Energy Cloud 2.0: Orchestrating Power Networks via Virtual Power Plants

The evolution of energy markets is accelerating in the direction of a greater reliance upon distributed energy resources (DER), whether those resources generate, consume, or store electricity. The new frameworks necessary to manage this increasing two-way complexity are quickly evolving. Nevertheless, strategies are being deployed today all over the globe.

One such strategy is a virtual power plant (VPP), the concept that intelligent aggregation of DER can provide the same essential services as a traditional 24/7 centralized power plant. The definition of a VPP is fuzzy. In short, it is based on the idea that the value of DER must not only provide value to the prosumer, but must also be enabled (through technology and regulation) in order to migrate value upstream to utilities and even transmission grid operators. In other words, they need to rely upon a network orchestrator, a concept that is articulated in a new white paper entitled Navigating the Energy Transformation.

Gaining Acceptance

Guidehouse Insights published its first VPP report in 2010. Since that time, what was once seen as a futuristic scenario fed by a number of experimental pilot projects in Germany, Denmark, and the rest of Europe is emerging into a real market that draws upon analogies with companies such as Uber. The network orchestrator driving value for the VPP may not own all of the assets; value is created by organizing these assets in a way that creates real-time physical benefits to the power grid (or in the case of Uber, to people seeking near-immediate transportation services).

VPPs represent an Internet of Things (IoT) approach to energy management, tapping existing grid networks to tailor electricity supply and demand services for a customer, utility, or grid operator. VPPs maximize value for both the end user/asset owner and the distribution utility through software and IT innovations. The primary goal of a VPP is to achieve the greatest possible profit (or savings) for asset owners, while at the same time maintaining the proper balance of the electricity grid at the lowest possible economic and environmental cost. From the outside, the VPP looks like a single power production facility that publishes one schedule of operation and can be optimized from a single remote site. From the inside, the VPP can combine a rich diversity of independent resources into a network via sophisticated planning, scheduling, and bidding of DER-based services.

A Transforming Field

Perhaps the most transformative example of a VPP is the aggregating up of residential rooftop solar PV systems with distributed energy storage, which can then deliver dispatchable demand response (DR) services to utilities. A great example of this VPP model comes from the Sacramento Municipal Utility District.

Guidehouse’s recently released white paper concludes that roughly $10 trillion can be attributed to the digital innovations necessary to integrate renewables, which will represent the vast majority of new power supplies supporting the grid by 2030. A report to be published this September will carve out how large the VPP market is expected to be over the next decade. Regardless of the precise figures included in these forecasts, revenue across the electricity value chain is shifting downstream toward the edge of the grid.

Without VPPs, this shift could result in chaos. With emerging business models such as VPPs, however, a balancing of the grid can occur that also balances costs and benefits, ideally in a way that serves a broad array of society’s stakeholders.