Real reliability: Capturing the full value of VPPs

With over 500 deployed across the U.S., virtual power plants are increasingly being recognized as vital resources for the energy sector. But fully leveraging VPPs to address a host of industry challenges — including forecasted load growth from data centers and computing — requires a fuller appreciation of the technology’s potential value among utilities, regulators, and grid operators.

Amid record-high temperatures, VPPs have played a key role in relieving grid stress this summer. Utilizing VPPs, California (the state with the most VPP capacity) has not only avoided outages but has even been able to export excess electricity across the western U.S. 

But despite VPPs’ track record, utilities often worry that relying on them over conventional generation could threaten grid reliability, according to Paul Hines, vice president of power systems at EnergyHub.

“Some utilities believe that if they don’t build a power plant, they need 100% certainty in the resource that replaces it,” Hines said. “But no resource offers 100% certainty — not even traditional power plants. We have good methods for successfully operating the grid in the face of some uncertainty, and VPPs increasingly offer reliability statistics that are on par with, or better than, conventional power plants.”

Hines pointed out that during Winter Storm Elliott in December 2022, EnergyHub’s VPP assets delivered critical load relief, while natural gas plants — the default option for meeting most new electricity demand — were responsible for two-thirds of the historic power outage across the eastern and midwestern U.S. 

"EnergyHub's data suggests that a well-designed VPP achieves better than 98% dispatch reliability," Hines explained.

In addition to their high reliability, VPPs offer benefits beyond what one can get from conventional generation. Given the investment and long lead times required for traditional power plants, most utilities will not be able to build new resources fast enough to meet load growth. By comparison, VPPs are far cheaper and faster to deploy, with some programs like the Ontario IESO’s Peak Perks™ scaling to 150 MW of peak demand reduction capacity in less than a year. Moreover, VPPs offer “no regrets” flexibility if anticipated load growth doesn’t materialize, as happened with projections from a decade ago.

Of the challenges facing utilities, the consultancy E3 recently wrote: “Planning for load growth under uncertainty is nothing new, but the scale and speed of this load growth, combined with today’s supply side constraints, is unprecedented.” Over the next two decades, the rate of this growth might ebb and flow en route to an electrified economy (Figure 1). 

Against this backdrop, VPPs offer a modular, scalable solution, while putting less capital at risk than traditional power plants. And while new power plants supply new loads, they don’t address transmission and distribution system needs; VPPs can do both, faster by balancing supply and demand across the grid and protecting grid assets like substations, feeders, and transformers from overloads and failures.

How can we capture the full value of VPPs?

Today’s VPPs are sometimes faulted for not offering much beyond traditional demand response programs, which for decades have allowed utilities to maintain reliability by reducing customer loads at critical peak times. This limitation, supporters argue, is entirely a function of how VPPs are understood and what they’ve been allowed to do to date.

“Many grid operators deeply discount the capacity of VPPs in their resource plans because of reliability concerns,” said Hines. “As we collect more data from real-world VPPs, they should receive greater capacity credits and play a larger role in resource planning processes.”

Better treatment in the regulatory arena is also key to VPP adoption, as DOE noted in a report last fall. This will involve both an appreciation for VPPs’ unique value proposition — for example, the inherent advantage of operating a portfolio of thousands of resources over a large geographical footprint — and an accounting for the risks of traditional power plants that often go unrecognized. To this end, sophisticated tools have emerged to help utilities and regulators plan investments in the distribution grid where VPPs are deployed.

Part of the solution lies within utilities, whose consideration of VPPs and other DERs is typically siloed within small, specialized teams and whose business model in most cases hasn’t evolved to fully embrace the multiple value streams of VPPs. Utilities will need to adapt to better integrate the teams that handle VPPs with the broader organization. 

Another part of the solution lies with VPP providers themselves. Offering dashboards with real-time visibility into VPP performance during dispatch, which Hines said will soon become an industry standard, will go a long way towards building utility confidence. 

With these changes across the industry, VPPs can help utilities navigate the challenges of a rapidly evolving grid and drive the transition towards a more sustainable and resilient energy system.

This is partner content, brought to you by EnergyHub.