Jigar Shah: It's time for VPPs to get simpler

Amid a “cratering” rooftop solar industry and utility struggles with massive load growth, virtual power plants could provide relief. 

But according to Jigar Shah, director of the Department of Energy’s Loan Programs Office, those VPPs need to be taken back to basics.

• The top line: Harnessing distributed assets for energy efficiency has the potential to solve myriad problems facing the energy transition, including leveraging the grid more efficiently, staving off infrastructure overhauls, and boosting the solar industry. But for VPPs to move from pilots to scaled deployments, they need to get simpler. To start with, Shah said, power should only flow one way.
• The current take: New load on the grid from data centers, manufacturing, and electrification doesn’t necessarily mean we need to increase system peak capabilities, Shah told Shayle Kann in a recent episode of the Catalyst podcast. “The amount of load growth that we can handle within the actual system that we’ve already paid for is gargantuan — it can easily take us through probably 2034, 2035,” Shah said. 

In the next decade, it is likely that clean, firm power sources like nuclear and enhanced geothermal will become more widespread and more cost-effective, Shah said. But in the meantime, using VPPs “all day, every day” is a way to make the most of the existing grid, he added.

And making that happen requires both the solar and utility industries to get on the same page about the problem they’re solving. 

“I’m not solving for the solar industry to continue to be able to find a value proposition for customers,” Shah said, adding that the question should instead be, “what tools do we have to be able to meet this load growth?”

Getting to scale

Once everyone agrees on the point of the VPP, Shah said simplification of the model is key. 

For now, that means that VPPs should just be an “energy efficiency play,” preventing loads from pulling from the grid during peak times, rather than a two-way asset. That would allow VPPs to get up to scale quickly, while saving the more complex challenges for another day.

“If you make a simplifying assumption, which is that no one is feeding anything into the grid…[it] solves so much,” Shah said. “If you want to backfeed power into the grid, then you will need a much more robust and expensive structure,” he added, pointing to concepts like vehicle-to-grid charging.

Managing load growth from electrification, specifically energy consumption from homes, is “crazily simply solved” with that framework, Shah said. The fact that residential loads like heat pumps or electric vehicles aren't being scheduled already is “negligence” on the part of regulators and utilities, he added: they’re not “forcing the features of those loads to be used.”

That doesn’t mean that future iterations of VPPs won’t have a two-way flow of electrons, Shah clarified. But if assets are for now simply varying their load down to zero, “it becomes a much easier framework” to get VPPs off the ground.

Virtual power plants also need a simpler customer proposition, Shah said. The inherent friction of including a VPP program in rooftop solar sales is another reason pilots to-date have mostly been small, he added.

Solar companies, which have ambitious sales targets, are often loath to increase that friction (though some companies, like Sunrun and Sunnova, have already dubbed themselves “VPP companies”).

But the future of rooftop solar really rests on how the industry sees its role in the broader energy transition. If it can figure out how to move beyond just solar and become true dispatchable and distributed energy, Shah said, the industry as a whole will have a longer “shelf life.”

Challenges remain

However, reliability is a serious challenge when it comes to utilities viewing VPPs as a truly valuable asset — it remains challenging to guarantee exactly how much capacity will be dispatched when called upon, and aggregated assets in general don’t provide the guaranteed capacity a utility needs.

But it’s a challenge the industry will have to overcome, Shah said. And that starts with developing a framework for reliability.

“Presumably you’re saying that it might cost a little bit more to make it more reliable,” Shah said. “There’s software layers. There’s a level of certainty that you need on the software side to make sure you know exactly what’s happening.” 

LPO estimates getting that integration ready for VPP deployment will cost roughly $35 million per utility. But in addition to the cost, Shah said that leveraging VPPs is a culture change, one that no one is clamoring to make. 

“Everyone’s first choice is to do things exactly the way we do them now,” he said. “At some point you have to suggest that we need a new approach. And that is only now I think being considered.”

For the full conversation with Jigar Shah, listen to his interview on Catalyst: