Virtual power plants as a key part of the evolving grid
Virtual power plants (VPPs) are challenging the basic ideas of how our grid operates. Our last article covered the fundamentals of customer-centric VPPs and the importance of putting distributed energy resource (DER) asset owners at the centre of VPP operations.
This article looks at:
the different types of VPPs,
how VPPs differ from conventional power plants,
the core components of a VPP,
who can operate a VPP, and
what VPP operators need to realise the full value stack for DER assets.
What are the main types of VPPs?
Market-participating VPPs (the focus of this article)
Market-participating VPPs are typically run by electricity retailers to deliver more value to themselves and their customers. They can include a single type of asset (e.g. a solar only VPP or battery only VPP), or a mix of assets (solar, battery, EVs). They are able to inject energy into or extract energy from the grid to earn money or mitigate price exposure risk through spot price arbitrage or frequency response support.
Examples from SwitchDin’s project portfolio include Simply Energy’s VPP and Origin Energy’s VPP. Additionally, Project Symphony in WA is an example of the future direction for VPPs; it will have markets for both wholesale electricity as well as network services.
Network service VPPs
These VPPs are used to dynamically support local electricity grids as a complement to or replacement for traditional ‘poles and wires’ assets. They take advantage of local resources (which may be customer-owned, owned by the network operator or a third party) to help ensure that the lights stay on in the most affordable way possible for everyone while also allowing solar & other DER system owners to use their assets as originally intended, without strict feed-in restrictions or system size limits.
Examples from SwitchDin’s project portfolio include Horizon Power and DevelopmentWA’s Smart Sun Pilot and the types of orchestration capabilities we enable for Horizon Power’s Onslow DER project.
Emergency response VPPs
An extreme version of a network service VPP, this is an emergency mechanism that protects grid stability by giving the operator the ability to turn on controllable loads or turn off solar inverters in large groups. As VPP technology and deployment becomes more sophisticated, these emergency response VPPs may be replaced by other more flexible options like, for example, dynamic operating envelopes for flexible export programs.
Examples from SwitchDin’s portfolio include South Australia’s Smarter Homes Remote Disconnection & Reconnection requirement, and our support for players in Western Power’s 100MW Challenge.
There are instances when these VPPs layer on top of one another, and a single asset or site may be part of all three simultaneously, allowing energy companies to stack different values and share them with their participating customers.
VPPs vs ‘Conventional PPs’ - CPPs
VPPs can do what conventional power plants can do, but they also do a lot more. As the grid evolves to be more distributed, the role that VPPs - and DER in general - will continue to change. People often use the term ‘virtual power plant’ as if they are analogous to conventional power plants, but in fact they represent a new way of solving new problems on the grid.
CPPs are large (in the megawatt to gigawatt range) and usually dirty. They are generally located at appropriately large campus-scale facilities and are also operated there with a host of attendant personnel. They are made for putting electricity into the grid, and have a very specific way of engaging with energy markets and energy infrastructure that is clearly defined and governed. They use heavyweight, industrial SCADA systems to ‘plug in’ to the operational systems of energy system operators. They are good for generating lots of electricity, and generally require heavy-duty transmission infrastructure to connect and pump electricity into the grid. Until rooftop solar came along, CPPs defined the way that electricity systems were built and operated.
The recent demolition of Australia’s oldest coal-fired power plant, Hazelwood. Many more coal plant retirements are on the horizon. (Image credit: RenewEconomy.)
The onslaught of affordable, distributed solar has revolutionised the energy system, however, and Australia is a globally significant case study on how the industry is scrambling to catch up. Most DER are first and foremost consumer goods - things that people buy to save money or improve their amenity. Most of the time, DERs do not have the connectivity capabilities or smarts to be players in the energy system and even if they did, the companies that run the grid are only just deciding on a uniform way for them to participate (which we’ll cover in a separate article).
Although rooftop solar is already the gorilla in the room in terms of total capacity (at about 15 gigawatts in Australia), most individual rooftop PV systems lack the dispatchability of a CPP. However, their distributed nature allows these systems to potentially fill a range of emerging opportunities and solve a range of emerging problems as the grid evolves, provided that they have the right smarts.
