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11 January 2023

GM, Google and RMI put up cash, ideas to underwrite VPP era

A motley collection of some of the major power brokers in Distributed Energy in the US have been pulled together by the Rocky Mountain Institute (RMI) into an initiative that should see virtual power plants explode on the US scene over the next two to three years. This sudden acceleration of VPPs could significantly upset the control that US utilities have over US power markets. RMI is calling this the Virtual Power Plant Partnership or VP3.

The deal includes car heavyweights General Motors and Ford, SunPower, and Sunrun, two of the largest installers of home solar and batteries, along with Google’s Nest smart thermostat subsidiary, and demand response and VPP software suppliers OhmConnect, Olivine, SPAN, SwitchDin, and Virtual Peaker. Initial funding for the alliance will come from General Motors and Google, but no figure for this has been released.

This is a powerful grouping designed to build momentum, establish standards and solve technical software issues and is reminiscent of historic tech movements like the Open Software Foundation which drove down system costs in IT in the 1980s and revolutionized and democratized computing, which eventually underwrote the shift to cloud computing we have today. If it proves to be that powerful, we could look back on it as a key moment in the development of a modern US power industry.

The inclusion of SwitchDin seems critical – this is an Australian company already doing this in Australia, who sits behind StormCloud – a software system already live which embraces rooftop solar, home batteries, home EV chargers and switches loads connected at both residential, commercial and industrial sites. It is the lead integrator in Project Symphony in Western Australia, the State’s largest VPP.

Back in October SunPower and GM announced a collaboration to develop home energy systems which allow GM vehicles to provide home backup, so this is a natural extension of that. However rival Ford recently hit the headlines for multiple instances in the news of its F150 Lightning pick-up owners using their battery to power their homes in the latest US freeze out, making Ford another natural partner for RMI.

So far in the US, Tesla has a long term bet into VPPs, which is handled exclusively by its software and driven by its own Powerwall batteries, and this move seems critical from RMI to turn the US VPP market into a more open and less proprietary marketplace, which will help it grow that much faster.

RMI has a reputation as an innovator and peace-maker in the US power markets which has the respect of the power community, which puts it in a strong position to guide utilities into embracing VPPs. It will have its work cut out.

In a recent paper on VPPs RMI said that by 2030 VPPs could reduce peak demand in the US by 60 GW and by as much as 200 GW by 2050. VPPs can reduce costs in the power sector and accelerate decarbonization the paper says by decreasing the number of times highly polluting gas plants are used as peakers, often at hugely exorbitant costs per MWh. For instance in the Texas freeze out two years ago the cost of peaking electricity went from $30 per MWh to $9,000 – the maximum allowed on ERCOT, in a matter of hours.

However there is a huge contra-argument against utilities embracing VPPs, as it will give an extra revenue source to Distributed Energy installations, specifically rooftop solar plus battery, which will make it more attractive – cutting the payback period for solar plus battery. Rethink has calculated that this extra VPP revenue could take payback periods for installations down from 6 to 7 years in the southern US states, so more like 3.5 to 4 years. This would likely stimulate huge entrepreneurial funding to go out and sign up 1,000s of US homes, who right now think they cannot afford solar plus battery, which typically might cost $50,000 up front.

Although being able to call on this VPP electricity would certainly make utility costs lower, it might also have the potential to reduce the amount of electricity that is required from the grid in the first place, cutting revenues for utilities.

Rethink’s advice to utilities is to get a stake into the VPP movement. Right now the main thing stopping direct utility involvement in funding DER (Distributed Energy Resources) is the fear that unstable lithium ion NMC batteries are currently being used in VPPs, certainly they are being used inside EVs. But by insisting on LFP or alternative chemistry batteries for homes, utilities could ease their concerns. Of course by having a grouping like this putting the utility at one remove from the battery supply to homes, could also make it more attractive.

In RMI’s recent report on VPPs it identified three core barriers to VPP growth; existing wholesale market rules, retail utility offerings, and a lack of policymaker awareness.

We already know that the Federal Energy Regulatory Commission (FERC) order 2222 has been in force for two years which requires ISO and RTOs (Independent System Organizations and Regional Transmission Operators who run all US grids) to embrace VPPs and all other forms of grid storage. But not every ISO has fully embraced storage in the way the regulation intended.

There are issues over just when Order 2222 is brought into force in each market, how the ISO or RTO limits who is eligible to offer stored electricity for instance by putting in place a minimum aggregation size, and which technologies will be allowed, for instance EV batteries could be outlawed. An ISO may also put limits on where those devices must be and if they have to have qualified meters on them which they have data access to. Beyond that there are ways of limiting VPPs by insisting on utility control to override them on its distribution network, to prevent them being too aggressively competitive with the utility’s own generation sources.

Effectively this has meant that most ISOs have sabotaged early VPP efforts or made them less compelling. This is partially because large responsible organizations have not been stood behind VPPs, who can guarantee that power will be there when it is needed. There is also a simple lack of smart meters out there already installed.

Finally most utilities have spent 100 years lumping more and more centralized costs onto the rate base that it can charge for, making it an incentive to support centralized generating facilities and pushing for them to hold a place on capacity markets.

In fact utilities would have to entirely change the way they think about their Integrated Resource Plans, which are plans which ensure adequacy of electricity for their respective markets, and this will take time and requires business models for VPPs which allow utilities at least some element of control.

In fact RMI has listed so many obstacles that this initiative will have to overcome that it’s a wonder why it went ahead with VP3. But the recent spate of cold US weather and the way that the media has been enthralled by stories of car batteries keeping whole families alive, it looks like the public will no longer be denied and DER is about to have its day in the US.

One major beauty of VPPs is that you can put an enormous amount of power capacity close to where you will need it, and that means a far lower investment will be needed in transmission infrastructure. However there is a feeding frenzy right now among utilities trying to gobble up the cash available in the Bipartisan Infrastructure and Inflation Reduction Acts relating to transmission.

RMI said that “VP3 is working toward a future where businesses, households and communities are empowered through VPPs which can help to support cost-effective energy, emissions reductions, and a more resilient electricity grid,” and promised that VP3 would catalog, research, and communicate VPP benefits, develop industry-wide best practices, standards and roadmaps and inform and shape policy. We wish it luck.