Navigant Research Blog

Taking VPPs to the Next Level

— 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.

 

Microgrids or VPPs or Both?

— April 25, 2017

What’s the difference between a microgrid and a virtual power plant (VPP)?

I like to say that there’s a 75% overlap between microgrids and VPPs. What they have in common is the aggregation and optimization of distributed energy resources (DER). Where they differ is that a microgrid has a confined network boundary and can disconnect from the larger grid to create a power island. In contrast, VPPs can stretch over much wider geography and can grow or shrink depending upon real-time market conditions.

The DER portfolio in a VPP is as equally diverse as a microgrid. Yet, the primary value proposition for a VPP is that the services from these DER assets flow upstream to a utility or transmission grid operator; services are not sealed off into an island from the larger grid.

Once I go through this standard definitional description, the most common follow-up question is: Which of these two distribution networks represents the best opportunity for vendors over the next decade? While pundits like to pick winners and losers, I see future growth globally for both microgrids and VPPs.

Four Examples of Energy Cloud Innovators

Four companies active in what Navigant Research has dubbed the Energy Cloud—which encompasses both microgrids and VPPs—will share the stage at an upcoming panel at the fourth annual Microgrid Innovation Forum taking place in Washington, DC on May 16.

Navigant Research uses the term Energy Cloud to describe transcendent changes sweeping over the electric utility industry. Rather than bigger is better, which drove utility planning for over a century, the shift is toward smaller and smarter DER portfolios. While increasing complexity in energy management, the evolution of a collective Energy Cloud also promises a more dynamic energy market in which buyers and sellers engage in transactive energy.

Each of these four companies has a slightly different take on the Energy Cloud:

  • Sunverge: This San Francisco-based solar PV and energy storage innovator is focused on VPPs that aggregate the DER installed at residences to provide value to utilities. Its recent initiative to sell its software independent from its hardware components speaks to the value of its software.
  • Enchanted Rock: This Texas company offers a fresh take on microgrids. Focused on ultraclean natural gas generation, the costs of its microgrids are so low that cost-conscious commercial and industrial customers are jumping on board. The key part of its value proposition, however, is wholesale market participation revenue.
  • Enbala Power Networks: Ranked No. 1 by Navigant Research in last year’s Navigant Research Leaderboard Report: Virtual Power Plant Software Vendors, this Canadian company is hardly standing still. It has integrated machine learning principles into its new product architecture while also partnering with to develop a DER management system solution for utilities.
  • Blue Pillar: With its focus on Internet of Things (IoT) data management, this Washington, DC-based company’s claim to fame is the ability to bring networks of DER online quickly. Its approach is cost-effective due to the ability to squeeze more value out of existing asset base.

I think the VPP epitomizes the value of Energy Cloud trends since it addresses the so-called utility death spiral head on. If a residential home with solar PV and a battery are part of a VPP aggregation, the home can have it both ways. It can reduce its own energy costs while also contributing to the reliability of the larger utility grid.

The Energy Cloud is all about creating new relationships between and the grid. Which of these four companies do you think will have the greatest future impact?

 

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