• Virtual Power Plant
  • EV
  • Policy and Regulation

Rising Inflation Exposes Need for Innovative VPP Business Models

Dan Power
Aug 24, 2022

Guidehouse Insight solar panel

Inflation is at an all-time high in nearly every region of the world, and consumers are feeling the effects from higher prices for goods and services in almost every business segment. In the US, the Federal Reserve has attempted to reduce demand by increasing interest rates, effectively making it more expensive to borrow money. In doing this, it becomes more difficult for Americans to take out loans for big purchases like a new home or car (EV or otherwise). However, with the high upfront costs of some distributed energy resources (DER) like rooftop solar or behind the meter energy storage, loans would also be a viable option for homeowners when financing their DER in the absence of other options such as leases or power purchase agreements. A higher interest rate will result in homeowners reconsidering their DER plans unless there is an opportunity for them to offset the associated costs.

New Business Models Lower Barriers to DER Adoption

Pairing a rooftop solar system with an energy storage system can be a great option in areas where net metering laws are changing or going away entirely. The energy storage system allows the customer to maximize consumption of the onsite generation and minimize their demand for utility sited power. However, with the growing presence of virtual power plants (VPPs), excess capacity from a behind the meter energy storage system can be used by utilities and grid operators as needed in exchange for payments to the VPP operator and the end customer. In a typical business model, the VPP operator will share a portion of revenue generated by any market participation of a customer’s assets with the customer, thereby increasing their ROI. Additional revenue from their DER operation can help shorten the payback period for the customer’s system. 

In alternate business models, VPP operators will cover some or all the upfront costs associated with acquiring and installing DER behind the meter. In return, the VPP operator can dispatch the asset to the local distribution system when required by the customer’s local utility to serve grid needs. Typically, the asset will not be used in such a way that the customer is not also able to benefit (e.g., an energy storage system will not be discharged below a certain percentage so there is backup power available if needed, an EV will be charged to provide enough range for the customer when required). While the customer may not be receiving payment each time the asset is used to serve the grid, they are still receiving the benefits of DER at little to no upfront cost to them.

Business Model Changes Can Increase Adoption

DER vendors and VPP operators should continue to work together to enhance their product offerings for end users in all business segments. As energy markets around the world are reformed, additional opportunities for aggregated DER to serve the grid will arise. Creating new financing options and revenue streams for customers to adopt behind the meter DER will increase the pool of potential customers who are interested in and can adopt the technology. To become decarbonized without sacrificing reliability, the power grid will also become decentralized. Decentralization necessitates customer participation meaning they will not only have to be informed about the changing landscape but will need resources, like new financing options and revenue streams, that allow them to adopt relevant technologies.