Importantly, solar and other DER can deliver energy to where it is needed without travelling over hundreds of kilometres of power lines. We expect that the valuation of the ‘localness’ of energy will be a formal part of the next wave of VPPs in Australia, like Project Symphony.
What can VPPs do?
-Participate in wholesale energy & capacity electricity markets
Like CPPs, VPPs can deliver energy into energy markets. In Australia, the National Electricity Market (NEM) is where wholesale electricity is traded in 5 minute increments. VPPs do not currently formally bid into the NEM, but they can shift energy generation to respond to price fluctuations to earn money, or save money by reducing consumption when the spot prices are high. Ultimately, VPPs will become large enough and there will be a formal way for them to register and bid in wholesale markets, but for now this is how it works.
Interestingly, with the huge amount of solar we have in Australia and the recent preponderance of negative spot market prices, it’s even possible to earn money by turning off solar and increasing load (e.g. charging batteries or EVs). This is a feature of a high-renewables grid - not a bug. For VPP operators, this means reducing exposure to price volatility and positioning to flexibly respond to opportunities. For end users, this means finding new ways to engage with their retailer and get paid for being part of the grid - or even exposing themselves to wholesale spot market prices and hedging the worst of the risk themselves.
-Frequency response (Frequency Control Ancillary Services - FCAS - in Australia)
Maintaining a steady frequency is a key requirement for any modern electricity system. Frequency deviates when loads & generation increase or decrease, and particularly fast frequency responses are required when there are large, sudden changes - like when a large generator such as a coal plant trips.
Assets in a VPP in Australia can bid to be dispatched to help correct such frequency deviations, as long as they have a minimum of 1MW aggregate capacity. There are multiple ‘contingency’ FCAS markets in Australia for both raising and lowering frequency at different response times. The ability of assets to respond to an FCAS contingency event depends on their inherent capabilities as well as the communications, metering, and connectivity aspects of how they are managed. (We will discuss these in more detail a separate article.)
-Provide ‘network conscious’ and ‘behind the meter conscious’ delivery of services
Depending on how they are built and managed, VPPs can provide the same services as a CPP while putting the asset owners at the centre of decision-making, so that assets are always optimised to deliver the most value for all players. SwitchDin’s view is that VPPs should be aware of local conditions and requirements to best deliver value to all players - whether they are homes, businesses or network operators - and we have built Stormcloud and our Droplets with this in mind.
What assets can be in a VPP and what is their role?
Virtually any type of DER asset can be part of a VPP provided that the operator has visibility and control capabilities. Visibility means performance, current state and forecasted availability of the assets (in real time or a within set intervals), and control is the ability to make those assets respond to market or network conditions. (We will discuss the ‘how’ of connectivity in a separate article.)
Currently, the most common types of individual DER assets that can take part in a VPP are:
Solar inverters
Battery storage systems
Electric vehicles & EV chargers
Major loads like AC units & HVAC systems, water heaters, and pool pumps
Batteries are the type of DER most commonly associated with VPPs, but there is also huge value - and huge opportunities - to be unlocked for assets like solar inverters and electric vehicles.
Many VPPs take the approach of controlling these assets individually, which works well (and can be done with an API connection) in simple circumstances where there is only one flexible asset - like a battery.
However, to realise the full potential of an individual DER, the VPP operator needs to be able to take its context into account. The de facto way of ‘doing’ VPPs needs to transition from device-level control to site-level control, where the best interests of the site are taken into account as a first priority, with optimisation happening at/for the site (based on economic or energy independence objectives), followed by the local network and finally across the fleet in energy markets.
