Navigant Research Blog

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.


Will One Company Conquer the Distributed Energy Space?

— November 25, 2015

I have often suggested that I don’t see any single company ever dominating the distributed energy space with networking platforms such as microgrids. My recent Leaderboard report, which ranks microgrid developers/integrators that offer their own distributed energy resource (DER) controls platform, underscores this point. All 15 companies that were ranked were, at the very least, contenders, with only three emerging as leaders according to the report’s criteria.

Some disagree. After this report was released, General Electric (GE) made a major announcement that raised some eyebrows, launching a new company called Current, an aggregation of existing business units currently valued at $1 billion. Jan Vrins, global energy practice leader here at Navigant, suggested in a recent blog that this move positions GE in a role of the network orchestrator, a business model that may prove to be the most profitable over the long term.

Current is designed to bundle previously disparate business lines offering LED lights, solar PV, energy storage, and electric vehicles into a single startup located within the walls of GE. Many in the industry are curious as to how this will play out, among them yours truly.

Whether talking about microgrids or virtual power plants (VPPs), the other significant development in the DER space is the approval of the merger between GE and Alstom Grid. Why? While GE’s broad suite of products relevant to the microgrid space is impressive, its control platform was not its strongest suit. By incorporating Alstom Grid’s controls, which are repurposed from its platforms used by numerous wholesale grid operators throughout the world, it now has a platform aimed at the VPP portion of the distributed energy value stream, migrating value from distribution level resources up to wholesale operations.

I see GE recent moves aligning more with VPPs—a network orchestrator business model—than microgrids. This is in spite of its major presence in New York, the hotbed for retooling utility business models to allow utilities a greater role with DER aggregation and optimization via community resilience microgrids. Since France, Germany, and Denmark in Europe are the current hotspots for VPPs, the GE-Alstom Grid merger is looking like a potential winner.

Yet there is plenty of competition. Navigant Research’s recently published report, our ninth edition of the Microgrid Deployment Tracker, for the first time tallies up identified microgrid capacity by vendor. Using that metric, ABB comes out on top. The bulk of these projects are remote microgrids in places such as Australia, islands off the coast of Spain, and in Alaska. The same update shows, nonetheless, if one tallies up total projects, it is Schneider Electric that rises to the top. Coincidentally, Schneider Electric ranked first in terms of the Leaderboard report, largely due to its partnership strategy on the controls questions, with firms as diverse as ETAP, Green Energy Corporation, and DONG Energy among its co-innovators.

One also has to admire the breadth of solutions being offered by Siemens. By offering a complete end-to-end solution for microgrids, including financing, and integrating this approach with the vision of smart city infrastructure, Siemens is echoing the idea that microgrids become a complete infrastructure package. The worlds of microgrids and VPPs come closer and closer together over time.

So, the bottom line? I don’t see any one company dominating the microgrid/VPP space anytime soon. GE’s recent moves will go a long way in strengthening its role in the DER space, but it has plenty of competition. Left unanswered at this point in time is whether the network orchestrator role will indeed unlock the revenue streams to allow large technology players to innovate in the increasingly crowded distributed energy market. It looks like GE wants to find out.


Defining the New Smart Grid: From Nanogrids to Virtual Power Plants

— July 7, 2014

Nanogrids and microgrids are building blocks that, like Legos, can be stacked into modular structures: in this case, distribution networks that tailor energy services to the precise needs of end-users.  This customization of energy services is clearly the wave of the future; but determining where to draw the line between these two business models can be challenging.

In many ways, nanogrids are just small microgrids that typically serve a single load or building.  They thereby represent a less complex way to manage on-site distributed energy resources (DER).  Ideally, microgrids would be able to serve entire communities, but utility regulations often stand in the way.  These same regulations make nanogrids larger business opportunity today than microgrids, despite their smaller size.

The series of storms and extreme weather that have attacked East Coast grids in recent years has sparked interest in community resiliency initiatives.  New York’s Reform the Energy Vision (REV) initiative is designed to explore how multi-stakeholder community microgrids might provide emergency power to end-users ranging from a private gas station to a municipal fire station (and perhaps a community center emergency shelter).  Connecticut has been struggling with this issue of how best to include both public and private sector end-users, bumping up against the long-standing prohibition of transferring power among non-utilities over public rights-of-way.  To date, only one of the 9 projects approved for funding under Connecticut’s DEEP program is actually up and running, at Wesleyan University.

