Introduction: Virtual power plants
As our lives have become more electrified, we have been forced to find new solutions to produce electricity. Unfortunately, traditional carbon fuel power plants have negatively impacted the environment and are costly to modernize. As residential solar and batteries have become more common, utilities and renewable energy companies have started to develop virtual power plants that connect individual homeowners solar and batteries to replace the need for carbon-emitting power plants.
Virtual power plants are becoming more common, with the announcement of recent projects in Hawaii and California receiving a lot of coverage. For customers who have already added solar or those looking to add solar and energy storage, virtual power plants allow people to save more money and help support their local electricity grid.
Let's learn about the history of virtual power plants, how residential solar and batteries support these programs, and how Alchemy Solar can help you get the most money back for entering into your local virtual power plant program.
The History of the Virtual Power Plants
Over the past few decades, two things have dramatically altered the way that we use electricity. The first is that weather partners have become more extreme. Extreme fluctuations in the weather and increasing temaptures lead to greater demand for electricity to keep people comfortable and safe.
The second is the increasing electrification of our lives. As homes have become more efficient, more appliances are now powered with electricity, and people are transitioning to electric vehicles, utilities need to produce more electricity to cover demand.
The demand for more electricity is happening at the same time as our utility grid is aging. The fact that most utility grids have not been modernized has lead to a straining on the electricity grid that has increased power outages and driven up the cost of power.
For utility companies, this has put them in a precarious situation. Many utilities understand that the old model for electricity production is not sustainable, both in terms of cost and pollution.
In response, a focus on limiting carbon output and finding more economical models has led people to explore new solutions for producing electricity. One of the biggest challenges for electricity utilities is moving electricity from large centralized power plants to businesses and homes.
For example, delivering electricity presents challenges when traditional power plants are forced to close, as the current situation in Hawaii with the closing of the Kapolei Energy Station. The closing of the Kapolei Energy Station is projected to reduce Hawaiin Electric's power production by 20%. A reduction by a fifth in electrical production is a massive loss that would have been catastrophic for a utility in the past.
As more solar, batteries, and other renewable resources have come online, experts have realized that these more localized power production resources can be combined to supplement and, in some cases, replace traditional power plants.
Power experts realized that with the development of technology to control the flow of distributed electricity sources and use machine learning to project shifts in electrical load and demand, the new power production resources could be combined to create a Virtual Power Plant (VPP).
One of the first large-scale virtual power plants was put into effect by the Siemens Infrastructure & Cities and Munich city utility Stadtwerke München (SWM) in April 2012. Germany had long been at the forefront of the VPP movement. What the 2012 project indicated was the viability of the virtual power plant model because of improvements on the energy management technology side.
Outside of Europe, Tesla's Virtual Power Plant program has focused on the development of the it's South Australia Virtual Power Plant. The program has been success a success that Tesla in September of 2021 announced that it would be expanding the program.
In the United States, as utilities have been forced to address the devastating impact of climate change, they are being forced to turn off power production to avoid causing forest fires and other issues. The implication of increased power outages and increased costs for electricity production has pushed utilities to look at a more decentralized option for power production and distribution.
Across the country but especially in California, utilities are looking to one of the most abundant power producers, solar and residential energy storage, to build Virtual Power Plants. In June 2020, Sunrun and Southern California Edison announced the first home battery virtual power plants in the United States.
In just the past year, these types of programs have expanded. With new VPPs coming online in Queens, New York, and calls for virtual power plant projects in Texas after the power outages of 2021, Virtual Power Plants will become a more central part of our daily energy usage.
What are Virtual Power Plants?
When talking about Virtual Power Plants, it is essential to understand how these programs work. In its simplest form, VPPs focus on connecting different power production facilities. Decentralizing power production is a shift from the traditional centralized power plant model, usually powered using coal or fossil fuels.
Under the traditional model, centralized power plants produce power that flows in one direction, from the power plant to business and consumers. Because traditional power plants are centralized, controlling power production was all done in one place, at the power plant.
The power production being controlled in one place leaves the utility grid susceptible to outages and expensive power when significant shifts happen. Big shifts are becoming more common as climate change causes massive temperature shifts, natural disasters (fires, tropical storms, etc.) occur more frequently, and more distributed energy resources (DER) come online.
The increase in distributed energy resources (solar, batteries, wind turbines, etc.) may seem like something that is only beneficial for the grid. But, in reality, because the power grids have been designed to be one-directional and DERs sending power back into the grid can cause technical challenges.
When extra power is sent back into the utility grid, utilities have to deal with sudden shifts in production by either turning on or turning off polluting fossil-fuel-based power plants.
In places like California and Hawaii, where residential solar thrived, utilities have stated that they are struggling to deal with sudden drops of solar supplies when the sun starts to go down, leading to a massive jump up in demand for power coming from traditional power plants.
Virtual Power Plants solve the challenges caused by the bidirectional flow of electricity with DERs and fluctuations of electrical demand. When designed correctly, VPPs can provide power 24 hours a day and replace the need for centralized fossil fuel-burning power plants.
