Navigant Research Blog

Why VPP Software Vendors Are Vital to the Success of the Emerging Energy Cloud

— November 30, 2016

Ethernet CablesThe concept of a virtual power plant (VPP) means different things to different people. It’s really just a creative way to imagine the variety of grid services that can be harvested from the plethora of distributed energy resources (DER) that are rapidly populating power grids worldwide.

A VPP is the epitome of the changes transforming relationships between utilities, customers, and a host of other market participants that are building real solutions to the pressing energy and environmental challenges facing the world today. Navigant has coined the term the Energy Cloud to describe the evolution of our collective energy future. VPPs are just one aspect of this shift toward smarter, cleaner, and smaller power sources being aggregated into real-time solutions that benefit individual asset owners while contributing to the sustainability of existing infrastructure.

The Value of Software

Now that hardware assets such as solar PV panels, batteries, and other DER are becoming commoditized due to increased market penetrations and creative business models, the key to unlocking greater value from both new and existing DER is software—the fundamental technology driver underlying the VPP market.

Software is a broad category. It includes systems that connect DER in order to optimize synergies between like and unlike resources, in addition to the interface mechanics of interacting with utilities and wholesale markets for ancillary services. IT and related software is where the money is being made in the VPP market; according to Navigant Research’s Virtual Power Plant Enabling Technologies report, software spending is expected to represent nearly 90% of total VPP implementation spending by 2025. The same report also provides an analysis of the energy storage systems being wrapped into VPPs.

A sudden surge in energy storage deployments being aggregated into VPPs is tilting the market in dramatically new directions. How utilities and wholesale transmission grid operators treat energy storage as an asset may be the most important technology-related development affecting near-term commercial VPP deployments.

Ranking Vendors

Navigant also recently published a Leaderboard report ranking VPP software vendors. There is always an apples-to-apples comparison challenge with the Leaderboard format, but by stepping back and focusing on the overall trends in the market, insights bubble up to the surface.

Ranking software vendors active in the mixed asset VPP market is even more problematic than microgrid controls vendors given the lack of available transparent data on performance of software products. The lack of a universal definition for a VPP only adds another layer of issues in developing a ranking. These caveats aside, the rankings do reveal some market insights.

Some vendors claim vertically integrated utilities are the best near-term market for VPPs, since all ancillary services required to keep the grid physically in balance are purchased by one single entity. Others argue that deregulated markets open doors to new ways of monetizing value and harness the value of diversity and competition. I believe both opportunities will help build the VPPs of the future. It will be mix of pure-play software vendors, energy storage innovators, and large global technology companies that show the way.

 

Recognizing the True Value of Storage and Facing Cybersecurity Threats

— October 28, 2016

AnalyticsEnergy storage has historically been too expensive to integrate with distributed energy resources (DER), but prices have fallen significantly across several portions of the value chain in the past few years. To continue to improve the economics of the technology, it’s important for new and existing energy storage systems (ESSs) to provide multiple services to customers. This will open up a larger market for aggregated systems that can help realize the true value of storage. Software platforms that can analyze, operate, and optimize battery energy storage-enabled virtual power plants (VPPs) will be critical to capitalize on value stacking.

Aggregated Energy Storage Systems

Powershift

(Source: PowerShift Atlantic)

For instance, energy storage service provider Greensmith Energy was chosen to provide its software and integration services for several recent projects. In September, investor-owned utility American Electric Power (AEP) chose Greensmith’s GEMS platform to manage its 2 MW/14M MWh ESS in West Virginia. AEP plans to leverage the software’s functionality to expand the use of the system into a revenue-generating asset rather than solely a backup system for its distribution network. Several other companies like Sunverge, Demand Energy, and Green Charge Networks have also recently partnered with utilities where smart software will be used for flexible ESSs.

Energy storage software is increasingly becoming a vital part of determining the bankability of a project. Software modules optimized for different grid-level or customer-level applications create value for both utility-scale and behind-the-meter (BTM) users. Particularly for residential and/or commercial customers, the software module can create viable revenue streams by:

  • Optimizing self-consumption in real-time across multiple variables (e.g., demand charges, utility tariff data, etc.)
  • Participating in utility-sponsored demand response and resource adequacy programs
  • Providing long-duration backup power and islanding capabilities

A noteworthy development in the residential ESS software market is a recent partnership announced by energy Internet provider AutoGrid and distributed ESS manufacturer sonnen. The two companies partnered to fully integrate AutoGrid’s flexibility management suite with sonnen’s residential and commercial battery solutions. AutoGrid and sonnen will help energy project developers, utilities, and other energy service providers better manage, optimize, and aggregate sonnen ESS systems and other DER. Both companies believe that the partnership will help maximize project return on investment (ROI), reduce project delivery times, and unlock new revenue streams for several value chain players.

Need for Cybersecurity

With the increased automation of energy storage and DER in general, it will be important to consider the cybersecurity threats that could occur. These attacks can disrupt general system functionality or cause targeted damage to intellectual property, critical infrastructure, and physical assets. Incidents of cybercrime and associated costs can be substantial; companies must prepare for the worst-case scenario. This is not only important to protect against threats, but also to aid in how businesses continue to operate during an attack, as well as how they adapt and recover after. So what does this mean for DER businesses and stakeholders?

  • Utilities have the ability to drive the storage market forward, enabling ESSs to achieve profitability under several business cases like VPPs.
  • DER software companies should focus on developing controls that can optimize multiple use cases to maximize the value of projects.
  • ESS and other DER software developers must ensure they are adequately protected from cyber threats, including developing strong compliance programs, having advanced functionality to mitigate against vulnerabilities, and ensuring systems are in place to immediately alert stakeholders of breaches.
 

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.

 

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