The largest power plants in the the U.S. — massive feats of engineering like the over 5,000 foot-long, 6,800-MW capacity Grand Coulee Dam — are proving to be no match in scale to the combined power of the rooftops and basements of homes and businesses across the country.
Distributed energy, including rooftop solar, on-site batteries to store electricity and more, are on track to grow to nearly 400 GW in the U.S. by 2025, according to projections from Wood Mackenzie, significantly greater than the amount of coal or nuclear power capacity in the U.S. today.
The existence of that much power leads to an inevitable question: who controls it? Utilities see distributed energy as both a threat to their business models and an opportunity to harness this relatively new and massive source of energy to make money. The rise of distributed energy has led to a conflict between a utility-centered business model and a service model based around third parties. “The fundamental question is who can manage and schedule distributed energy resources (DERs) and how?” said Omar Saadeh, business strategy manager at Accenture. “It’s a question being asked in a number of states.”
The concept of a network of DERs operating across homes or businesses and being collectively dispatched — sometimes described as a “virtual power plant” — has gone from theory to practice in a short amount of time. Roughly five years ago, the idea of a central authority using distributed energy resource management systems (DERMS) to remotely control an aggregate of rooftop solar, battery systems, water heaters and other resources was just starting to be demonstrated in a few pilot projects.
Now, virtual power plants are bidding into wholesale electricity markets in California, New England and other areas, pilot projects are proliferating, and more utilities are, if not yet pursuing the full virtual power plant model, at least investing into or considering the DERMS technology that enables the aggregation of DERs to perform services for the grid.
DERMS expansion and debate
“It’d be hard to find a North American utility that isn’t considering some kind of DERMS,” Saadeh said.
But as virtual power plants have started to get more real, discussions around how to implement the concept and the software behind it have become more heated. There is a growing debate about the degree to which the future of distributed energy management will be in the hands of large utilities, or in the hands of third-party aggregators.
For example, PPL Corp., owner of one of the largest regulated utilities in Pennsylvania, is in the midst of a pending case with state regulators for approval of an expansion of its ability to manage distributed resources that has generated fierce back and forth between the utility and stakeholder groups. PPL’s proposal “will likely stifle the nascent DER market in Pennsylvania” by placing “stringent” rules on rooftop solar customers and other distributed energy users, the Natural Resources Defense Council stated in a brief filed in the case. NRDC has allied with Sunrun, which has a growing distributed resource aggregation service business, in opposition to PPL.
PL’s response was just as fiery. Sunrun’s involvement “is nothing more than a blatant and anti-competitive attempt to delay and stifle PPL Electric’s efforts to proactively manage DERs and provide safe and reliable service to its customers,” the utility said in a brief.
As rooftop solar, battery storage and other behind-the-meter sources spread across the country, more of these debates may occur as more utilities see the need to pursue DERMS. Stem, Sunrun and other companies are actively managing several virtual power plant projects serving competitive wholesale electricity markets. But in the regulated utility world, “we haven’t progressed as quickly as some of us had anticipated, especially with utility-driven programs,” according to Anissa Dehamna, associate director at the consulting firm Guidehouse. “We haven’t seen many utilities procure virtual power plants,” she said.
But recently, regulated investor-owned utilities that primarily make money through capital investments, like PPL, are starting to take notice. Virtual power plants have so far tended to take root in competitive wholesale electricity markets where there are a multitude of revenue streams.
However, the increasingly favorable economics for solar and storage may make the differences between independent system operator (ISO) and regional transmission organization (RTO) regions and vertically-integrated regions less relevant when it comes to virtual power plants. “We are at such a price point on pure solar… [that] you don’t need markets to guide that,” said Bud Vos, President and CEO of Enbala Power Networks, a company that designs DERMS and virtual power plant software. “Utility customers are going to get more sophisticated,” he said, because the opportunities to optimize the grid with DERs will become more and more creative.
Early aggregation projects were similar in concept to demand response — they were about reducing electricity load at certain times. What’s next, according to Vos, is a much more dynamic and granular approach.