VPPs connect various distributed energy resources and energy storage solutions to build a centralized power plant equivalent. The crucial part of the success of Virtual Power Plants is software technologies that allow all the energy resources to communicate with one another and the grid.
The most critical step in increasing the number of VPPs has been advancements of the software from simply allowing the different solar and battery resources to communicate to the software being able to predict when the demand for each resource will be needed.
As the cost of solar panels and home solar batteries has come down, it can be significantly cheaper for utilities to partner with homeowners or third-party VPP developers compared to developing new centralized power plants.
One of the significant issues for utilities is the cost of laying new power lines. PG&E will spend $15 billion to bury power lines in hopes this will limit forest fires. However, many experts have argued that Virtual Power Plants would allow for a lower-cost alternative that would reduce the need for carbon-emitting power plants and expensive costs passed along to consumers, driving up the cost of electricity.
VPP can also help stabilize grid voltage like with the Kukui Hele Pō on Oahu. Voltage shifts on the grid can short circuit entire power grids, leading to massive power outages. By paying homeowners to pull small amounts of electricity from a home solar battery, utilities can stabilize the power grid, avoiding voltage spikes and power outages.
By decentralizing the power production, utilities can protect themselves against cybercriminals, like when hackers attack Hawaiin Electric every day.
Virtual Power Plants benefit utilities in a variety of ways. Unlike the traditional power plant model, Virtual Power Plants are able to support the grid, homeowners with solar, and environment at the same time. As the cost of home solar and batteries comes down, electricity utilities are starting to make VPPs a central part of their longterm plans.
How do customers with residential solar and batteries benefit from Virtual Power Plants?
Homeowners look to add solar and home batteries for financial reasons and to protect themselves against power outages. The ability to be a part of a Virtual Power Plant gives them additional protection and the ability to save even more money over the life of the solar panel system.
Solar in most states makes financial sense because of a program called Net Energy Metering. Many states and utilities are trying to eliminate Net Energy Metering, but VPPs are forcing people to realize that adding batteries to a residential solar installation can have massive benefits that don't rely upon NEM programs.
In California, the Self-Generation Incentive Program (SGIP) was developed to help make it more affordable to add home batteries like the Tesla Powerwall 2 or LG Chem RESU. The program has lead to the massive addition of solar batteries throughout San Diego Gas & Electric, Southern California Edison, and Pacific Gas & Electric territories.
The program was designed to help protect customers against power outages, but it also helps develop VPPs in California by increasing the number of batteries installed throughout the state.
For customers looking to add solar and batteries, the ability to be a part of a Virtual Power Plant offers exciting opportunities. The battery provides tangible benefits right away, protection from power outages and against rate shifts like what has happened under Time-of-use in Southern California Edison (SCE).
It can also allow for additional compensation in the long run. For example, many Virtual Power Plants, like those that utilize Sunrun's $0 Down Brightbox Battery Solution, pay customers directly to provide electricity back to the utility.
For example, in Hawaii, the new Demand Response Battery Bonus Program pays customers between $2,500 and $3,400 for adding a battery. This payment covers a massive portion of the cost of adding the battery and helps HECO find a solution for the lost electricity production from Kapolei Energy Station. Customers also get the best solar compensation for the energy they send back into the grid, making it a massive financial and practical benefit for homeowners who can get into the program.
In the future, utilities with VPPs will pay homeowners on a per kilowatt base for the electricity they pull from a homeowner's battery and solar panels. When things like the Federal Investment Solar Tax Credit and the ability to take advantage of the financial benefit of joining Virtual Power Plants, it means that adding solar and home batteries has never made more sense than it does today!
Conclusion: How Alchemy Solar helps our customers get solar batteries and access to Virtual Power Plant programs?
In the past, adding solar panels was a reasonably straightforward process. Anyone with a simple understanding of the electrical wiring and size a solar panel system could provide a reasonably good solar solution for customers.
With the addition of home solar batteries, the end of Net Metering, and the rise of Virtual Power Plants, it is significantly more complicated to provide the RIGHT solar and battery solution to customers.
At Alchemy Solar, our focus has always been providing the right solar and battery solutions to every customer. At Alchemy Solar, we focus on using our reputation to work with the best equipment manufacturers, solar financing partners, and installers to make sure that our customers not only have access to the best programs today but will have access to Virtual Power Plants in the future.
Virtual Power Plant Providers vary greatly in terms of quality. That is why Alchemy Solar uses our experience and reputation to vet the best Virtual Power Plant provider for each market. We walk with you every step of the way to get enrolled in the right Virtual Power Plant program for your needs.
We know that Virtual Power Plants are exciting but can also be confusing. That is why all our team members are trained on how they work and what they mean for your solar and home battery project.
Virtual Power Plants are already a part of our lives in Hawaii and California. However, most VPPs have a limited number of customers who can enter the program. Therefore, it is essential for customers interested in getting enrolled to reach out as soon as possible.
If you are a homeowner interested in learning more about solar, home batteries, and Virtual Power Plants, schedule a free consultation with Alchemy Solar today!