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VPPs… Big Opportunities, Big Questions, Big Bucks

Oct 10, 2021

The Electricity Grid needs to be upgraded. Bloomberg New Energy Finance estimates renewable energy will need $14 Trillion in Grid Investment by 2050. Past Meetup discussions on Distributed Energy Resources (DER), Demand Response, and the Future of the Grid have made clear that there is going to be a lot of opportunity for innovation in how the grid evolves. One involving multiple innovations is Virtual Power Plants (VPP). These are big because they involve coordinating energy demand and generation on both sides of the meter. VPPs turn the conventional thinking about electrical networks upside down.  

That conventional thinking concentrated on how to be sure they could instantaneously meet nearly any demand at all times without a flicker. That resulted in building expensive power plants that idle most of the time or running inefficiently, waiting for a potential spike in demand. VPPs are a way to reduce this expense and inefficiency by trying to alter demand to match whatever supply is available, especially from sources that are not constant. That requires a lot of data, a lot of analysis, a lot of communication, and a lot of control. It also introduces vulnerabilities to cyber-hacking, so will require extraordinary cybersecurity innovations.  

The sense of our discussions is that we have only scratched the surface of all the innovations required.  Regardless of some recent sizable investments, electric utility networks (as well as gas networks, and even water networks, by the way) are not all that smart. We have been taking baby steps compared to the complexity of flow control and demand-supply matching that goes on in a telecommunication network, for example.  

There has always been a bit of load control resource in the operation of power grids, so VPPs are not entirely new. In the PG&E system for example, PG&E had arrangements with NASA’s Ames Lab to avoid turning on their big 25 MW wind tunnel at times of exceptionally high demand. The current push on VPPs is to see how far one could expand this seemingly simple idea. In particular, the interest is in how to create the right incentives for customers to surrender control of some of their load, and how to create markets for altering load to meet reliability needs of the grid.  

This seems obvious enough, but there are obstacles. The big one is coordination of several stakeholders. Rate payers, Generation, Utilities, and more have an understanding. Success means strong communication, new technology could provide this by enabling rate payers, generation, and utilities to set up profiles for their preferred consumption and generation, then matching and trading to enable a market that includes demand response. SMUD has PowerDirect, a demand response program to pay companies for reduced demand. To get to zero emissions, they need to work with more consumers who may produce energy (though solar), store energy with batteries and Electric Vehicles (EVs), and consume energy through water heaters and HVAC systems.

Big changes ahead present both problems and opportunities around VPPs. Electric Vehicle Charging, increased rooftop solar coupled with onsite storage, HVAC systems, and water heaters need to be smarter and react dynamically. These systems could reward people participating or try to operate with them being impacted.  ConEdison has a demand response program that offers compensation for providing load relief. James Frasher of SMUD recently highlighted it as something they are looking at. These are still very early and require more grid infrastructure to be built. 

How best to take advantage of EVs is a perfect example of the challenges and opportunities ahead. Currently, most EV owners charge at home as solar is coming off line. This mismatch in energy demand and supply is just a couple of hours and could be solved by workplace charging and/or grid storage. Adding chargers to parking has obstacles of more stakeholders and grid storage would require similar overbuilding as before.  And EVs themselves could be sources of supply to the home and to the grid that will enable greater reliance on zero carbon generating sources. Finding ways EVs can support the grid 

Of course, one of the biggest questions is how to pay for all this new infrastructure, what it will cost, and who exactly will pay. SMUD’s goal is to make all the changes needed for zero carbon without increasing rates faster than the rate of inflation. Is that a tall order?  Will the breakthrough in cutting costs come? Will the increase in deliveries to EVs allow these new infrastructure costs to be spread widely; so overall customer rates will not be impacted? Can we ensure we do not leave behind communities? 

The list of potential solutions around VPP enabling renewable energy and taking us to Zero Carbon is long. I am optimistic because every vehicle OEM I have heard speak is looking at interacting with grid services as integral to their business. GM is all in on EVs and related services and Ford is teaming up with Sunrun for V2G.  Additionally there will be opportunities around behind the meter services for demand response. OhmConnect is giving away smart thermostats to bulk up their demand response value proposition in California. There is room for hundreds of more of these kinds of innovations.

I am looking forward to more innovations and hope to see local companies like Hank or L&H Airco work with SMUD to unlock the benefits of VPPs in California. Our recent meetup touched on this and what needs to enable Virtual Power Plants and distributed energy resources. It was a must see event. SMUD’s commitment to reaching Zero Carbon Emissions by 2030 is world-leading and will undoubtedly involve new technologies that could spread worldwide. But can they deliver on promises to engage local companies? If they do, our region could be quickly on the frontier of this evolution of the power grid, giving our local innovators a head-start on the technologies that will be needed far beyond our borders. This is clearly a topical area to which we will return frequently, so be on the lookout for our next events featuring this kind of discussion.

ABOUT THE AUTHOR

Thomas is the Executive Director of CleanStart. Thomas has a strong background in supporting small businesses, leadership, financial management and is proficient in working with nonprofits. He has a BS in Finance and a BA in Economics from California State University, Chico. Thomas has a passion for sustainability and a commitment to supporting non-profits in the region.

Thomas Hall

ABOUT THE AUTHOR

Gary Simon is the Chair of CleanStart’s Board. A seasoned energy executive and entrepreneur with 45 years of experience in business, government, and non-profits.

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