By Brian Lips
Virtual power plants (VPPs) are currently garnering significant interest. Our forthcoming report, “50 States of Grid Modernization Q1 2024,” outlines various policy and program initiatives undertaken by several states. Furthermore, the U.S. Department of Energy released a comprehensive report on VPPs last year, and mainstream media is also exploring their potential. But what are VPPs, and what actions are states taking to foster their growth? VPPs can encompass a range of technologies with varying attributes, which complicates their definition. Nonetheless, all VPPs share fundamental features of quantity and controllability. Essentially, VPPs consist of aggregating numerous distributed energy resources (DERs), which can be collectively managed to enhance grid performance and potentially eliminate the need for a utility to activate a conventional peaking power plant.
The Smart Electric Power Alliance (SEPA) categorizes VPPs into three main types: Supply VPPs, Demand VPPs, and Mixed Asset VPPs. Supply VPPs consist of electricity-generating DERs, like solar-plus-storage systems, which can be aggregated and managed as a single resource when necessary. Demand VPPs build upon traditional demand response initiatives by consolidating curtailable load at a scale capable of significantly influencing the grid. Mixed Asset VPPs include both supply and demand resources.
While the advantages of VPPs are evident, the path toward broader implementation remains uncertain. Nonetheless, state policymakers are experimenting with various strategies to promote their development. Common strategies include mandates for utilities to acquire energy from VPPs, incentives for utility customers to install DERs and engage in utility programs, and market access reforms to allow third-party aggregators to participate. Several states and utilities have considered different variations of these approaches over the previous year.
California
In July 2023, the California Energy Commission (CEC) approved a new incentive program for VPPs. The Demand Side Grid Support (DSGS) program compensates eligible customers for upfront capacity commitments and per-unit reductions in net energy load during critical events achieved through decreased usage, backup generation, or both. Third-party battery providers, publicly-owned utilities, and Community Choice Aggregators (CCAs) can qualify as VPP aggregators. Each participating customer site must have an operational stationary battery system capable of discharging at least 1 kW for at least 2 hours. Incentive payments will be allocated to VPP aggregators based on the demonstrated battery capacity of an aggregated VPP, which they will then distribute according to their contractual agreements.
California legislators are also contemplating legislation to promote the VPP market. S.B. 1305 mandates the California Public Utilities Commission to assess the resource potential of VPPs within the state and establish procurement targets for each utility to meet by December 31, 2028, and December 31, 2033.
Colorado
In September 2023, the Colorado Public Utilities Commission launched a new proceeding to investigate third-party implementation of virtual power plant pilots in Xcel Energy’s service area. In April 2024, the Commission mandated Xcel to issue a request for proposals (RFP) for a distributed energy management system (DERMS), which would manage a VPP. While the Commission did not require Xcel to file a VPP tariff, it acknowledged their potential and suggested that Xcel propose separate “prosumer tariffs” for residential and non-residential customers, including varying aggregation capacities.
Georgia
In its 2023 Integrated Resource Plan Update proceeding, a stipulation between the Public Interest Advocacy Staff and Georgia Power commits the utility to create a pilot program for residential and small commercial solar and battery storage aimed at enhancing grid reliability and capacity benefits. Georgia Power will collaborate with stakeholders to develop this program and submit it for approval with its 2025 Integrated Resource Plan.
Hawaii
In December 2023, the Hawaii Public Utilities Commission authorized a new VPP program for Hawaiian Electric Companies (HECO). The Bring-Your-Own-Device (BYOD) initiative will replace HECO’s Battery Bonus Program and provide varying levels of incentives based on the grid services offered. Initially, the program will only permit energy storage systems but may expand in the future to involve other DERs.
Maryland
In April 2024, the Maryland General Assembly passed legislation that paves the way for VPPs in the state. H.B. 1256 mandates that investor-owned utilities develop pilot programs to compensate DER owners and aggregators for distribution system support services. These programs must be submitted for approval to the Public Service Commission by July 1, 2025.
Michigan
In 2024, Michigan lawmakers proposed legislation concerning VPPs. S.B. 773 requires the Public Service Commission to establish requirements for programs allowing owners of behind-the-meter generation and energy storage to be compensated for services provided to the distribution system, including those facilitated through aggregators of DERs. Utilities must then submit applications for these programs during their rate cases.
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