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The Virtual Power Plant

The Virtual Power Plant (VPP) is a new approach to solving our country's electrical energy problems by utilizing innovative products with a creative funding mechanism. The VPP provides displaced electrical capacity to the consumer and the utilities by installing energy efficient devices, which can be measured and verified. This displaced electrical capacity provides excess energy for the utility and the large end user alike, thus lowering the overall cost of providing electric service and using it. By effectively using the Virtual Power Plant concept, the U.S. economy will need fewer new power plants to support robust economic development.

The key point is that the U.S. business community is the best place to start cutting emissions through energy-efficiency strategies. Given the fact that 70 percent of all electricity is consumed by the American business community and power plants are our largest single polluter, it creates an oversized opportunity to begin the process of greenhouse gas reduction. Plus, it can be done without government mandate or legislative interference.

This is especially important when one considers all of the examples of poorly written laws and inadequately administered government energy programs.

In addition, a critical component of the current energy policy debate has focused on developing enough system capacity to efficiently, safely, and reliably meet the escalating demand for electricity witnessed in recent years. The traditional method for capacity expansion has been the construction of new generation plants and transmission systems.

However, in recent years, a growing resistance to this method has developed among property owners and environmental groups alike, especially with the documented amount of carbon dioxide, carbon, sulfur dioxide, nitrogen oxide, and mercury found in power plant emissions. On the other hand, the business community has been slow to employ energy efficiencies, because the traditional return on investment has been so poor.

Enter the Golden Age of Energy Efficiency
Companies like Orion Energy Systems are offering the U.S. its best chance to control emissions in four decades, because the new energy efficient technologies can be measured and verified. In addition, these new technologies have finally been able to deliver the superior return on investment necessary to encourage businesses to make the necessary capital investments.

For example, Quad/Graphics, the world’s largest privately-held commercial printer, has completed an energy efficient lighting project for its printing facilities nationwide, which is guaranteed to save the company over 30 million kilowatts hours (kWh) and $2 million annually. As a result, the Wisconsin-based printer will take three and a half Megawatts of power off the electrical grid ¯ enough electricity to power 3,750 homes or a bedroom community of over 16,800 people, according to the EPA formula.

Using Orion Energy System’s Illuminator fixture, Quad/Graphics’ energy efficient lighting project is expected to have a profound environmental impact over twenty years – the equivalent of removing 114,697 cars from the road or saving 73,614,545 gallons of gas. Specifically, the retrofit will aid the environment by removing 459,180 tons of carbon dioxide, 125,220 tons of carbon, 1,680 tons of sulfur dioxide, 3,920 tons of nitrous oxides, and 70.8 pounds of mercury. (see case study)

The improvement to Quad’s workplace was also significant as they increased the foot candle readings on average over 50%. According to Joe Muehlbach, Director of Facilities, Quad/Graphic, “Not only did the light levels increase and energy was conserved, but the heat output decreased, which is a big issue when you’re trying to ventilate the building in the summertime. And frankly, we prefer the color spectrum of fluorescent over metal halide. It is a true light source that is equivalent to sunlight at high noon. When customers color-check our products, they typically do it under these type of lights.” The Orion fixtures are full-spectrum lights with an average bulb temperature of 120 degrees, unlike the high intensity discharge (HID) lights that burn at 1200 degrees. Plus, T-8 fluorescent bulbs have a high rating on the color-rendering index.

"Quad/Graphics has long believed that what’s good for business is good for the environment, and this project is proof positive,” said Thomas A. Quadracci, president and CEO of Quad/Graphics. “Our employees are benefiting from better-quality light, and the community is benefiting from a reduction in electrical use and its associated impacts. As a good environmental steward, we will continue on this type of journey, applying new technology, as it becomes available, to protect the environment.”

An Economically Viable Way of Providing for Future Growth
Overall, the VPP concept provides an economically viable way of providing for future growth of electrical capacity without necessarily building new power plants. According to the Energy Information Administration (EIA), electricity consumption grew at a 2.2% rate over the last decade, while generating capacity grew at 0.8% a year. While technology has greatly improved America’s productivity, and therefore its economic strength, America has been a growing consumer of electricity. The EIA expects national demand to surge another 36%, or 1.8% per year, over the next two decades. [i] Table 1 clearly shows the expected growth in the demand for electricity in the United States.

