Navigant Research Blog

Energy Cloud 2.0: Orchestrating Power Networks via Virtual Power Plants

— August 30, 2016

AnalyticsThe evolution of energy markets is accelerating in the direction of a greater reliance upon distributed energy resources (DER), whether those resources generate, consume, or store electricity. The new frameworks necessary to manage this increasing two-way complexity are quickly evolving. Nevertheless, strategies are being deployed today all over the globe.

One such strategy is a virtual power plant (VPP), the concept that intelligent aggregation of DER can provide the same essential services as a traditional 24/7 centralized power plant. The definition of a VPP is fuzzy. In short, it is based on the idea that the value of DER must not only provide value to the prosumer, but must also be enabled (through technology and regulation) in order to migrate value upstream to utilities and even transmission grid operators. In other words, they need to rely upon a network orchestrator, a concept that is articulated in a new white paper entitled Navigating the Energy Transformation.

Gaining Acceptance

Navigant Research published its first VPP report in 2010. Since that time, what was once seen as a futuristic scenario fed by a number of experimental pilot projects in Germany, Denmark, and the rest of Europe is emerging into a real market that draws upon analogies with companies such as Uber. The network orchestrator driving value for the VPP may not own all of the assets; value is created by organizing these assets in a way that creates real-time physical benefits to the power grid (or in the case of Uber, to people seeking near-immediate transportation services).

VPPs represent an Internet of Things (IoT) approach to energy management, tapping existing grid networks to tailor electricity supply and demand services for a customer, utility, or grid operator. VPPs maximize value for both the end user/asset owner and the distribution utility through software and IT innovations. The primary goal of a VPP is to achieve the greatest possible profit (or savings) for asset owners, while at the same time maintaining the proper balance of the electricity grid at the lowest possible economic and environmental cost. From the outside, the VPP looks like a single power production facility that publishes one schedule of operation and can be optimized from a single remote site. From the inside, the VPP can combine a rich diversity of independent resources into a network via sophisticated planning, scheduling, and bidding of DER-based services.

A Transforming Field

Perhaps the most transformative example of a VPP is the aggregating up of residential rooftop solar PV systems with distributed energy storage, which can then deliver dispatchable demand response (DR) services to utilities. A great example of this VPP model comes from the Sacramento Municipal Utility District.

Navigant’s recently released white paper concludes that roughly $10 trillion can be attributed to the digital innovations necessary to integrate renewables, which will represent the vast majority of new power supplies supporting the grid by 2030. A report to be published this September will carve out how large the VPP market is expected to be over the next decade. Regardless of the precise figures included in these forecasts, revenue across the electricity value chain is shifting downstream toward the edge of the grid.

Without VPPs, this shift could result in chaos. With emerging business models such as VPPs, however, a balancing of the grid can occur that also balances costs and benefits, ideally in a way that serves a broad array of society’s stakeholders.

 

Overcoming Hurdles to Monetizing Value Streams from Energy Storage Systems

— August 19, 2016

GeneratorFederal Energy Regulatory Commission (FERC) Order 755 requiring regional transmission organizations (RTOs) and independent system operators (ISOs) to implement a pay-for-performance structure for frequency regulation service has been instrumental in demonstrating the benefits that fast-responding resources like battery energy storage systems (BESSs) can provide to the grid. For example, since Order 755’s implementation, PJM experienced a 30% reduction in overall regulation reserve requirements as more fast-responding resources have cleared the market. However, despite the early regulation successes in PJM, storage directly connected to a distribution system (known as front-of-meter, or FTM) continues to faces uncertainty and barriers in the United States associated with rate treatment.

On another front, energy storage stakeholders now recognize that BESSs connected to the distribution system from behind the meter at a residential and/or commercial & industrial customer’s property can deliver benefits to the host, RTOs/ISOs, and utility distribution system operators. This evolution is driving the development of software and hardware platforms that can analyze, control, and optimize not only a single BESS, but also aggregated BESSs. These advances are now giving rise to energy storage assets that can recognize multiple value streams by stacking grid benefits in virtual power plants (VPPs).

Regulations and Requirements

However, regulatory eligibility and performance requirements for aggregated behind-the-meter battery energy storage assets have not caught up with these technological advances. To date, there has been limited participation by energy storage in demand response markets, and several instances demonstrate how wholesale market rules are missing opportunities for these assets to provide multiple grid benefits. For example, the CAISO Proxy Demand Resource (PDR) prohibits a VPP from providing frequency regulation, even though the systems would be technically capable of doing so. And in ISO-NE and NYISO, Northeast Power Coordinating Council rules prohibit behind-the-meter energy storage from providing spinning/synchronized reserves.

At the Energy Storage North America (ESNA) expo in October, a panel discussion will feature case studies from across the country on the challenges, feasibility, and economics of how single BESSs and VPPs can stack energy storage value streams. Don’t miss out on the conversation—register for ESNA today.

