Navigant Research Blog

Taking VPPs to the Next Level

Peter Asmus — June 20, 2017

The primary goal of a virtual power plant (VPP) is to achieve the greatest possible profit for asset owners—such as a resident with rooftop solar PV coupled with batteries—while maintaining the proper balance of the electricity grid at the lowest possible economic and environmental cost.

The purpose is clear, but getting to this nirvana is not easy. Nevertheless, there are clear signs that the VPP market is maturing. New partnerships are pointing the way for control software platforms that can manage distributed energy resources (DER) in creative ways.

Creating a DERMS for Utilities

Case in point: the recent collaboration between Enbala Power Networks and ABB to create a DER management system (DERMS) platform for utilities. Underpinning this foray into smarter DER controls is the following statistic: more distributed generation (DG) will be coming online in 2017 than traditional centralized generation (coal, natural gas, and nuclear power plants). By 2026, 3 times as much DG will be coming online and sending power into the grid than these traditional centralized power plants. That gap will only widen more over time.

Annual Installed Centralized vs. Distributed Power Capacity, World Markets: 2017-2026

(Source: Navigant Research)

The entire ecosystem of DER, including DG, will need to be managed in new ways if value is to be shared between diverse asset owners and the incumbent utility grid. Utilities are slowly coming to see this as an opportunity rather than a threat. Consider these survey results from January of this year, with over 100 utilities responding. 18% of respondents indicated that they already had a DERMS in place, while 77% said they planned to implement their own DERMS program within the next 36 months. These responses show a majority of utilities today anticipate needing to implement DER control solutions in the near future.

There are many innovators in the VPP space, including Enbala. Along with its new partnership with Swiss industrial grid powerhouse ABB, the company’s recent expansion of its controls and optimization architecture leveraging recent advances in machine learning are helping to push the VPP platform into the mainstream. In the process, Enbala is providing metrics that suggest a promising ROI for VPPs.

Cost of Traditional Power Plants versus VPPs

Here’s a quick comparison. According to the US Energy Information Administration, the cost of building a new coal power plant is approximately $3 million/MW. This capital outlay does not consider the risk of future environmental regulation that may occur over the 20- to 30-year life of the project. While the cost of a new natural gas-fired power plant is much less—approximately $900/MW—that cost still represents a potential future liability. In comparison, the cost per megawatt for a VPP that takes advantage of the diverse set of existing DER assets is approximately $80/MW. Furthermore, the investment in the software and supporting IT infrastructure that creates the VPP does not carry either environmental liability or the risk of stranded investment. The VPP value can only increase over time as new markets emerge for grid services.

In the final analysis, VPPs optimized by smart software controls and new innovative business models such as transactive energy are key to realizing a vision of the future that Navigant has deemed as the Energy Cloud. To learn more, check out the new white paper developed by Navigant Research for Enbala and look for details about the forthcoming webinar on August 15.

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