A report from Rethink Energy predicts that Virtual Power Plants (VPPs) will become a major segment of the power grid by 2030, growing to incorporate a plurality of generation, storage, and demand response assets in the course of the 2030s.
With little to no physical infrastructure required to extend their control and financial structures over an ever-broadening range of assets, VPPs will become a major segment of the US, EU, Chinese and Australian power grids by 2030, growing to incorporate a plurality of generation, storage, and demand response assets in the course of the 2030s. The pace-setters will be the liberalized, swiftly transitioning EU and Australian grids, with China and the US following behind.
Virtual Power Plants are fundamentally about deciding when to discharge batteries – and it is that decision-making process which will become ever more financially rewarding and more necessary to maintain a consistent power supply over time, as intermittent power becomes the main source of electricity generation.
This decision-making process of when to discharge batteries requires forecasting demand, forecasting supply, forecasting price – which in turn includes the weather, it includes the surplus output coming from domestic self-consumption systems, the availability of vehicle-to-grid charging, and much more. With that in mind, the broader and more diverse the portfolio of assets at play, the better, with some companies already integrating dozens of different asset types into their software.
Participation in VPPs will offer an avenue for the commercial and industrial (C&I) segment to invest in renewables on a far broader basis than rooftop solar plus storage. VPPs will play a role easing the most critical constraint on the energy transition, which is the expansion of the power grid.
One of the more dramatic predictions in this report is the scale of Vehicle-to-Grid (V2G) charging, compared to utility-scale and distributed battery participation on the grid – with the vast EV fleets of the future potentially offering a solution to multi-day periods of low solar and wind output.
Virtual Power Plants have several business models. One especially interesting avenue is that they will enable the commercial segment to invest in renewables for self-consumption in a far more flexible and comprehensive way than at present. The C&I segment will no longer be limited to rooftop solar placed on its own roof space. once VPPs’ financial and software structures have matured companies will be able to conveniently invest in a broad range of renewable assets. We expect especially large power consumers such as data centers, steel makers, and big retailers like Walmart to develop their very own microgrids or VPPs in future.
If you are the Chief Sustainability Officer or otherwise in charge of a company’s electricity needs, Virtual Power Plants are a major opportunity to get ahead of the competition and invest in making your company’s power supply not just green, but also insulated from the rest of the grid’s increasingly volatile prices. The technology has arrived.
The most crucial asset of any VPP or microgrid is energy storage, because that is the asset with the decision to make – when to discharge onto the grid – determined by complex modelling of near-future supply, demand, and electricity price. The broader the assets, both generation and demand response, which those batteries have to work around, the better.
The biggest market space for Virtual Power Plants will be domestic, because that is where the majority of distributed demand and supply is – especially once EVs become prevalent. But another crucial business model will be microgrids. That means remote off-grid mining operations, which will become much more common in the future as copper, lithium and other demands grow constantly. It will also increasingly mean areas looking to become less reliant on an unreliable grid – which can mean entire neighborhoods or municipalities in California or Texas.
Microgrids will also be a strategic benefit for utilities, which will be able to dodge considerable transmission outlay by using VPP-managed storage systems to use existing transmission and distribution networks more consistently.
Just as VPPs offer to diversify the C&I segment’s energy sources, so too will they play a big role enabling the diversification of community energy projects beyond small ground-mounted solar installs to include demand response, heat pumps, EV charging, and possibly small-scale wind turbines in order to have a less monolithic (solar) generation pattern.
Distributed energy resources, which are mainly solar, are one basis from which to forecast the growth of VPPs – they are the generation type which will benefit the most from the development of VPP structures. The other, even more crucial asset type is storage. For the day-to-day operation of the grid, the most important category will be stationary battery storage, across both the distributed and utility-scale sectors.
One dramatic finding of this report is that, based on a variety of assumptions viewable in this report’s data tables (concerning availability, signup rate, etc.), we forecast that the VPP-integrated capacity of V2G will come to exceed stationary energy storage assets ahead of 2040. That’s even if we were to include the minority of stationary batteries that won’t be VPP-aggregated come 2040. Most of the time, stationary batteries will play a bigger role on the grid than V2G. EV batteries will only dominate discharging onto the grid during emergencies. Much of the motivation to sign them up to a VPP will be to determine when to cost-effectively charge them for their role as vehicles, with the V2G role being more of a strategic backup for the grid than a commonplace activity.
The most extreme case will be China, because it will have almost half a million EVs by 2040. In contrast China’s stationary battery fleet will not have been fully developed due to still having hundreds of GW of coal and gas at that point – it will only be moderately larger than the battery fleets of the US and EU.
The core of VPP growth is solar and battery, especially distributed solar and battery. But at some point in the 2040s, it becomes easier to analyze what won’t be under VPP structures, rather than what will.
Up to that point, the primary obstacles to VPP growth are ‘merely’ regulatory enabling, software compatibility, consumer sentiment, and the extent to which VPP structures are rewarded financially. In the final analysis VPPs are an auxiliary tool whose expansion will be partly a strategic decision by the relevant authorities, partly a reflection of market conditions – specifically the prevalence of intermittent generation on the grid, and the ever more crucial role played by batteries as a result.
The underlying communications technologies necessary for Virtual Power Plants have been around for a decade or longer, and little progress has been made, with the two biggest missing links being standardization – which will be a function of the size of the VPP industry – and the relevance of batteries to the grid.
The methodology for this report featured interviews with VPP owners and was informed by our forecasts of the transmission constraints, the EV industry, and the future scale of renewable energy resources on the energy transition, including distributed solar in particular.
This report is of interest to any company looking to make its electricity usage greener and cheaper, to utilities looking to optimize their investment in transmission and distribution networks, to VPP companies themselves, and to Government institutions with a role in shaping energy transition policy.
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