during times of high energy demand in return for compensation. Through a VPP program, Green Mountain Power in Vermont controls home batteries to ease pressure on the grid at times of peak demand.
Many in the industry cite Rocky Mountain Power in Utah ― which is owned by Warren Buffett’s Berkshire Hathaway ― as a trailblazer when it comes to VPP adoption. The utility’s Wattsmart program has enrolled thousands of households equipped with rooftop solar and battery systems to maximize the use of clean energy.
Having “the more robust integration of residential batteries in the U.S.” allows Rocky Mountain Power to dispatch clean energy at all hours of the day, replacing the need for natural gas power plants, says Shah.
“There are a bunch of case studies showing that utilities around the country are doing really powerful stuff when it comes to VPP adoption but Rocky Mountain Power is frankly ahead of almost everybody,” Shah says.
Rooftop solar, home batteries, and electric cars are still too expensive for many homeowners, but through the Inflation Reduction Act, the Biden administration provides a 30% tax credit for rooftop solar and batteries, and up to $7,500 for electric vehicles. Furthermore, most states offer a wide array of tax benefits to boost adoption of clean energy technologies.
The Loan Programs Office provides financing for VPP-related technology through Project Hestia, which aims to benefit 75,000 to 115,000 homeowners throughout the U.S.
Of course, to make a real difference, the adoption of VPP-related technology needs to happen at a very large scale, with tens of thousands, or even millions, of smart devices being aggregated. Large energy users, including commercial buildings and factories would also have to join programs. Shah says that U.S. households typically replace their appliances every 17 years, meaning that by the end of the decade, we could potentially have millions upon millions of VPP-compatible devices across the U.S.
New devices, says Shah, “should be auto-enrolled in these programs” but consumers would be given the option of opting out if they so wish.
Jared Leader, the Senior Director of Resilience at the Smart Electric Power Alliance (SEPA), an educational non-profit that supports the transition to a carbon-free energy system, says that VPPs will benefit people who make strides to electrify their households by installing solar panels, batteries, and heat pumps. These people will be able “to save on their energy bills and even generate their own electricity in certain cases.”
“At some point, when the penetration of all these assets scales up, we’ll be able to aggregate and harness them as a centralized asset. And that's what's so exciting about the concept of Virtual Power Plants. In the near future, aggregating these customer resources and dispatching them beyond just a customer's benefit is going to be a game changer and it really is going to help to bring the grid to be 100% carbon-free,” Leader told Distilled.
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