How Virtual Power Plants Can Help Replace Dirty Peaker Plants

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By Ken Munson

A recent story in The Wall Street Journal highlighted the conundrum facing many electricity generating companies and PUCs today: How to pay for aging, mostly coal-fired power plants whose only function is as backup power for peak demand?

Power plant and visible emissions ( Ohio, two owners of seven such plants have proposed that consumers pick up the tab and pay to maintain the plants, as well as to convert them to burn natural gas. They argue the plants can’t be closed down or there won’t be enough power when demand really spikes. Consumers, of course, see the cost as the owners’ problem, not theirs – even though it’s also in the interest of consumers to have enough capacity available when it gets very cold this winter.

But there’s no reason this has to be a zero-sum game. There’s another far more cost-effective and environmentally sound alternative, which is to significantly increase the pace of deployment of renewable energy generation and high-capacity storage at the individual home and business level.

Current PV and wind technologies have improved to the point where they can produce enough power to meet the needs of the owner, plus excess energy that can be exported to the grid. When you add the latest utility-grade storage batteries to those installations, along with the most advanced inverters and electronics, you now have a reliable source of energy that can be tapped even when there’s no active generation.

It’s a simple step from using this technology to solve one consumer’s energy needs to addressing the problem in Ohio. Using cloud-based software management, these individual units can be aggregated by a local utility into a “virtual” power plant, or VPP, serving a whole neighborhood, an industrial park or even entire communities. The control systems allows the aggregated power of these systems to be redirected over the local grid at periods of high demand, to any consumer – not just to another DER owner.

The more of these renewable systems with integrated storage are installed in an area, the more they reduce the need to bring additional large-scale plants online to meet demand. And when enough VPP capacity is connected to the grid, the available stored energy and flexible nature of VPPs will make it possible to retire these old, costly and polluting plants. Their extra capacity will have been replaced by VPPs and be fully prepared to meet peak demand.

In fact, we will be better prepared to meet that demand reliably, because distributed VPPs eliminate the potential for single-point failure that is inherent in those large plants. Unplanned outages due to large plant failures also wreak havoc on utilities and consumers, and cause wild price fluctuations. Locating resources close to demand also reduces power losses, and may allow utilities to defer costly transmission and distribution upgrades.

Flexibility, reliability and cost: This is what makes VPPs highly attractive to utilities, while at the same time providing the assurance of reliability to the consumers who own them, as they have first call on their own power.

Utilities are already investing in modernizing the distribution grid to create a network-style electric power system that can accept the power from these storage units more readily. An acceleration of this process would allow even more VPP capacity to come online quickly. Rather than continuing to make major investments in large-scale power plants, we should shift that investment to utility distribution infrastructure and technology that will support the use of net generation from storage-based DERs. Connected into VPPs, they will save consumers money, provide reliable and robust excess capacity to meet peak demand, and help create energy independence for America.

Ken Munson is Co-founder & CEO of San Francisco-based energy storage company Sunverge Energy.

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13 thoughts on “How Virtual Power Plants Can Help Replace Dirty Peaker Plants

  • “In Ohio, two owners of seven such plants have proposed that consumers
    pick up the tab and pay to maintain the plants, as well as to convert
    them to burn natural gas.”

    Socialize the costs, privatize the profits: standard American capitalism. The owners have had a free ride for decades on dumping their poison on the populace resulting in untold sickness and premature death, and they still refuse to pay a penny to modernize their plants. Oh those “job creators.”

  • VPPs?? Cloud-based software running everybody’s lives?? What??

    The author says that we want to integrate all of these intermittent renewables and storage units using a top-down command-and-control architecture. That’s nuts, we all know that command economies and regulated sectors are horribly inefficient. Sounds like he’s trying to sell us something.

    Why not just provide retail visibility into fine-grained time-of-day pricing from ISOs (or day-ahead forecasts which are very accurate these days), and let individual actors decide when, where and how to invest in storage, and when to charge and discharge it? (Using actual prices leads to instability, and forecasts are getting good at weather-based solar and wind variations and fluctuating demand.) It’s a simple market-based approach which drives innovation to meet the actual needs of the grid, not the commands of some algorithm hidden behind a curtain or “cloud”.

    Furthermore, this motivates people to charge their plug-in vehicles in times when high supply and low demand lead to low retail prices. Who wouldn’t want to charge at 4¢/kWh? And at 1¢/mile, that’s the equivalent of 40¢/gallon gasoline (for a 40 mpg vehicle), which would further incentivize EVs. Oh — and further drive down the price of oil!

    • This. This is exactly what I was coming down here to post.

