Virtual Power Plants Explained

VPPs are one way of changing how we think about our power grid, allowing us to produce power and meet our needs more efficiently and cost-effectively. VPPs are not power plants in the sense of what you would typically think, such as a nuclear or coal power plant. VPPs are generally an aggregation of distributed energy resource (DER) technologies. DERs are small-scale power generators connected to the grid at the distribution level. DERs could include solar panels on a roof, a home battery, a small natural gas generator, an anaerobic digester, or even programs that have consumers reduce their electric use. VPP software takes these small energy generators and coordinates them to function like one power plant.

The electrical grid needs power and the right amount of energy every second of the day as people turn their lights on and off, charge their phones, and many other electricity requirements. This balancing act and other services that power plants provide are necessary to make our electric grid work. Smaller electricity-producing units, such as solar panels on a residential rooftop with a battery and a smart thermostat, can produce power and put it on the grid but can't help reduce or increase the power on the grid; VPPs can change this. VPPs allow these resources to be combined to provide the same services a traditional power plant does. When the grid needs a certain amount of extra power, a VPP can deliver and get paid for giving power and agreeing to provide it when needed.

A good example might be people who invest in home batteries to make their homes resilient to power outages. Typically, this battery would provide backup power in emergencies. With DERs, this could change. A homeowner could offer reliability services and provide power when the grid needs it, but one home battery can only do a little on its own to meet the demands of the grid. With a DER, you can have your battery work together with other owners of home batteries, electric cars, or other resources to function as one power plant and provide the right amount of electricity at the right time. Some utilities, such as Green Mountain Power in Vermont, have VPP programs that cover some of the participants' costs for getting home batteries.

Many believe the grid already provides the right amount of electricity, so why do we need these programs? Currently, peaker plants are used to meet energy needs during peak hours of usage in the evenings. These coal or natural gas plants operate only when power is in the highest demand. These plants will usually only operate for 5% of the entire year and can be costly to operate, increasing your utility bill as the consumer. VPPs can reduce this cost by functioning like a peaker plant does at a fraction of the cost.

If you don't have a home battery, solar panels on your roof, or an electric vehicle, you may think you can't participate, but there is an option called "demand response." Demand response can take many forms, including smart thermostats and electric water heaters. These allow customers to opt in to reduce their electricity use when electricity demand is high and be paid to reduce the overall demand on the grid. This reduction can be reducing your electric heating system or cycling on and off customer's water heaters and air conditioners for short periods to reduce power needs. This way, instead of producing power from the grid, they can reduce the demand directly, saving on cost. VPPs are not yet available to consumers in Pennsylvania, but the Pennsylvania Public Utility Commission (PUC) is currently working on regulations to allow these programs.