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Exploring Potential for Integrating Transactive Energy into Virtual Power Plants
The concepts of virtual power plants (VPPs) and transactive energy (TE) are similar in that they place prosumers—formerly passive consumers that now also produce energy—front and center in an emerging market for grid services delivered by distributed energy resources (DER). Both trends are indicative of an electric grid ecosystem that is decarbonizing, decentralizing, and digitizing.
Navigant Research believes that the future of energy rests on the foundation of cleaner, distributed, and intelligent networks of power, what we call the Energy Cloud. The VPP model presents a compelling vision of this future, as does TE. When combined, new revenue streams for diverse energy market stakeholders are inevitable. What portion of the VPP/TE plethora of possibilities will find its way into prosumer pockets?
In a new Navigant Research report entitled VPP Transactive Revenue Streams, I identify six grid services that could be enhanced by integrating TE within the VPP framework. Much more work needs to be done to put money into stakeholder pockets, so I’ve also briefly identified the regulatory challenges that need to be addressed to make these revenue streams real:
- Localized clean energy: How can previous policy vehicles such as net metering and feed-in tariffs be accommodated or revised (or eliminated altogether) to shift from subsidy schemes to a more transparent market locally, regionally, nationally, and internationally? TE platforms operating within VPPs may be a good starting point.
- Virtual capacity: Just as consumer supports need to be revisited for solar PV and other distributed generation, so do assumptions governing determinations of resource adequacy for wholesale system planning. Perhaps exit fees and demand charges are obsolete in a DER-rich future. What are new ways to monetize the actual non-generation-related services a power grid provides?
- Real-time demand response: More sophisticated load-based demand response will be part of the toolkit to displace ramping fossil fuel generators up and down in response to variations in solar and wind. Harvesting load will be one of the key innovations to benefit from TE-based blockchain ledger systems.
- Fast frequency regulation: While the VPP seeks to provide creative fast frequency response, the sources of such services are still often spread far apart. In an ideal world, localized generation, energy storage, and load could be marshaled to address frequency challenges to the grid. How can we integrate locational benefits in the pricing of such grid services?
- Smart voltage control: The proliferation of smart inverters onto the grid represent a rich resource portfolio that can be monetized in multiple ways. TE trades would enable a similar value proposition as fast frequency response. The same challenges to pricing locational benefits apply.
- Big data from small sources: A VPP supported by TE must rely on accurate and timely data, analytics, and insights. While prosumers may not reap large profits from the data they provide via TE, energy service providers and distribution system operators may view this as the largest revenue stream flowing from the digital grid utility transformation.
Do VPPs create opportunities for TE revenue streams or vice versa? Most likely, these two DER platforms will evolve in parallel. DER management systems that can harmonize VPP and TE platforms must incorporate market pricing mechanisms to reflect the changing value of millions of connected endpoints throughout the day. That’s quite the challenge, which also translates into a major revenue stream opportunity for the Energy Cloud ecosystem.