DOE Issues $3 Billion Conditional Loan Guarantee For Virtual Power Plants Program

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The US Department of Energy Loan Programs Office announced on September 28, 2023, that it had issued a conditional loan guarantee to Sunnova Energy for its Project Hestia. The money will be used to create virtual power plants (VPPs) that benefit 75,000 to 115,000 homeowners throughout the United States. Once completed, those VPPs are expected to keep 7.1 million tons of carbon dioxide out of the atmosphere and generate 568 MW of clean renewable energy over the next 25 years, according to Reuters.

We throw around acronyms like VPP, but what exactly are virtual power plants? DOE explains it this way.

“VPPs are aggregations of distributed energy resources such as rooftop solar with behind the meter batteries, electric vehicles and chargers, electric water heaters, smart buildings and their controls, and flexible commercial and industrial loads that can balance electricity demand and supply and provide utility scale and utility grade grid services like a traditional power plant. VPPs enroll DER owners — including residential, commercial, and industrial electricity consumers — in a variety of participation models that offer rewards for contributing to efficient grid operations.”

That sounds pretty cool. Put a solar system on your roof, couple it with a residential storage battery, and allow the system to be connected wirelessly to other nearby systems so they can act together to provide zero emissions energy to the community.

One of the first large virtual power plants started in South Australia in 2018 using equipment supplied by Tesla. It has been an unqualified success and may eventually include up to 50,000 homes. A VPP is a way to democratize electricity so that low income families can achieve the benefits of zero emissions energy and lower their monthly utility bills. The success of the VPP in South Australia is attributable in part to the fact that people who live there pay some of the highest rates for electricity in the world.

Why Virtual Power Plants?

Peak electricity demand is expected to increase for the first time in a decade, the DOE says. At the same time, old coal and gas power plants are retiring. By 2030, the United States will need to add enough new resources to serve approximately 200 GW of peak demand. In the past, grid operators have served rising demand by increasing centralized supply resources, but this will be challenging if transmission interconnections continue to experience multi-year wait times. VPPs present a more efficient alternative to manage this rising demand while making electricity cleaner and more affordable for Americans.

In a press release, the Department of Energy said, “This announcement is the single largest commitment ever made by the Federal Government to solar power and DOE’s first loan guarantee for a VPP. This project underscores the Biden-Harris Administration’s efforts to support solar deployment across the nation so that all communities can enjoy the benefits that come with deploying renewable energy, such as lower utility bills, increased energy resilience, and healthier communities.

“President Biden’s Investing in America agenda is accelerating adoption of technologies like solar and supporting innovative new climate solutions — helping the U.S. unlock a win-win opportunity for communities and the economy.”

Sunnova’s Project Hestia

Project Hestia will target lower income homeowners and could create as many as 3,400 jobs, the Energy Department said. Virtual power plants have been on the rise in the US since the Federal Energy Regulatory Commission changed its policies in 2020 to allow them to compete in wholesale power markets. In addition to Australia, they also are becoming increasingly popular in Japan and parts of Europe.

“Project Hestia will provide disadvantaged individuals and communities with increased access to Sunnova services by indirectly and partially guaranteeing the cash flows associated with those consumers’ loans,” Sunnova says. “To be eligible, each energy system must be outfitted with Sunnova’s purpose-built technology, accessible by smart phone or other personal electronic device.

The technology is designed to improve customer insights regarding their power usage and will facilitate demand response behavior. Sunnova believes this approach will expand access to the company’s energy as a service offerings, lay the foundation for future virtual power plant activities, decrease greenhouse gas emissions, and increase the demand response impact of residential power systems.

“Project Hestia would make possible a historic private sector investment in disadvantaged American communities and energy infrastructure,” said Wiliam Berger, CEO of Sunnova. “The DOE financing would accelerate the adoption of solar and storage, decrease greenhouse gas emissions, and expand the availability of reliable, clean, and affordable energy to those communities who benefit the most from low cost energy.”

Coupling aggregated DERs with smart software can create a powerful collective tool, the DOE says. VPPs deliver affordable power and support grid reliability and decarbonization in an increasingly electrified world. The project focuses on households in disadvantaged communities across the United States and Puerto Rico, including at least 20% of loans to customers with credit scores of 680 FICO or less, the DOE press release said.

Virtual Power Plants For Puerto Rico

The loan guarantee from DOE will be a significant benefit to residents of Puerto Rico. Up to 20% of Project Hestia loans will go to homeowners on the island. In August, 2023, the Department of Energy announced another program that will provide $450 million in funding to increase access to rooftop solar for homeowners in Puerto Rico. Compare that to the hundreds of rolls of paper towels the previous administration provided to the beleaguered island after Hurricane Maria devastated the island in 2017.

Puerto Rico has always relied on coal- or methane-fired generating stations in the south to provide electricity to the north, where most cities are located. Long transmission lines that cross miles of mountains in the interior of the island are especially susceptible to high winds, particularly since they have suffered from a lack of maintenance for decades. Of all the places in America, Puerto Rico can benefit the most from the democratization of electricity that virtual power plants make possible.

The Takeaway

The DOE reference to long waits to connect to larger grids makes it clear why interest in virtual power plants is increasing. Electricity produced locally and distributed locally may cost more per kWh than electricity from grid-scale solar farms, but if those big projects can’t get connected, what good are they?

Grid connectivity will take years to solve. A VPP can be up and running in a year or less with far fewer permitting hurdles to navigate. No wonder the DOE is promoting more virtual power plants as a way to make sure Americans have access to clean energy at affordable prices.