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The Immense Social and Economic Benefits Of Aggregated Residential Energy Storage Systems—or, Virtual Power Plants

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James Spano's picture
Managing Partner Spano Partner Holdings

James Spano, Managing Director As a developer and prominent advocate of renewable energy, Mr. Spano strives to maintain the highest quality standards and find creative solutions to move...

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  • Jan 27, 2021

This item is part of the State of the Industry 2021 SPECIAL ISSUE, click here for more

Here are some facts. 

Every year moving forward, monstrous wildfires will rage all across the state of California. Lives will be lost, homes decimated, communities reduced to ash. PG&E corp, meanwhile—the aging utility that powers nearly all of the golden state—will be at least partly responsible. Its outdated infrastructure has already sparked 6 of the 10 most damaging wildfires in California history, including last year’s Getty Fire, and the utility has made it clear that it won’t be updating its equipment any time soon—the cost of overhauling its infrastructure is prohibitively high. Its response instead has been (and will be) to impose blackouts. PG&E imposed 10 blackouts in 2019 alone. Estimates suggest the economic cost of just one of those blackouts—in October—totaled more than $2.5 billion. 

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Here are some more facts. When the power goes out—especially for extended periods of time—those who can’t afford temporary housing nor financially qualify for things like a solar PPA face a different kind of calamity, namely the loss of the ability to do things like store food and run water. They in fact have no recourse but to sit and wait, either for the flames to abate or for the electricity to at some unknowable point be turned back on. Until then, they languish, prisoners to the whims of a system that does not and cannot serve them properly. 

This situation is merely a microcosm of the vexing energy- and climate-related problems that the next decade will bring—not only to California, but the rest of the country and the world. 

Like the fires, these problems will only get worse. And seeing as how our present means of addressing them—shutting off power, relying on inadequate and dirty peaker plants to relieve overburdened grids—are fundamentally ineffective and dangerous, it’s positively crucial that policymakers and entrepreneurs start working together to find innovative solutions. 

One such currently commercially and technologically viable solution that policymakers must pay attention to are third-party owned, aggregated residential energy storage systems—or, virtual power plants (VPPs). 

Across the world, VPPs—specifically those owned and operated by third parties—are being enabled and deployed in residential communities for precisely this purpose of improving grid-resilience and economic safety for those most in need of it. 

And they’re proving effective. Traditional, centralized grid storage units—like those used presently in California—can manage power up the distribution lines and into the transmission lines, but not down to the actual load. An aggregated residential VPP, however, can manage the grid signal down to the very end of the distribution system: the residential loads where homeowners are most affected by grid instability and outages. 

Here’s how they work. In general, a VPP is created by connecting a network of decentralized power-generating units, like solar panels affixed to roofs and storage systems installed in homes. (The units are connected, ultimately, by a centralized control center.) By way of a software tool, power generated by the units can be distributed more intelligently, enabling the VPP to stabilize frequency and better balance demand. In fact, they can create demand to draw excess power from the grid, as well as exhume power back into the grid as a generator. By effectively breathing in and out of the grid—and sensing the grid frequency—VPPs can automatically and accurately respond to frequency variance. For this reason, they prove the most efficient means of managing grid frequency.  

By adding a storage component, meanwhile—the individual batteries can be aggregated into large power storage systems—VPPs are capable of providing power during grid outages while providing grid services while the grid is operational. (A storage system allows for a transfer of excess power from the grid to the battery system, where it can be stored, rather than back-fed into the grid.)

For these reasons, VPPs allow residents to remain in their homes during blackouts without the fallout and fear of losing electricity indefinitely. 

In fact, with VPPs, entire communities can be pulled off a circuit or distribution line, in turn allowing existing lines to add more solar power without exceeding their capacity—which itself enables operators to create and utilize more renewable power without the added cost (at ratepayer expense) of feeder lines or substation upgrades. 