Site-level awareness and control is not just important for preserving the trust and buy-in of homes and businesses (which it is) - it will also play a key role in ensuring that other, emergent pieces of the clean, distributed grid can capture more value. Other ‘next generation grid’ elements that will come to play a ‘business as usual’ role in VPPs going forward are:
Embedded networks
Microgrids
EV charging stations
The role of DER assets in a VPP is therefore multi-layered:
Meet the needs of the asset owner at the local level: Whether a home, business or network operator, the asset should be dispatched with their best interests in mind
Be able to work within external constraints such as local network solar export limits (dynamic or static) for a home, or within the confines of an embedded network
Be able to respond to commands to raise or lower demand within these constraints
In a world where DER asset owners and operators are at the centre of how the energy system works, it’s vital for the VPP to keep their best interests in mind; doing this requires having the data to know what their best interests are and the capability to take action to optimise that value. Ultimately, it makes more sense to view sites with DER as ‘flexible loads’, and sites with a range of assets (generators like solar, loads like aircon, and other assets like EVs and batteries) as ‘fully flexible loads’ (FFLs).
The idea with FFLs is that energy markets don’t ultimately care about devices - they care about supply and demand and efficiency. A FFL approach allows DER asset owners to participate in markets in any way that earns/saves them money and benefits the broader energy system, whether by lowering consumption, increasing consumption or delivering frequency services.
A ‘Fully Flexible Loads’ approach to orchestration allows DER asset owners to participate in markets in any way that earns/saves them money and benefits the broader energy system, whether by lowering consumption, increasing consumption or delivering frequency services.
Who can operate a market VPP?
Energy Retailers
Most VPPs in Australia are run by energy retailers. This makes sense for these companies, who have historically played the role of shouldering wholesale pricing risk on behalf of their customers, providing predictable tariff pricing for them. Retailers have also historically made money based on the number of kilowatt-hours that they sell to their customers. However, as more homes & businesses install solar and batteries and take energy matters into their own hands, the opportunity to profit in this way is diminishing.
For retailers, VPPs offer a new way to engage with customers in a way that benefits both sides - retailers can use customer assets to hedge against price volatility, and share the benefits with their customers. The engagement between retailers and their customers in VPPs will continue to become more sophisticated - and automated - as time goes on.
The relationship between retailers and their customers is already changing in significant ways - especially for the customers who have solar, batteries and other DER. There are huge opportunities ahead for the retailers who can forge new types of relationships with their customers. (SwitchDin has built a platform for them to do this.)
Commercial & Industrial Businesses and Government
C&I businesses who operate fleets of assets across multiple sites can operate ‘private VPPs’ and hedge on fixed tariffs or wholesale prices, as well as provide frequency support services to the grid.
Aggregators
Still an emerging class of participant with varying definitions, one role of an aggregator is to enlist and manage fleets of assets on behalf of the asset owners to leverage additional value in markets. Unlike with an energy retailer, the relationship between the aggregator and the asset owners does not include signing on to additional obligations like tariffs.
What’s required to realise the full value stack for VPPs:
Site-level awareness for control: Ensures a nuanced and customer-focused approach is possible; ‘dynamic operating envelopes’ - grid import and export constraints for homes and businesses prescribed by electricity network operators to ensure grid stability - will become a standard part of this site-level awareness
The ability to group assets / sites: For geographical regions or response types (e.g. assets in a given state, or FCAS-capable devices)
The ability to set merit order of devices: To ensure least cost / lowest impact dispatch for VPP participants
Scheduling capabilities: To prescribe assets and assets groups time blocks in which to respond
’Policies’ to ensure fair use: For example, setting the number of times an asset (like a battery) may be dispatched per month for the VPP
Data analytics: To review & optimise fleet and VPP performance
Redundancy in VPP operational capacity: As DER assets may not be as predictable in operation or granularly controllable as traditional power plants
So… what do you need to start and operate a VPP?
Stormcloud allows energy retailers to run mixed-asset fleets of DER as part of virtual power plants.
Access to DER assets that you have ability & permission to control
A way to enrol and connect with those assets for status, data & control, via APIs, edge connections, or a combination (to be discussed separately)
Forecasting capabilities for market, weather & DER capacity availability
An orchestration platform to control the assets in response to external events (market, network, or other)