Pivotal Virtual Power Plant Pilot Comes to Texas

In October 2022, the Public Utility Commission of Texas authorized the creation of a pilot program to test the integration of heterogeneous aggregations of distributed energy resources (DER)—also called virtual power plants (VPPs)—into the Texas interconnection. Retail electric providers in the state started onboarding customers with DER earlier this year so that available capacity from their assets can be used to bid into Electric Reliability Council of Texas (ERCOT) markets to provide energy and select ancillary services. The initial phase of the program limits the VPP to 80 MW, with each site in an aggregation limited to 1 MW of capacity.

This VPP pilot is aimed at harnessing the nearly 3 GW of DER capacity already connected to the distribution system to enhance the grid’s reliability, something of utmost importance after the catastrophic grid failure in February 2021. In June 2022, Tesla also completed a VPP demonstration project in the state, where it linked 64 behind-the-meter energy storage systems together to participate in the ERCOT market. The demonstration project proved the technical capability of the aggregation, showing it could provide energy, regulation, responsive reserves, and non-spinning reserves to the grid.

ERCOT Lags in Planning for DER Aggregations

Other grid operators in the US have been working to adjust their market rules and systems to incorporate heterogeneous DER aggregations since the Federal Energy Regulatory Commission (FERC) issued Order No. 2222 in September 2020. However, because ERCOT is not under FERC’s jurisdiction, the grid operator was not compelled to adjust its markets in the same way. There are regional variations between the compliance plans filed by the other six regional wholesale markets, reflecting the differences in how each currently operates, and ERCOT’s unique market setup could create its own set of challenges. Some European energy markets share many similarities with ERCOT and already have experience with DER aggregation, offering a potential information resource for ERCOT.

Although the pilot program is not a mandate requiring DER aggregations be classified as market participants—aggregations will instead initially be considered load resources—it does create momentum toward expanding DER use cases on the Texas grid.

Pilot Program Results Will Influence Future VPP Growth

The pilot will allow aggregated resources in the VPP to be compensated for the grid services they provide, creating an additional revenue stream for retailers and asset owners. Additional revenue for asset owners means a quicker payback time for their resources. For retailers, the VPP can be used to offset their need to buy wholesale electricity when prices spike, leading to cost savings for consumers, or it can provide ancillary services when prices in that market are high. To facilitate customer participation, DER providers and aggregators should collaborate to streamline acquisition, installation, operation, and market participation for consumers. Additional revenue opportunities for DER created by the program could be used by VPP operators to modify their solution offerings in ways that lower consumer barriers to DER adoption.

ERCOT plans to run the program until it has implemented market rules and systems to fully accommodate aggregated DER participation or until it deems the pilot unnecessary. New market frameworks that enable fair competition with traditional generation sources, along with the implementation of advanced software systems for utilities and retailers that enhance visibility into and control of DER operations, are critical to the success of VPPs. The results of this VPP pilot program will likely influence the future of VPPs in the ERCOT market and, perhaps, the reliability of the Texas interconnection moving forward.