The Virtual Power Plant in 2014 -Path to a New Business Model

Virtual Power Plant

by Phil Davis, Schneider Electric

Virtual power plant (VPP) is a phrase historically applied to demand response-based portfolios. Today it has a broader meaning.

Questions about Federal Energy Regulatory Commission (FERC) Order 745 coupled with the Environmental Protection Agency’s proposed rules under Clean Air Act part 111(d) imply that the next wave of market innovations in the grid will occur at retail and state levels. Activists across all customer segments want more information, capability and independence from traditional grid activities. Customers want a stronger, more resilient grid, and the traditional values of a green, reliable, efficient, safe and productive service remain.

Today’s VPP leverages the combination of energy efficiency and customer flexibility. These come to the grid as sophisticated resources with equal standing to other resources to meet the needs for which they are best suited. In other words, a VPP signals the decline of an era when utilities automatically arrange or build supply assets sufficient to meet the highest conceivable peak loads plus a reserve margin for completely passive customers. Instead, the VPP means system planners are rightsizing grid assets by expecting and inciting new behaviors from their customers.

Customer Asset Integration

Rooftop solar is the poster child for active consumers, but on-site generation has existed for decades in large amounts. Certain industries create prodigious amounts of waste heat that is put to use for on-site generation. Others have backup generation for emergencies. In the middle are cogeneration plants in campus settings where they make economic sense. Most potential in these sites is wasted because they serve only the sponsor organizations. In the best-case scenario, they provide the underpinnings for demand response participation.

The past 15 years have taught that demand response is a reliable, if labor-intensive resource that can provide relief from overtaxed or expensive resources. More recently, PJM and others have used demand response in more sophisticated applications such as regulation services.

Storage is coming fast. Many articles detail the use of electric vehicle batteries, but stationary storage offers greater potential. Batteries and capacitor banks are the obvious technologies, but increasingly, customers see the potential in the thermal storage of buildings, pumped storage, mid-process inventory and the like. The latest frontier, behavioral storage, transforms the schedules of daily life into a grid asset. The goal of the VPP is to understand, evaluate and integrate these factors into workable resources for grid management.

The March of Technology

Current grid traditions do not allow for the elegant integration of new technology. Large investments in capital assets result in long-term depreciation schedules, well beyond current technology refresh cycles. Many baseload power plants came online well before concerns about safety peaked. The result is premature decommissioning at a significant cost. Gas-fired generation is replacing much of that capacity. It isn’t emissions-free, and concerns about fracking might reach the level of today’s objections to coal-fired generation.

Though large central plants will remain part of the mix for the foreseeable future, no longer is it automatic that they will be refurbished or replaced. Exemplified by New York’s Revising Energy Vision docket (REV) and the National Association of Regulatory Utility Commissioners (NARUC), regulators are tackling what they don’t know. What they do know is that usual business practice is becoming political suicide.

Here, the VPP serves as a road map to the future. Utilities can consolidate current customer-oriented programs and practices under the VPP banner to understand better how they work as a system. Knowing that allows for a defensible plan that will integrate demand and supply resources and increase automation, understanding and risk management. The solution will be tailored for each community to take advantage of local capabilities.

Who Owns a VPP?

Among the competencies of distribution utilities are three that are key: financial management, asset management and network operations.

As creatures of physics, electrons are highly volatile. Fast and potent, errors in design and handling can result in catastrophe. There is a romance associated with grid independence and personal generation, but fundamental questions remain. Utilities adhere to high standards of operations and maintenance with strong oversight from regulators. As unregulated customer-owned solar plants deteriorate and required maintenance is deferred in the interests of quarterly results, who assures grid stability?

One answer is to use the existing grid as backup. This handily overlooks the relatively small portion of utility charges that goes to energy. Most charges cover the costs of utility operations and assets. This means self-sufficient customers who look to the grid as backup would have to pay their own O&M costs plus similar charges for the standby network. Overall costs likely would rise much more than theorists anticipate.

