Dive Brief:
- Successful VPPs offer straightforward participation incentives and allow participation in retail and wholesale power markets, participants said in a Tuesday webinar highlighting the key findings of VPP Policy Principles, a guide developed by distributed energy stakeholder group VP3 to “support the fair and efficient growth, integration, valuation, compensation and advancement of virtual power plants” over the next one to four years.
- “VPPs can be part of the regulator and policymaker toolkit” to enable affordability, reliability, safety and decarbonization across electricity systems, webinar host Avery McEvoy, senior associate in RMI’s carbon-free electricity practice and RMI co-lead for VP3, said.
- McEvoy cited generous upfront incentives in Green Mountain Power’s Bring Your Own Device program and “simple” upfront and per-kWh incentives in Rocky Mountain Power’s Utah Wattsmart program as examples of successful policies to promote broader VPP participation. Other principles highlighted in the webinar and guide related to equitable stakeholder compensation, customer experience issues and utility and system operator roles within VPP ecosystems.
Dive Insight:
Definitions of the term “VPP” vary across the power industry, McEvoy noted. RMI’s relatively “broad and inclusive” definition describes a VPP as “an aggregation of grid-integrated DERs that can balance electrical loads and provide utility-scale and utility-grade grid services,” she said.
Those DERs include not only rooftop solar and battery resources but also well-aggregated demand-response and flexibility programs that manage plug loads and major household appliances, McEvoy said.
McEvoy highlighted a Wood Mackenzie report from last year projecting 262 GW in new U.S. DER and demand flexibility capacity from 2023 to 2027, nearly equal to an expected 272 GW in new utility-scale resource installations over the same period. The Wood Mackenzie report noted that “the grid insecurity of homeowners and business owners represents the strongest demand pull,” boosting the distributed fuel-based generation market by 240% and the distributed storage market by 460% from 2022 to 2027.
“The market is absolutely growing … and we want to make sure we’re enabling policy and [regulation] to leverage all the benefits [VPPs] can provide,” McEvoy said.
Most distributed resources are not yet aggregated into VPPs. The U.S. Department of Energy’s VPP Liftoff Report estimated total U.S. VPP capacity at 30 to 60 GW last year. Still, VPPs’ potential scale is massive, McEvoy said, noting for comparison the 1-GW capacity of a typical conventional nuclear plant.
Webinar guest Ted Thomas, former chair of the Arkansas Public Service Commission, underscored the potential grid and customer benefits of a rapidly growing VPP ecosystem with a comparison to the on-demand home entertainment industry, which evolved from VCRs to DVRs to on-demand streaming within a few decades. DER and demand-response technologies could see similarly rapid evolution, enabling new use cases over time and flexibility that fixed generation resources — like new natural gas plants with 40-year life cycles — can’t match, he said.
Thomas also noted that innovation means initial projections tend to overestimate the costs of implementing new technologies. That’s an ongoing challenge for modeling other aspects of the energy transition, notably long-term solar and storage trends.
But VPPs must scale in order to realize their potential, Thomas said. “If it doesn’t scale, it doesn’t happen.”
The VP3 guide’s policy principles aim to enable that scale. The first principle, for example, cites the need to “advance policies to expand beneficial DER adoption by diverse end-users” through tax credits and rebates, carveouts in energy portfolio standards and upfront and/or on-bill financing, McEvoy said. She pointed to Green Mountain Power’s successful Bring Your Own Device program, which offers upfront incentives as high as $10,500 for home battery purchases, and Rocky Mountain Power’s Wattsmart program in Utah, which offers participants $400/kW upfront and an ongoing $15/kW annual credit.
McEvoy also noted the guide’s focus on effective VPP design, including easy participation in retail and wholesale markets and a cooperative approach between aggregators and utilities that includes support for utility planning processes.
Other key principles highlighted in the guide and webinar included appropriately valuing “non-energy benefits” such as decarbonization and pollution reduction, “equitable penalties and incentives” to keep VPPs on a level playing field with other grid services providers and customer choice and control around VPP participation and specific demand response activities, such as thermostat management.
