Virtually everything is an asset

The transition toward a decarbonized energy future requires stakeholder collaboration across the industry. And if you want to balance interests and keep the lights on, you have to balance the grid. This was a key lesson learned in Europe in 2012 when the first virtual power plant (VPP) was conceived. Today, there are about 50 different solutions available in the market. And with the entrance of FoxESS, it will be 51 in August 2020, when the company plans to bring its own VPP platform to the market.

The energy transition in Europe has made the conflicting interests of various stakeholders across the energy landscape apparent, so much so that new technological solutions had to be developed to overcome the challenge. With distributed energy resources (DERs) becoming more popular, high levels of deployment have created two challenges for power utilities and distribution system operators. The first is the rather obvious fact that homeowners began to generate their electricity, which translated to households purchasing less electricity from their power utilities. But the second problem is rather less apparent, as it pertains to the operation of the grid.

Utilities and grid operators need to work in tandem to ensure that demand and supply are always perfectly balanced. If there is a sudden spike in demand, power plants need to ramp up instantaneously to manage this. And if demand drops, power production needs to fall as well, or else a blackout will occur. Historically, this challenge has been met by using market drivers and ancillary grid services.

For example, large industrial consumers of electricity could be financially penalized on their electric bills for having a highly fluctuating consumption profile. The idea was to incentivize such consumers to aim for steady energy consumption and in turn, make it easier for power operators to ensure grid stability.

Through ancillary grid services, power suppliers are providing fast frequency response and other short-time power reserves to support demand. With sudden electricity demand spikes, power stations have the ability to produce a few additional megawatts of capacity to feed into the grid if there is a demand signal, but plant owners who offer this charge a hefty bill for that extra power.

With an increasing number of variable DERs, such as rooftop solar PV systems, entering into the grid, this has introduced challenges for additional frequency response requirements and for electric utilities to balance energy loads. In recent years, not only have power utilities lost money from homeowners buying less electricity, they have also incurred costs for ensuring stable grid operations. The fast growth and large-scale adoption of solar PV has supported individuals and businesses in their efforts to gain energy independence. It has been in alignment with policymakers’ carbon reduction and renewable energy targets, while also creating challenges for electric utility companies in the regulation of supply, demand, and grid operation.

In 2012, solar energy companies found a solution to the challenge: virtual power plants (VPPs). The new cloud-based power plants were set up to aggregate residential solar generating assets to better predict power output. By layering weather forecast data over thousands of small-scale assets, it made it possible to make accurate projections of the energy they produce.

Since VPPs were first introduced, the power plants of the future have developed and expanded capabilities quite significantly, with a quickly advancing smart energy infrastructure. In August 2020, FoxESS plans to bring the latest technological phase of VPPs to the market. These advanced VPPs include the processing of consumption data. With demand-side response, VPP operators have the ability to play with enormous capacities of flexibility, even with limited installed solar capacity. The smart VPP learns patterns, such as when a homeowner is typically home and how much power is being used during that time. The system then matches that data with the adjacent households that are also participating in the VPP, allowing neighbors to maximize the use of their assets for the grid. For example, charging a vehicle or doing the laundry at the most convenient, cost-effective hour of the day for the grid.

Furthermore, the solution offers the opportunity for small assets within one neighborhood to manage both demand and supply via the VPP. If an EV or home storage battery system of one customer is fully charged, these assets could be used to supply power on demand and feed into the grid if a neighbor wants to wash their laundry. Currently this is not typically possible due to regulatory regimes prescribing that a power producer must provide a minimum power capacity, such as 5 MW in Germany, for example. However, the EU has plans to lower that figure to 100 kW in its member states.

This self-managing of flexible loads also helps to ease stress for grid operators, as VPPs can also provide fast frequency response and similar ancillary service products. By aggregating thousands of assets, they cumulatively surpass the minimum threshold capacity for generators that want to supply such services.

The future is looking bright for stakeholders across the energy sector thanks to VPPs. Solar and other DERs have morphed from energy assets incurring a higher requirement for ancillary services to becoming providers of such services. And they can do so cheaper and more effectively than their coal and gas counterparts. As coal and gas generators cannot ramp up in split seconds, they need to continuously produce power for ancillary services, whether or not the services are required. But DERs such as solar PV and battery storage systems, on the other hand, can supply the power required within milliseconds – these alternatives don’t have to burn fossil fuels to remain idle.

And by being able to provide this service, cheaper VPPs can lower the cost of running the grid. Homeowners who participate in VPPs can use the technology as an alternative to remuneration schemes of feed-in tariffs. In some markets, such as Germany and Japan, the first batch of DERs and solar PV projects are expiring their feed-in tariffs, and VPPs show promise to provide a different market for such assets. With the limitations of self-consumption, VPPs offer ways to make some money off rooftops.

The value potential that VPPs can provide to all stakeholders in the energy landscape is driving companies, such as FoxESS, to further develop the technology. They are making it more versatile and adaptable to new needs, and capable of incorporating more and more types of loads and assets. And Europe is set to become a big player in the future of VPPs yet again.

While Europe was responsible for introducing the technology to the world in 2012, since then the North American, Australian, and Japanese markets have overtaken the continent in terms of the deployment of such systems. But with the EU setting ambitious decarbonization goals, Europe is quickly catching up by implementing regulatory elements that will allow for the demand side of the exchange ledger. With the market already very integrated currently, it provides an ideal environment for rapid adoption of the technology. Navigant Research forecasts that the European VPP market will surpass a market value of $3 billion per year by 2028.