Inspired by last week’s online article from Reuters about virtual power plants (What's This Buzz about Virtual Power Plants?), I’d like to discuss “virtual power plants” (VPP) and what their promotion and development might mean for the future of onsite power and renewable distributed energy.
As the Reuters article points out, VPPs differ from microgrids in a fundamental way. While a microgrid involves a localized grouping of energy sources that are connected to the main grid but can operate autonomously, VPPs are a little more complex, because they add an extra layer of control via specially designed software and smart meters. VPPs are basically “a cluster of distributed generation installations” operated via a centrally controlled source.
By employing energy management software and smart meters, VPPs allow for peak load control as well as a source-flexibility (i.e., switching from one power source to another based on supply, demand, and reliability). Demand management and grid function reliability is also insured with VPPs via real-time demand response (DR) and load shifting. The Pike Research Group provides one of the clearest definitions of VPPs: “Virtual power plants (VPPs) utilize software systems to efficiently manage an increasing diversity of electricity generation, energy storage, and demand reduction assets.”
As the Reuters article suggests, VPPs can be described as “the Internet of energy” because they allow for utilities to piggyback custom distributed generation systems on the existing grid network. The end result is analogous to the smart grid without the need for a new and more elaborate infrastructure. As the Pike Research group points out, “VPPs can stretch supplies from existing generators and utility DR programs, delivering greater value to the customer, while also creating benefits to the host distribution utility as well as the transmission grid operator. When compared to the fossil central station power plants that dominate electricity markets worldwide, one of the primary advantages of VPPs is they can react quickly to changing customer load conditions, are dynamic, and deliver value in real time.”
Pike Research has further defined VPPs by breaking them down into the following categories:
* Demand Response-based VPPs: This is the largest commercial segment in the United States, which has the most mature DR market in the world.
* Supply-side VPPs: Europe, particularly Germany, has led the world in this category, though most of the projects have been R&D pilots, with only a handful of VPPs in commercial operation.
* Mixed asset VPPs: This is the ultimate goal of the VPP. This segment brings distributed generation and DR together to provide a synergistic sharing of grid resources to squeeze out more value, thereby reducing capital costs. Few of these projects are in commercial operation today.
* Wholesale auction VPPs: Unique to Europe, VPP auctions have been used in the region as a condition of mergers, requiring asset owners to auction off base load and peaking capacity to bidders under short- and long-term contracts. Unlike the category of the supply-side VPP segment, these resources are typically traditional centralized power plants burning fossil fuels.
So what do you think? Why are VPPs widespread in Europe, but still at the embryonic stage stateside? Are utilities unaware of the potential value of VPPs? And because VPPs can be stacked onto an existing system and incorporate onsite power and renewable energy, is the nation’s focus on the smart grid misplaced? And should we even be placing our faith in the centralized utility system when customer-owned generation sources are such a good fit for VPPs?