Table 1: Demand for Electricity in United States, 1970-2020, Billion Kilowatt-hours (kWh)

Source: EIA, Annual Energy Outlook 2002 – Figure 46, December 2001, p. 72.

Between 2000-2020, residential, commercial and industrial demand for electricity is expected to increase by 1.7%, 2.3% and 1.4% per year, respectively. [ii]

The EIA has argued that to meet the anticipated growth in electricity demand and planned plant retirements will require 355,000 Megawatts of additional capacity, the equivalent of 355 of the average 1,000 MW coal-fired power plants. For example, California, the world’s fifth largest economy valued at $1.33 Trillion, experienced first hand the near catastrophic consequences of short generation and distribution capacity in 2000-2001. As a consequence, as California Governor Gray Davis noted, “Californians truly flexed their power, conserved at unheard of levels and saved money.” [iii] Ultimately, it was these aggressive energy efficiency initiatives by consumers, business and residential alike, that mitigated California’s growing energy supply and demand imbalance.

The bankruptcy of Enron, the nation’s largest energy trader and a major proponent of a national retail deregulation policy, has led many politicians and much of the general public to question whether retail deregulation of the electricity industry and the speed of wholesale electric deregulation are economically sound propositions. The collapse of the deregulation movement has caused a major ripple effect in the nation’s capital and financial markets. The nation’s financial markets are mandating dramatically increased equity to debt ratios from energy providers and marketers to ensure that all of the company’s potential liabilities are covered.

A number of Independent Power Producers (IPPs) including Mirant, Calpine and Dynergy have significantly scaled back capacity expansion plans in response to the tightening capital markets. According to an Energy Central article on October 30, 2002, “Across the country, more than 350 power generating projects, which could generate a total of 42,520 megawatts of electricity, have been delayed or canceled so far this year, according to the U.S. Energy Information Administration. That’s 38% of all the new generating capacity that was scheduled to come on line this year, and virtually all of the canceled or delayed projects had been proposed by independent power producers.” The only factor that has kept the paucity of new power plants from creating serious electricity shortages has been the effects of the recession of 2001-2002.

Inadequate future capacity construction is especially worrisome, because the average power plant in the United States is 39.5 years old. Utilities and IPPs have been reluctant to build new power plants, and invest in other infrastructure since they cannot be assured of recouping their investment in a deregulated environment. Frankly, most independent power producers may represent an outmoded business model that has been invalidated by the retreat of the deregulation movement.

It is only recently that utilities, politicians and the general public have begun to realize the full extent and implications of the nation’s growing capacity shortages and deteriorating transmission/distribution network, often as evidenced by dramatically increasing electricity prices. Table 2 presents the EIA’s average retail electricity prices and projections for 1970-2020.

Table 2: Average retail electricity prices and projections for 1970-2020, Cents/kWh

Source: EIA, AEO 2002 – Figure 50, p. 74.

Electricity is the only commodity, essential to both our nation’s standard of living and economic development, which requires real time usage since it cannot be cost-effectively stored in any appreciable quantity. Magnifying these generation and distribution concerns is the fact that the generation and delivery systems for electrical energy have essentially remained technologically stagnant over the past century, despite the increasing importance of affordable and reliable electricity for the nation’s economic development.

As important as developing and ensuring an adequate, affordable and reliable supply of power is the development of an efficient and effective system of delivering power from the point of generation to the point of use. Transmission/distribution infrastructure systems clearly play an important role in ensuring affordable and reliable power for the nation. In addition, as evidenced by the California experience distribution infrastructure inadequacies can generate substantial transmission bottlenecks, which in turn can result in energy supply shortages. With regard to the role of renewables, transmission costs and availability have hindered and continue to hinder its economical deployment.

