The basic idea behind virtual power plants (VPPs) is elegant and intuitive on paper. Aggregate a large number of power generating, consuming and storing devices and remotely dispatch them to generate, consume or store energy as desired. Such a portfolio can operate more or less as a substitute for actual power plants, loads and batteries. The concept has been around for a while but is receiving renewed attention because so many devices are now digitalized – i.e., connected to the Internet – and with advances in artificial intelligence (AI), aggregating and manipulating thousands or millions of smallish devices is no longer challenging. This has led to speculation that soon actual power plants will be replaced with virtual ones, offering similar or improved service at lower cost, with minimal emissions and/or environmental footprint.
But if the time for VPPs has in fact arrived, how come we don’t see very many of them in operation? Pathways to commercial liftoff: Virtual power plants, a recent report by the US Dept of Energy describes the market opportunities, current challenges, and potential solutions for the commercialization of VPPs. It is a comprehensive report, especially useful as a primer for the non-experts.
The report starts with a definition of what is a VPP (visual on right), namely an aggregation of distributed energy resources (DERs) such as rooftop solar with behind-the- meter (BTM) batteries, electric vehicles (EVs) and chargers, electric water heaters, smart buildings and their controls, and flexible commercial and industrial (C&I) loads that can balance electricity demand and supply and provide utility-scale and utility-grade grid services just like a traditional power plant.
A VPP enrolls DER owners – including residential, commercial, and industrial electricity consumers – in a variety of participation models that offer rewards for contributing to efficient grid operations.
The DOE report points out that VPPs are not new but have been operating under other names using commercially available technology for years. Most of the 30-60 GW of existing VPP capacity is in demand response (DR) programs that are used when bulk power supply is limited. DR programs turn off or decrease consumption from DERs such as smart thermostats, air conditioners, water heaters, and commercial and industrial equipment.
With advances in technology and digitalization, however, VPPs have the technical potential to perform a wider array of functions faster and with enhanced reliability such as
- Shifting the timing of EV charging to avoid overloading local distribution system;
- Supplying homes with energy from on-site solar-plus-storage systems during peak hours to reduce demand on the bulk power system;
- Charging distributed batteries at opportune times to reduce utility-scale solar curtailment;
- Dispatching energy from commercial EV batteries back to the grid; and
- Contributing ancillary services to maintain power quality.
The commercial appeal of VPP has been boosted for several reasons including the fact that many polluting fossil plants are retiring while massive investments are going into customer-owned DERs. Deploying 80-160 GWs of VPPs, tripling the current amount by 2030 could support rapid electrification while redirecting grid spending on actual peaker plants.
The DOE says that by 2030, the US will need to add enough new power generation capacity to supply over 200 GW of peak demand. Were the US to follow a path towards 100% clean electricity by 2035, new capacity needs could nearly double. Large-scale deployment of VPPs could help address demand increases and rising peaks at lower cost than conventional resources.
In particular, the DOE believes that VPPs can contribute to resource adequacy at a low cost while enhancing resilience, reduce greenhouse gas emissions and air pollution. A VPP could provide peaking capacity at 40-60% lower cost than a utility-scale battery and/or a natural gas peaker plant.
Using data from a prior Brattle Group study, the DOE concludes that deploying 80-160 GWs of VPPs by 2030 could save on the order of $10 Billion in annual grid costs, a major saving to electricity consumers. At such scale, VPPs could contribute approximately 10-20% of peak demand. Each year from 2025 to 2030, the grid is expected to add:
- 20-90 GW of capacity from EV charging infrastructure;
- 300-540 GWh of storage capacity from EV batteries;
- 5-6 GW of flexible demand from smart thermostats, smart water heaters, and non-residential DERs;
- 20-35 GW of generation capacity from distributed solar and fuel-based generators; and
- 7-24 GWh of storage capacity from stationary batteries.
But as is always the case, there is a catch: many obstacles and barriers remain before the VPP dream can become a reality. The DOE highlights several imperatives including:
- Expand the adoption of VPP-enabled devices;
- Simplify VPP participation and aggregation;
- Increase standardization in VPP operations;
- Integrate VPPs into utility planning; and
- Integrate VPPs into wholesale markets.
Clearly, we are not quite there yet. VPPs, like many other promising solutions, is not as easy to implement as it first appears.
This article originally appeared in the November 2023 issue of EEnergy Informer, a monthly newsletter edited by Fereidoon Sioshansi who may be reached at [email protected]"