If the network modernization is overdue, do not overlook virtual power plants

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A transmission tower that fell into the Mississippi in late August put New Orleans in weeks of darkness. A few weeks earlier, Tesla showed how an established software-driven solution called the virtual power plant is attracting more investment from private sources. If the lights can go out in the blink of an eye, electricity that can be poured into a community in the blink of an eye seems worth more to investors than a close look.

In July, Tesla announced to its California customers that they could look forward to receiving power from an aggregation of Powerwall battery systems. Customers participating in the program, which the company said could reach 50,000, will have access to their battery systems during peak load times. (While other outlets have analyzed the space limitations of Powerwalls, the Californians still place more emphasis on systems in their energy choice.)

The demonstration comes months after the Hawaiian Public Utilities Commission (PUC) approved a $ 25 million contract with Swell Energy to provide “distributable power” to up to 6,000 home systems customers in the islands of Oahu, Maui and Hawaii supply. It also follows a partnership developed between Next Kraftwerke and Toshiba Energy Systems and Solutions Corp across the Pacific Ocean to set up VPPs in Japan that can predict demand and match renewable energy supply.

VPP services can eradicate pollution in communities where fossil fuels exacerbate environmental inequalities.

What has brought cash to these companies around the world? How can they be at the center of care-level strategies when policymakers agree that a decarbonized economy needs new gears rather than software to fill emergency gaps?

The bet starts with the flexibility of the VPPs. They can provide varying amounts of electricity over networks of installed batteries depending on the usage and generation patterns their code can read. A VPP creates algorithms from real-time feed-in data, weather forecasts, consumption data and historical trends in order to forecast electricity prices and communicates the price signals to the networked assets.

Consider Swell Energy, based in Southern California, which launched two VPP programs for approximately 8,000 customers in its home base in May. Participating homeowners use solar energy to charge their battery systems and consume energy when the electricity is cheap, as well as use the stored energy as a backup in the event of a failure. According to the concept of the programs, homeowners can, under certain circumstances, generate grid income from using stored energy at peak times.

Such a model has found its way into Europe. Next Kraftwerke, founded in 2009, currently manages 11,049 aggregated units and 9 GW of networked capacity. According to Next Kraftwerke, its algorithms process data from networked systems, weather, price exchange and network status in order to forecast feed-in data from the aggregated systems. On a smaller scale, Vermont-based Green Mountain Power has installed around 2,500 power supply-controlled storage systems in households with a total output of 13 MW. It has claimed that discharging batteries into the grid during peak hours created $ 3 million of value that would otherwise have flowed to grid operators.

So while policymakers are looking for ways to strengthen the network, do these use cases suggest that returns will flow to those who invest in VPPs now? These systems seem to be asserting themselves as one of many possible strategies around the world. Next Kraftwerke reports on its website how the VPP program he designed enabled the KBB biogas plant with a total output of 600 KW to balance reserves and optimize the costs of its electricity production. VPPs may offer something of a turnkey solution to buyers, vendors, or regulators who have promised to reduce fossil fuel consumption. Their vendors – including Tesla – promise to help customers avoid costs when looking for investments from financial institutions under pressure to decarbonize their asset portfolios.

Under a 2018 agreement, Tesla deployed VPP services for up to 3,000 households in South Australia. Within six months of operating the 100 MWh battery project in Australia in May 2018, Tesla reported saving 90 percent of the costs of normal grid services by using relatively cheap and clean batteries. A look at some deals from 2020 shows different scaling paths.

VPPs may offer something of a turnkey solution to buyers, vendors, or regulators who have promised to reduce fossil fuel consumption.

OhmConnect, a residential demand response startup, signed a $ 100 million contract with Alphabet-backed Sidewalk Infrastructure Partners and the Ontario Teachers’ Pension Plan to scale 550 MW VPP over the next three years. OhmConnect will use 80 percent of the capital to equip California households with free controllable devices such as smart plugs and smart meters and use the remaining equity internally. Swell partnered with Ares Management and Aligned Climate Capital to create a VPP financing instrument to raise $ 450 million to deploy 14,000 solar power generation and home storage systems. The financing works with the supply contracts, which serve as a fixed source of income for covering the network needs during peak times. As a result, California’s utility company PG&E has promised its regulator to procure at least 716.9 MW of capacity by August 2023 in order to improve grid reliability.

The joint venture between Next Krafwerken and Toshiba Solutions to scale VPP solutions globally shows a different financing structure In August, Shell acquired Next Kraftwerke, which would allow Shell to add renewable portfolios to its asset class and accelerate its transition to decarbonised energy.

At the other end of the market, VPP services can clean up pollution in communities where fossil fuels are exacerbating inequalities. This is because their supply can replace “peak power plants” that are normally turned on with dirty fuel sources near low-income homes. Peak power plants typically burn gas or even heating oil and emit twice the greenhouse gas equivalent of a conventional power source, according to the New York Public Service Commission. An advocacy group, the PEAK Coalition, along with the statewide Clean Energy Group, argues that New York City’s top power sources ” generate the most expensive energy in the country “. Customers in environmental justice communities can also provide these families with cleaner peak electricity.

The summer death toll in the US and Europe shows that existing systems require radical new investments to withstand the looming climate catastrophe. In this regard, expect VPPs to require more attention.


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