That’s not all VPPs can do, however. They’re also being used to replace old fossil fuel power plants and to generate renewable energy. In fact, with its immediately available stored power, residential VPPs have the ability to replace entire peaker plants—which, all things considered, are responsible for more than 70% of carbon emissions from electricity production. Senior adviser to GTM Research Shayle Kann, speaking at Greentech Media’s Energy Storage Summit, went so far as to say the following: “I can’t see a reason why we should ever build a gas peaker again in the U.S. after, say, 2025. If you think about how energy storage starts to take over the world, peaking is kind of your first big market.”

In other words, VPPs not only save lives, but also money—and they also prove the most effective and immediate means of decreasing carbon output, seeing as how they store power without involving any carbon whatsoever. 

What we have with residential VPPs is, ultimately, a unique tool for addressing the factual, unmovable threats—such as the wildfires caused by PG&E in California—that the planet now faces. 

And we’re already seeing the benefits of VPPs in practice. Consider the Soleil Lofts rental community, currently under construction in Utah. The lofts are being built by a company called the Wasatch Group, and they’re partnering with an energy storage company called sonnen to affix each of the projects’ 600 rental units with sonnen storage and solar products. Collectively, those products will comprise a VPP which itself will be capable of holding 12.6MWh of solar energy storage—enough energy to power the whole complex in the case of a power outage. 

In other words, that VPP very well may save lives. 

As energy markets become increasingly and inevitably burdened by climate change—not to mention the inefficiency of outdated modes of energy storage and delivery—policymakers must embrace cleaner and smarter means of problem solving. They must embrace modern solutions to what are fundamentally modern problems. 

Aggregating solar systems and storage capacity in residential communities—under a third-party ownership model—is one such solution. 

In fact, all things considered, it’s the best strategy we’ve got. 

Matt Chester's picture
Matt Chester on Jan 27, 2021

Are there certain trends that grid operators would have to look for along the adoption curve of VPPs? That is-- does just a few forward-looking customers adopting the technologies affect the grid different than it becoming more ubiquitous (perhaps after the first grid outage where people realize it could have been avoided if they had gotten in on it)?

Jim Stack's picture
Jim Stack on Jan 29, 2021

Excellent facts and data. VPP are becoming the standard for home and small business solar. They can also be combined into Micro GRIDS to help a complete neighborhood. This can include the poor who have a great need but not the resources to add solar and storage.

   More and more electric vehicles can be part of that solution with V2G Vehicle To GRID.  The new Lucid EV with over 500 miles of range and over a 100 kWh battery is one of the first with V2G and V2V built in. It is made in Casa Grande Arizona. 

     What percentage of new home Solar PV do you think are also including Battery Storage? The price seems good now and getting better in the next few years. How many do you think will be retrofitting their inverters to add storage ? How do you think utility added charges and demand charges affect storage? 


Mark Silverstone's picture
Mark Silverstone on Jan 30, 2021

Clearly VPPs are far more than "middle men" who take a cut of the revenue from the power generators. They add resilience and functionality to best utilize available power. It´s very interesting to see how the parts of this new puzzle are falling into place.

Richard Brooks's picture
Richard Brooks on Feb 1, 2021

Completely agree. Aggregated DER's are indeed capable of providing essential grid services for balancing and stability, and are supported by FERC, in Order 2222. I made this point in a recent comment filing to NESCOE:

Nevelyn Black's picture
Nevelyn Black on Feb 5, 2021

Wanted to mention the benefits of VPP’s for utilities according to this article (link below).  'They provide ancillary services to the grid to help smooth out imbalances created by renewables and with very little notice, can provide peak load electricity.'  But how are the risks and rewards measuring up?  Are virtual power plants at higher risk of cyber attack?

Christopher Neely's picture
Christopher Neely on Feb 9, 2021

This cybersecurity question is an important one, though, since VPPs are decentralized, a cyberattack would likely be contained in single communities, which could have a little payoff for hackers in comparison to a centralized system that places an entire region at risk. I think the decentralization method could be looked at as a cybersecurity strategy in and of itself.

James Spano's picture
Thank James for the Post!
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