The era of virtual power plants is here
While the battle between utilities and residential solar owners often gets a lot of publicity — solar owners want compensation for their production, utilities aren’t so sure — one thing that’s not making the headlines is utility companies’ hatred of customer-oriented energy storage. In fact, more utilities are grouping residential batteries into virtual power plants (VPPs) and paying customers for the ability to call on their stored energy when the grid needs it most.
It’s a significant shift in thinking about utilities that is sweeping the country. From progressive utilities in the Northeast to grid operators desperate for fast reliability solutions in the West, VPPs are a win-win situation on both sides of the electric line. Utilities get access to thousands of mini-power plants and clean energy without building their own substations, and customers get additional benefits from their emergency backup resources.
Utilities usually establish their VPPs first and then partner with battery vendors for interaction protocols. For example, Arizona Public Service has started a pilot VPP program that currently only works with Enphase and SolarEdge batteries. Pacific Gas and Electric has its own pilot program, but only with LG and SolarEdge batteries. More utilities in the Northeast are setting up VPPs for proprietary devices, and the payout is determined by the brand of battery and how much it’s being used.
swell energy acts as a gathering place for utility and battery owners and ensures that both parties receive their benefits. CEO Suleman Khan said VPP relationships across the country are growing rapidly and Swell is managing consumer-facing resources in a way that is most valuable to the utility.
“The recent adoption of several high-capacity VPPs has introduced a new asset class (with multiple income streams) to the capital markets. Technical innovation has fueled financial innovation and is now redefining how we fund distributed energy resources as VPP portfolios,” he said. “With this comes the opportunity to reshape the energy landscape over the next decade in a way that shatters the renewable glass ceiling, reduces the need for centralized power plants, preserves open space and habitat, and is inclusive of its benefits across the socio-economic spectrum.”
While that additional compensation for greening the grid isn’t yet a driver of battery adoption in homes, more battery owners could sign up to VPPs if the standalone storage ITC is passed in the BBB bill. As the tax code currently stands, a battery can only benefit from the ITC if it is 100% charged by solar panels over a certain period of time (often five years). If the battery participates in various demand arbitrage situations – and is charging over the grid at a time when electricity rates are low and, for example, the sun exposure is limited – it loses its right to claim the ITC. This makes participation in utility-run virtual power plants impossible until the battery has ended the five years under the “ITC contract”.
But if batteries can receive the ITC on their own (as it says in the concept of the BBB law), then solar charging is not a requirement and homeowners can receive both the tax credit and reimbursement for participating in a VPP on Day 1 And more utilities can take advantage of decentralized power banks.
“Battery storage gives homeowners energy independence and control over their household even as power outages and outages increase,” said Peter Faricy, CEO of SunPower, after announcing that SunPower’s SunVault battery was accepted for Northeast VPPs. “With the SunPower VPP, our customers can choose to participate in programs that help stabilize the electrical grid for their community while also offsetting the cost of their system. Citizens and utilities working together to provide reliable and renewable energy is the future of the grid.”