Conversely, if regulators allow utilities to own and operate customer-side assets and integrate them into VPPs, those assets can support the broader communities by spreading out costs and reducing duplication. Such a strategy supports better resiliency; phasing in a VPP would include more sophisticated distribution automation, measurement and fault containment. It makes the most sense to tap the capabilities of an industry with more than a century of experience in electron management.

Considerations for Managing a VPP

Microgrids. Is a VPP synonymous with a microgrid? No, a microgrid is a design strategy that can support a VPP, but the VPP concept is broader. Certain aspects of grid operation are independent of geography. For example, regulation services might be supported best by identifying and managing hundreds of variable frequency drives spread across an area, perhaps served by different substations. The ideal design allows the utility-balancing authority-to identify loads by their electrical characteristics and use those asset classes to manage the grid challenges for which they are best suited.

Big-really big-data. Big data, or, more correctly, sophisticated analysis and modeling, is nothing new, but the potential increase in the number of assets’ being monitored is unprecedented. There are several associated challenges. Even if utilities own customer-sited assets, they won’t own the actual customer sites. More likely, there will be a mix of utility-owned assets and customer-owned assets under contract or tariff-millions of them. Modeling must evolve to understand the collective capability of those assets at any time. Because of large numbers and mixed ownership, that modeling will be more probabilistic than deterministic and will require new disciplines.

Communications and calculation latencies involved with certain activities will dictate modeling and execution be pushed out from the control center to substations or other locations closer to the point of need.

solar panels

In the face of aging infrastructure, regulators and other stakeholders must recognize and take pains to support grid modernization with a full measure of capability, not an intermediate stopgap. Utilities must do the best they can to future-proof their designs. While the laughter subsides, think about common practical measures: adherence to open standards, modular design laboratory testing for interoperability, pilots, case studies and academic partnerships.

A word about open standards. Vendor lock is a common complaint, especially with enterprise systems. Vendors have a natural tendency to use unrestrained functionality, or bugs, to compromise interfaces in ways that make that vendor the most efficient choice in the future, but most systems are designed along industry best practices.

There is a natural tendency among customers to ask vendors to customize those best practices to mimic more closely the customers’ existing processes. The key to open systems is coupling interoperability testing with a commitment adapt process to standard system functionality. The investment in staff training will reap a huge return from lower operating costs.

Show me the Money

How does one fairly settle the value of all the interactions among millions of devices? This has physical and financial components. Physically, it won’t be practical for utilities to control millions of individual devices nor will customers be able to track them under a prices-to-devices scenario.

There might be a new class of distribution equipment: a gateway with executive functions. Such a device reacts to signals from the grid operator (e.g., price, quantity, etc.) through a customer-designated program of actions. Intelligence at the site determines how or whether to react based on customer-logged constraints (critical processes, production schedules, house full of company and so forth). Supporting this would be robust communications’ feeding the models discussed.

The value of the behaviors could be set via the principals of transactive energy. This allows an asset owner to communicate willingness to perform via an offer while the entity in need could commit and execute based on a priority list developed from those offers. Because economic incentives cannot address all the needs of grid management such as aspects of outages or emergencies, there would remain some need for transactive controls. Even so, the combination of set tariffs and transactive energy could lessen the complexities of many variable elements.

Can I Just Watch my Television in Peace?

Customer engagement is the critical layer in constructing a VPP. Much of the population is happy with the grid. For them, any change has negative implications. The creation of a VPP, like any physical central plant, will be measured in decades, starting with planning decisions made today. During the same time, customers must learn why reconciling climate goals with those of economics means change. Much of this can be automated, but it all must be purchased. Failure to engage customers at all levels in this process will increase the risks and costs of building the VPP.

Our industry talks often about the impact of organizational silos on our ability to effect change. Our customers have the same challenge. Many understand smokestack emissions, but they do not see the impact of large power plants on the water supply. They pay for electricity, but they don’t understand the costs of the fixed assets and labor that deliver it.

Much as the VPP depends on a fluid organizational structure, and so should the customer message reach outside traditional corporate boundaries. With success, the VPP will be the new name for the utility of the future.


Phil Davis is senior manager of the Demand Response/VPP Resource Center at Schneider Electric.

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