The Virtual Option

The third smart grid business model that can help build resiliency into power grids is described in Navigant Research’s report, Virtual Power Plants.  A virtual power plant (VPP) is a platform that shares many attributes with the microgrid (and the nanogrid).  In North America, the most common resources integrated into VPPs are demand response systems.  Though VPPs cannot guard against power outages at the customer site, they can play a key role in lowering overall demand on the larger utility grid, thereby stretching scarce resources, directing them to mission critical loads.

The lexicon of organizing structures required to handle the increasing complexity of energy supply and demand is growing.  In order to make sense of this brave, new world in energy, Navigant Research has come up with the following chart highlighting key attributes of three different business models.

 Comparing Nanogrids, Microgrids, and VPPS

(Source: Navigant Research)

Regulators clearly need to revisit regulations standing in the way of community microgrids.  It appears that New York is pioneering this debate, allowing it to surpass California’s position as the leading microgrid market in the country in terms of sheer numbers of projects in the works.  Moving downstream again, it is also important to remember that nanogrids help create smart buildings that, in turn, can also be integrated into VPPs.  These combinations are vital to efforts to harness greater value from DER, thereby increasing energy security.

In the end, it’s not nanogrids, or microgrids, or VPPs, but the deployment of all three in flexible and dynamic configurations that is revolutionizing what was once the staid world of top-down, command-and-control monopoly utilities.


Data Centers Morphing Into Virtual Power Plants

— February 12, 2013

What is a “virtual power plant?” The term means different things to different people in different parts of the world.  Pike Research has come up with its own definition: A system that relies upon software to remotely and automatically dispatch and optimize generation, demand-side, or storage resources (including PEVs and bi-directional inverters) in a single, secure web-connected platform.

At their core, VPPs tap existing grid networks to tailor electricity supply and demand services for a customer, utility, or grid operator.  Without any large-scale fundamental infrastructure upgrades, VPPs can stretch supplies from existing generators and utility demand reduction programs.

The latest VPP model to emerge is based not on geographic proximity – typically the top consideration – but rather on enterprise ownership of global operations.  Ironically enough, the farther away each facility linked in the VPP, the better!  Companies such as PowerAssure are investigating ways for companies that use large global data center operations, such as Apple and Google, to create enterprise VPPs that span the globe, whereby data centers shut down operations and shift load from the regions of the world in daylight to the nighttime half of the globe, where power is cheaper.  The technology to carry out this level of global energy arbitrage – known as “following the moon” – is nearly here (though some engineers may disagree). “Data centers can modulate their IT loads based on external events, such as the price of power, and in the process, save money and get paid for providing demand response (DR) services,” Peter Maltbaek, vice president of worldwide sales for PowerAssure, told me.

Changing Models and Mindsets

The U.S. Environmental Protection Agency (EPA) recently revised rules governing limits imposed upon use of diesel generators that should help increase the availability of DR throughout the United States.  The chief challenge for global enterprise VPPs comes on similar regulatory restraints as well as the accounting end of such transactions.  Of course, if large numbers of large energy users employed this strategy, it could wreak havoc with local grid stability instead of enhancing reliability.  How national and regional regulators would respond to such a business model, based largely on financial flows instead of engineering smarts, is unclear.

Another challenge is changing the mindset of data center owners.  “They need 100% availability and are leery of anyone fooling around with their power supply, especially since it is only typically 3% of total costs,” added Maltbaek.

Lawrence Berkeley National Laboratories (LBNL) released a study last year that looked at data centers and their potential for DR.  ABB, which has invested in PowerAssure and has its own Decathlon DCIM VPP offering for data centers, has already installed a 1 megawatt (MW) DC microgrid at a data center in Zurich, Switzerland providing DR through use of its emergency generators; this system is currently being expanded to 10 MW, will later go to 30 MW, and will then be aggregated with three other data centers in the region.

In Germany, meanwhile, Siemens claims that recent regulatory reforms will allow it to boost its supply-side VPP capacity to 3,000 MW by 2018.  Last year, the company announced that it would increase the capacity of its VPP from less than 10 MW to 200 MW by 2015.  The company says that Germany has enough spare capacity on its transmission lines to create VPPs that span the entire country.


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