NIMBY concerns have also hampered the necessary expansion and improvement of the nation’s transmission infrastructure. In fact, currently 10,127 line miles of transmission infrastructure are under consideration for construction, but according to the Energy Information Administration (EIA) “many of these lines may be delayed for many years or may never be constructed.” [vi]

These transmission infrastructure concerns have led the Federal Energy Regulatory Commission to promote the development of Regional Transmission Organizations (RTOs). Furthermore, the FERC’s RTO initiatives are also running into substantial opposition from citizen groups, environmental groups, and even the utilities who own their transmission infrastructure and do not wish to open their systems to their competitors.

The Practical Solution of Energy Efficiencies and Conservation

The aggregation of displaced capacity relief then is the central part of the concept of the Virtual Power Plant (VPP). The VPP is an integrated system approach, which combines the large amount of energy efficiency along with other demand reduction strategies, plus an on-site utility-grade metering systems to prove the promised energy consumption reductions.

The VPP is designed to provide immediate capacity relief to electricity providers and demand reduction to end-users. In the case of the OVPP, the core is the Orion Illuminator series. The Illuminator, a patented and award-winning fixture, replaces traditional high intensity discharge (HID) light fixtures on a one for one basis. Through the use of the Illuminator, OVPP projects provide end users with a 50% or greater reduction of throughput energy consumption, while increasing by 50% or more the quantity and quality of light in their facilities. So far as the Virtual Power Plant is concerned, any other large energy reduction strategy or strategies can deliver the same result.

With the projected market for commercial and industrial lighting fixture replacement in the United States alone at approximately 21,871 Megawatts (MW), the Virtual Power Plant concept employing robust energy efficient initiatives could deliver over 100,000 Megawatts of displaced capacity to U.S. economy. Ultimately, the energy efficiencies concept would reduce the need for 200 new 500 Megawatt coal-burning power plants in the U.S. The environmental and economic benefits of such a concept will transform the marketplace for electricity and the future need for new power plants.

With careful stewardship, the United States has an opportunity to conserve its natural resources, reduce pollution, save business and residential consumers money, and enhance the reliability of its electric supply by actively promoting the use of available and cost-effective energy efficiency measures. The U.S. business community can provide state and national leadership at a time when the United States needs a practical energy policy that encourages economic development, workplace environment improvement and practical environmentalism.

On both a state and national level, the best place to start is for all sizes of businesses to employ the “virtual power plant.” By aggregating large amounts of displaced capacity, we can control how many new power plants we build and when. Our environmental future depends on it.

Content Discussion

Vytau Virskus's picture
Vytau Virskus
Your article has merit. We at Millenium Energy - Lansing, MI are doing similar projects. For a typical commercial office building, the Integrated Virtual Power cost reduction can be 40-50%.

But a lighting retrofit is just a start. In addition to lighting, I have been designing and installing integrated Virtual Power Solutions - in one case reducing energy cost by 48%. In another recent project,a small college, the retrofit of lighting (including replacing HID fixtures with T-5 and T-8's), installing VSD's, new high efficiency decentralized heating system, installing a LAN/Internet based integrated EMS, and installing 1MW of interruptable generating capacity saved the school almost $300/yr, and was self funded.

Stephen Heins's picture
Stephen Heins
Dear Vytau,

Thanks you for your response. As to your company’s activities, I certainly am aware that the entire potential for displaced capacity is at least 4 or 5 times as large as the lighting component, hence I said the following in my article near its conclusion:

"With the projected market for commercial and industrial lighting fixture replacement in the United States alone at approximately 21,871 Megawatts (MW), the Virtual Power Plant concept employing robust energy efficient initiatives could deliver over 100,000 Megawatts of displaced capacity to U.S. economy."

Dear Mike,

Without denying an insider bias, I must clarify the purpose of my article. It was written to let individuals and companies know that there are companies in the U.S. who can deliver large amounts of displaced capacity; and there are companies like Orion that are willing to guarantee the promised results to a by-now-skeptical business community.

It seems to me that it is time for the energy efficiency providers to speak out on the national energy policy debate, especially as it relates to the discussion over new electrical capacity and new power plants. At the same time, the EE community must be able to deliver measurable and verifiable results to customers, politicos, policy wonks and the media.

Steve Heins