For years, proponents of on-site solar and battery storage have pushed the advantages of virtual power plants (VPPs), which offer grid operators and electric utilities the ability to tap the power potential of large numbers of devices for support when their own generation sources can’t keep up. Such designs could help speed renewable energy adoption and reduce the need for new fossil fuel-fired generators and transmission lines. However, getting such plans beyond pilot efforts has been difficult. 

In January, RMI, a Colorado-based energy research and development group, announced a new initiative bringing together some of the biggest potential players in VPP deployment to help lay the groundwork for more rapid adoption of the technology over the next decade. 

RMI—formerly the Rocky Mountain Institute—has been active in such energy­-related partnership efforts since its founding in the 1980s and is known for its work at the highest corporate levels. The Virtual Power Plant Partnership (VP3) includes companies such as GM and Ford, which are developing platforms and relationships that could see the batteries in their EVs as VPP sources, along with solar leaders SunPower and SunRun, device maker Google Nest and software-solutions providers OhmConnect, Olivine, SPAN, SwitchDin and Virtual Peaker.

Challenges and crises

“We have a set of major crises in the electricity industry,” said Mark Dyson, RMI’s managing director for carbon-free electricity, explaining why the group is now focusing on VPPs. Vulnerability to severe weather events and physical attack top this list. “That adds up to a big threat to the reliability of the grid.”

Affordability also is becoming a challenge, he added, noting that average electricity bills rose 10% in the past year, often driven by higher costs for the fossil fuels generators can depend on. Renewable sources have grown rapidly in the last decade but, according to the U.S. Energy Information Administration, fossil fuels (including coal, petroleum, natural gas and other gases) still generated 61% of the nation’s electricity in 2021.

However, on the positive side for VPPs, new technologies and federal incentives are beginning to hit the market at the same time. And with auto companies such as Ford and GM starting to partner with solar and storage makers to create entirely new businesses focused on home energy support, corporate capital is also beginning to flow toward VPP implementation. This is especially true as incentives and, possibly, local codes begin to move more consumers to switch to electric stoves, water heaters, dryers and vehicles.

“Electrification is an immense opportunity, but it has some challenges, and they show up in different ways as peak demand,” Dyson said.

Adopting large-scale electrification just as intermittent solar and wind become more important generation resources could stretch local distribution operators, he added. This could be especially true during summer’s heat. VPPs could give utilities an option for adding supply close to where their users need it, by tapping the output of participating customers’ solar panels and batteries and setting back their thermostats, which creates less need for new centralized generators.

“We see an opportunity for VPPs to scale to fully unlock electrification across the United States,” he said.

Compensation and rate structures

Beyond aiding in technology development, Dyson said VP3 hopes to work with utilities and their state regulators to address rate structures that currently don’t address VPPs’ ability to take demand off their systems and add supply to it, especially as home-connected EVs adapt to vehicle-to-grid strategies. Today, he noted, traditional demand-reduction programs have their own rate programs separate from those designed for solar-plus-storage systems, for example.

“We want to see how utilities and commissions can begin to see these individual components as part of a larger whole,” Dyson said.

The current utility compensation structure also could work against greater VPP adoption. Utilities, today, primarily earn profits through a guaranteed return on their investments in physical infrastructure. VPP systems—including solar panels, batteries and demand-reduction devices like smart thermostats and water heaters—are typically the customer’s property. 

In that way, utilities could see VPP approaches, which could limit the need for new utility equipment even as electricity demand rises, as threatening to their bottom lines. Dyson sees hope in the innovative rate plans some jurisdictions are piloting that add compensation for hitting performance targets, such as investments that reduce customer demand by specified amounts.

“The situation isn’t set in stone,” he said. Performance-based rates could be “a key enabler in defusing this potential conflict.”

VP3 anticipates the combination of demand reduction and supply contributions VPPs could create up to 60 gigawatts of peak-demand capacity by 2030. And the work required to get there could help boost electrical contractors’ businesses.

“I’d like to say that the barriers to electrification are often thought of as growth opportunities for electrical contractors,” Dyson said. “For that set of professionals, this is a golden opportunity.”

Header Image: shutterstock / hasan as’ari