The Exchanges

Q What's the second utility doing that is investing in distributed power plants or virtual power plants? Walk me through that potential scenario.

A Sure. So a utility who wants to explore the potential for a virtual power plant to serve that increase in demand, they would take a look at the distributed energy resources that the DERs that are already on their grid, and they may also forecast adoption rates And what that looks like is, you know, taking a look at your commercial industrial base, who has flexible load, that's, you know, pretty well understood, kind of sector by sector. You would look at EV adoption rates. You'd look at rooftop solar. You know, the DOE's national labs have tools to allow you to kind of forecast adoption rates and understand what types of assets are on the grid. And they would look at What kind of capacity can I get from these distributed resources? And then they would consider, okay, well, how am I going to orchestrate that? So utility could, you know, do what National Grid and Eversource are doing in New England and through their Connected Solutions program. And this is, you know, what's known as a bring-your-own-device program. They say, hey, as long as you have this set of brands of smart thermostat or of water heater or of battery, you can enroll in our program. And we'll pay you for shaving peak. And through connected solutions, those, uh, utilities have access to megawatts of capacity that help them shave peak so that they are less reliant. In this case, it would be, you know, on ISO New …

AI assessment note: “do what National Grid and Eversource are doing in New England and through their Connected Solutions”

Q And how much do we actually need to meet the expected load growth that's coming?

A Well, we have the need to serve 200 gigawatts of new peak demand between now and 2030. And at the same time, we have an incredible amount of DER capacity coming online. So, and I can put some numbers to that in a second. You know, what that adds up to is an enormous opportunity for that DER capacity to be aggregated into VPPs to serve That peak demand. Now, we're not saying we're going to get every last smart thermostat, every last battery, right? But if we can triple the capacity of VPPs between now and 2030, we could serve 10 to 20% of peak load nationally through virtual power plants. And if we did that, because they are a lower cost solution, we'd be saving about ten billion dollars per year.

AI assessment note: “we have the need to serve 200 gigawatts of new peak demand between now and 2030”

Q Okay, so then do we actually have the distributed energy resource capacity to support all that?

A We will. We are about to experience a tsunami of DER adoption across the United States, and the way we think about that is across three different categories of DERs. Those that generate electricity, so think, you know, rooftop solar or, uh, fuel-based generators. DERs that consume electricity at flexible times, so think, you know, EV chargers or commercial industrial loads or electric water heaters, and then DERs that store electricity, so behind-the-meter batteries or even EVs. With these DERs, we are experiencing a higher and higher capacity addition every year, so with DERs that generate electricity, we're getting about 20 gigawatts added to the grid each year in twenty-twenty-five. That's going to increase to about 35 gigawatts added to the grid by twenty-thirty. If you look about, and that's nameplate, right? If you look at flexible demand of electricity, we're adding about four to six gigawatts of flexible demand to the grid each year in the form of smart thermostats, water heaters, and commercial and industrial load. Now, Roughly, you know, four to six gigawatts of flexible demand is the equivalent of about 50 peakers worth of flexible supply per year added. And then you have about five to 15 growing to about 25 gigawatt hours of behind-the-meter battery capacity added to the grid each year between now and twenty-thirty. Now, those are enormous numbers, But they pale in …

AI assessment note: “We will. We are about to experience a tsunami of DER adoption”

Q control for these virtual power plants. Like, will there be one dominant point of control? And I'm thinking about two different scenarios, one where the utility controls the devices and the others as the aggregators are, are bidding these assets together and then bidding them into wholesale markets when eventual rules come together in wholesale markets. Um, do you see either of those points of control dominating in the future?

A It is interesting. The way that I think about the dichotomy that you set up is Will VPPs sell to utilities, right? If I'm Voltus, C-Power, Virtual Peaker, Swell, is my best bet to write a bilateral contract with a utility, or is my best bet to bid into a wholesale market that has implemented for a quarter two, two, two, two? I think when you have virtual power plants bidding into wholesale markets and earning a price that represents the value to the bulk power system, It's an incomplete price, because it's not taking a, it's not taking account of the value to the distribution grid. And when you have a utility contracting with a virtual power plant, a distribution utility, they can take into account what the value is of deferring investment in a substation, because they can flex the demand behind that substation, right? And so you're getting Not only the avoided, uh, peaking power cost at the wholesale level, you're also getting the value of deferring an investment in your distribution grid. So I think when it comes to, you know, where virtual power plants will succeed in the market right now, you have participation in wholesale markets because as, you know, a straightforward way to bid into basically an auction, and it's a bit more cumbersome to write a bilateral agreement utility by utility when we have thousands across the country, but that's where the real value lies. And so…

AI assessment note: “I think what you'll end up seeing is utilities recognizing the value”

Q So where do you think all the innovations in this industry are going to come from? Are they going to be largely technical? Are they going to be regulatory and enabling a lot of the, you know, the bidding of these projects? Will they be around customer acquisition and enrollment? Where do you see the most innovations happening right now?

A It really is coming from all angles. I think what's right in front of us from DOE's perspective is the regulatory innovation, I'll say, and I'll, I'll say a bit more about that, but I think what I'm most excited about is what's a little bit further afield from DOE is the, uh, consumer experience. So on the regulatory side, there is a long list Of improved regulatory measures that we're seeing utility regulators in particular adopt. So right now, a minority of states are doing integrated distribution system planning, where they're taking a look at, you know, what capacity they have on their distribution systems in relation to the bulk power system needs. But more and more states are adopting that. They're doing more DER adoption to understand those potential resources. You also have performance-based regulation or performance-based rate making, where commissions are realizing that the utility business model of compensating CapEx spending with maybe a seven to nine percent, uh, margin and passing through OPEX at cost to the consumer does not give utilities the right incentives to choose low-cost options such as VPPs, and so you have, you know, innovation happening within commissions who are, Uh, really better aligning utility financial incentives with, uh, what is optimal for the system. But when it comes to other innovations that are really going to transform this market, You ha…

AI assessment note: “It really is coming from all angles. I think what's right in front of us”

Q And then what are the cost and reliability outcomes for these different scenarios?

A The utility choosing the peaker plant invests in the concrete and steel in the ground, and they are investing in the transmission lines, and they're paying for the poles and wires. They are paying for natural gas fuel every time they need to burn it. On the other hand, the utility who is choosing the virtual power plant, it could be 60% cheaper overall. This is based on a Brattle study that was done. Great study, by the way. Uh, and I think what's striking is, A, the savings potential. For a utility, procuring peaking capacity from a VPP can be 60% cheaper than procuring it from a natural gas peaker plant. But what's even more striking is that the money that is spent on virtual power plants, the majority of those costs are actually participant incentives. So yes, you need the implementation cost, the design, there's a lot of software implementation involved, the integration of different IT systems, but the majority of the cost, if you kind of look at that cost bar, is in paying either on a per kilowatt hour basis or a per kilowatt of capacity basis, paying consumers and compensating them for You know, contributing a little bit of the flexible capacity of their devices to this clean grid resource.

AI assessment note: “procuring peaking capacity from a VPP can be 60% cheaper than procuring it”