 

In the Energy Cloud, Software Is King

— July 27, 2016

Energy CloudDistributed energy storage systems (ESSs) may present the most challenges and opportunities for both distributed energy resources (DER) developers and grid operators. Recent industry partnerships and product developments are highlighting the growing role that ESSs can play in the emerging Energy Cloud. These new partnerships seek to provide a solution that can make distributed ESSs much more attractive to utilities as an asset, rather than a new challenge to deal with.

The proliferation of DER presents challenges to utilities, which typically have limited visibility and control over the edges of their network. Distributed ESSs can provide the backbone of a highly dynamic and two-way power grid, acting as flexible sources of both load and generation to match intermittent generation with fluctuating demand. However, ESSs on their own can only provide minimal value to the grid; the key is in the advancing software platforms that enable distributed storage to act as the microchip of the Energy Cloud.

Emerging Alliances

While many leading distributed storage vendors have developed their own software platforms to manage an aggregated fleet of systems, several new partnerships are taking software offerings to the next level by bridging the gap between these independent resources and utility control rooms. Distributed storage provider sonnen and grid software provider Enbala Power Networks recently announced an agreement to jointly offer a distributed energy aggregation and control platform to utilities. The companies see utilities benefiting from this offering through an enhanced ability to handle the unpredictability of distributed renewables being deployed on their network. Their solution will also allow for the creation of virtual power plants (VPPs) to help improve overall grid stability and resiliency.

A similar partnership was recently announced by storage vendor Advanced Microgrid Solutions and software provider Opus One. Through the coordination of distributed storage systems and real-time grid level energy management, the companies will offer utilities a greater degree of distribution grid visibility, control, and optimization. This partnership allows each company to focus on its core competencies while offering utilities a solution that solves several of their issues and enables the grid to handle greater amounts of DER.

Software Is Key

These new industry tie-ups support the emerging trend that both energy storage management software and coordinated grid management software will be crucial to establishing a network saturated with DER. As these diverse and often unpredictable resources continue to be installed, it becomes increasingly important for grid operators to have visibility and control over what’s happening at each level of their network. Both utilities and DER vendors recognize that the optimal integration of these new grid assets will require collaboration among various stakeholders.

 

The Invasion of the Storage-Enabled Virtual Power Plants

— April 13, 2016

Energy CloudNavigant Research recently published a white paper detailing Five Trends for Energy Storage in 2016 and Beyond. One of these trends focuses on the coming invasion of energy storage-enabled virtual power plants (VPPs) into energy markets.

While the trend of energy-storage enabled VPPs entering into energy markets may sound ominous, it isn’t. It is simply a step forward in the transition away from a centralized power system toward a distributed energy system that resembles the Energy Cloud.

What Is a VPP?

A VPP is defined as a “system that relies upon software and a smart grid to remotely and automatically dispatch and optimize DER [distributed energy resources] via an aggregation and optimization platform linking retail to wholesale markets.” An energy storage system (ESS)-enabled VPP is a VPP that uses energy storage as the foundation of the plant. Storage acts as a foundational element because once storage is included in a VPP, the VPP becomes dispatchable and schedulable. In addition, other assets that are not schedulable—such as load or solar PV—become more attractive.

For example, solar PV can be included in a VPP, but in order to balance the uncertainty of energy generation availability, aggregators design and build portfolios that meet a commitment to a utility while minimizing risks (such as significant cloud cover causing the aggregator to miss its commitment). However, by using an ESS in a solar PV portfolio, the aggregator would have more flexibility designing a portfolio and could bid more confidently and aggressively in the market. Energy storage of all types adds flexibility to VPPs.

Gaining a Foothold

By the end of 2016, Navigant Research anticipates that ESS-enabled VPPs will have cleared the proof-of-concept stage. With pilots in Switzerland, California, New York, Kentucky, Australia, and Ontario, the ESS-enabled VPP trend is gaining a foothold in key markets in North America, Asia Pacific, and Europe. However, ESS-enabled VPPs have only been in operation for as little as a few months (with the exception of Ice Energy, which has been using the company’s Ice Bears in a similar fashion for the past several years). By the end of 2016, nearly all of these VPPs will have over a full year of operational data available.

Utilities and grid operators with these systems will learn how ESS-enabled VPPs operate and benefit the grid in periods of both extreme summer and winter weather. Utilities can use this data to build a rate case for ESS-enabled VPPs and give regulators a justification for allowing utilities to build and operate these systems. The primary risk for utilities is that regulators have not developed regulation around VPPs as an asset class—it remains to be seen whether utilities will own and operate VPPs exclusively, or if customers will have a choice of VPP-providers, similar to how customers can often choose their energy supplier.

 

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