The power grid in the U.S. is showing signs of its age, struggling to meet current demand and ill-equipped to deal with ever-increasing future demands.
One of the biggest challenges that utility companies face, is that the demand for electricity isn't constant—it fluctuates wildly based on time-of-day and weather conditions. Dealing with those fluctuations has traditionally necessitated building expensive coal, gas or nuclear power plants, or buying energy from other suppliers during peak demand times.
The obvious solution would be to simply add more renewable energy to the grid. Right? Well, yes… and no.
Here’s why: peak generation from renewables like wind and solar doesn’t always align with peak demand times. As a result, operators struggle with periods when there is too much renewable generation going into the grid and too little load—or too little generation to meet demand.
The solution is to align renewable generation with the inherent flexibilities in demand. That’s where Virtual Power Plants (VPPs) play a key role.
Virtual Power Plants: What are they? What they’re not.
The general idea around VPPs been round since the 1990s, but we now have the technology needed to use VPPs to revolutionize the grid. A virtual power plant is intended to provide the same services as a traditional power plant. But, instead of a large, centralized power plant, individual rate payers (residential, commercial or industrial) contribute whatever energy they can generate or store to the grid, when energy is needed.
In essence, a VPP is a collection of decentralized, distributed energy resources (DERs) networked together. This VPP network can include any combination of renewable and traditional energy assets. The energy resources are controlled remotely by an intelligent software system that signals when assets need to increase or decrease generation in real-time. The end result is a constant source of reliable electric power.
While this may sound like a microgrid, there are a few key differences between VPPs and microgrids. Microgrids are traditionally a single site within a confined boundary—and they can disconnect from the grid, going into ‘island mode’ as needed. VPPs are a combination of energy-generating assets, technologies, and sites (stretching over much larger geographic areas) pooled together. Energy output grows and shrinks in sync with real-time market conditions. VPPs cannot disconnect from the grid.
Key Benefits
Cost savings:
According to S&P Global, utility spending for electricity delivery increased by 65% over the past decade and currently represents nearly half of the costs of electricity supply.
DERs can provide energy at a lower price than what the grid typically offers.
The cost of electricity from new fossil fuel plants ranges from $0.05/kWh to $0.15/kWh. By comparison, onshore wind, solar voltaic, biomass and geothermal below $0.10/kWh and offshore wind at $0.13/kWh. Furthermore, the cost of solar power is falling by 13% year-over-year, and wind by 9%.
VPPs also save utilities from building new, costly peaking power plants, or peakers, which only operate when there is high (peak) demand for electricity. The cost for building peakers is, naturally, passed on to consumers.
Community benefits:
Rising energy costs are a burden for all consumers, but none more than those with low or fixed incomes. The average U.S. household spends 3.1% of their income on energy annually, but for low-income households, it's 8.1% on average—with 40% of low-income households spending more than a tenth of their incomes on home energy.
Not-for profit public energy providers like MCE are redefining the local energy landscape. For example, they're building a VPP to increase local grid reliability, safety and efficiency—and reduce residential energy costs—for low-income residents as part of Richmond Advanced Energy Project in California.
MCE’s virtual power plant will include smart, clean energy technologies including energy storage, smart thermostats, rooftop solar, heat pumps, water heating, and EV charging.
The VPP will initially be connected to up to 100 Zero Net Carbon Homes (ZNC Homes) and larger commercial and industrial sites. Local businesses will have an opportunity to install batteries that provide resilience to grid outages, bill savings, and revenue generation potential.
The ZNC Homes program will finance the acquisition, complete rehabilitation, and re-sale of homes as affordable properties.
Resilience to extreme weather events:
U.S. Department of Energy data reveals that power outages from severe weather have more than doubled over the past twenty years. Forty states are now experiencing longer outages with Maine, Louisiana and California experiencing at least a 50% increase in outage duration. These outages result in health, safety and financial risks for citizens and business alike. Power grid maintenance and repair costs are increasing as utilities upgrade decades-old transmission lines and equipment. As a result, customers who are hit with more frequent and longer weather-related power outages also are paying more for electricity. The decentralized, widespread nature of VPPs gives them greater resiliency in the event of extreme weather or other natural disasters.
Better for the environment
With renewables being the major energy assets, VPPs provide a clean, sustainable energy source for communities. That means less reliance on fossil fuels.
In Conclusion:
The ability to control the grid at a local level—networking hundreds of disparate generation assets—will open new energy pathways that can facilitate decarbonization, address
fluctuating demand levels and provide the reliable access to electric power that will be critical in years to come.
Virtual power plants will play a key role in moving the U.S. towards a sustainable energy future—a future where the central grid is more of a backup than a mainstay.
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