      Make fine grained, 15 minutes TOU pricing. People will shift demand to fit supply as necessary when it can be effectively done. When it can’t be, the generators (or those with battery backup in their home!) will be compensated fairly for their contribution to the grid.

    • Yes. I don’t understand it either. Smart meters and broadcast time of use rates used with smart appliances.
      If we don’t need invasive, top down approaches to manage todays daily demand variation, why do we need that in the future?
      A broadcast TOU would effectively reduce daily demand variation, lowering system peak power needs and costs.
      I don’t need a utility turning off my appliance and collecting my private usage data, thank you.

      • Yes totally agree. Also would love it if distributors were not allowed to own generation. Conflict of interest. Oh and I live in Ohio. That case in front of the PUCO is infuriating.

        • Frank, I feel for you living in Ohio. First Energy is soaking its ratepayers to pay for coal plants it erroneously invested in. And resisting demand response efforts to reduce generation costs and pollution.

          We have a completely crazy system. It started out as “public good” or “common good” intention, with monopolies policed by public utility commissions. They have guaranteed rate of return on capital. Thats why they want to build more power plants and oppose demand management.
          Meantime, they have become public/private, privatizing profit and socializing loss. And to make matters worse, they can lobby. And now that they know they cannot quash solar, they are trying to usurp them by competing with private solar firms, but keeping their monopoly. Thats nuts.

    • Big industrial electricity consumers often already have supply contracts that allow the utility to interrupt supply for a certain number of hours. It’s a matter of dollars and cents if this pays them or not. The same holds for households. You would sell the utility the right to curtail your supply in specified conditions and to a specified extent. How you would cope with the reduction would be up to your home management software: turn down the freezer or a/c, turn off the car recharger, etc. The utility’s control should stop at the meter: it’s a terrible Big-Brotherish idea to let the utility control your appliances directly. Advert for old blog post of mine from 2008 (link).

      • I disagree. TOU pricing lets the user, or industry, decide when to shave kWh and save money, and the incentive is always to use less. Demand response creates incentives to jack up the baseline in order to get paid to not use — a perverse incentive which could *increase* energy use in many circumstances.

        For a predictable industrial load negotiated independently with the utility, this could make some sense, though TOU is still much more fine-grained and closer to a true market-clearing optimum. For broad retail or commercial use, the fundamental flaws of demand response make it the wrong choice.

        • Why jack up the baseline? Why have one at all? It’s enough for the consumer to offer a flat maximum reduction of 2 kW or whatever.

          DR is not an alternative to TOD pricing (for which I feel you underestimate the problem of cognitive overload). They are complementary.

          • Hello James and happy Thanksgiving.

            You have a point on cognitive overload. Ten or even five years ago, I would have seen it as prohibitive to the kind of fine grained TOU metering that we are discussing.

            But that was then. Now we all carry in our pockets computing devices more powerful than the supercomputers of not long ago. And we have software which interprets complexity and presents it simply. Which can see our driving patterns and recommend a lowest cost charging schedule, and implement it silently without us thinking about it, or with as much manual intervention as we would like.

            The Internet of Things is growing up around us, with smart thermostats, smart meters, and smart switches and sensors. So our phones – or watches – will tell us, “Rates are high and you are consuming a lot of power. Shut off lights in unoccupied rooms to save 50 cents/hour? (Yes) (No) (Always do this)”

            Back to demand response, you get paid during high demand times according to how much you curtail. So at a higher baseline, you curtail more, and get paid more. If you set a limit, people will consume to that limit, because there’s a kink in the price curve.

            With TOU, no matter how little you consume, there’s always an incentive to consume less, particularly but not only during times of high demand and low supply.

  • I love that you used Ohio as an example. The first state to roll back RE standards, thanks Gov, and where the Gov passed rule to block local governments from limiting fracking in the area. So yes, you can count on the PUC of Ohio granting those plants all the cash they want.

  • At the moment only generators can bid into ISO auctions. Open up the bidding to lead-shedding and you’ll have your VPP’s in a level market-based way.

    I wonder how easy it would be to game such a system for profit (a la Enron)?

  • The author sells storage, and naturally hypes the need. Current gas peaker plants in the USA run at between 5% and 10% capacity. (Source EIA – link).
    This might go up a little on a grid dominated by solar and wind, but not by much. Since the gas peakers already exist, little if any new backup capacity of any sort is needed to get to 90% renewable electricity. Getting rid of the last 10% will be trickier and more expensive. In practice, this is a problem for 10 years from now, except for Denmark and Costa Rica – and they already have the backup in hydro (Norwegian in Denmark’s case).

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