Virtual Power Plants & Transactive Energy: How Will They Change the Energy Business?

Virtual power plants and transactive energy. You’ve heard the terms, but what exactly do they mean? And why does a leading microgrid analyst see them changing the way the power industry does business?

At the center of the changes are the rise of prosumers, who once purchased energy but now produce it, helping create new opportunities for grid services from distributed energy resources, said Peter Asmus, principal research analyst with Navigant Research, and author of the report, VPP Transactive Revenue Streams.

As Navigant defines it, a virtual power plant is technology that is based on software and the smart grid, and works remotely and automatically to combine a number of independent resources into a network. Using sophisticated planning, scheduling, and bidding of distributed energy resources (DERs), it pulls together resources from different locations to provide reliable power 24 hours a day.

A microgrid becomes a virtual power plant when owners start to sell services such as demand response, according to Navigant.

Transactive energy is a little harder to define, said Asmus. But it’s all about moving away from traditional ways of paying for distributed resources — net metering, feed-in tariffs and standard regulatory concepts — and enabling more flexibility in managing distributed resources.

And that’s important, given that distributed energy resources are becoming the dominant form of generation, he said.

“Transactive energy is focused on rethinking things like net metering, feed-in tariffs and utilities charging demand and exit fees. All those concepts are becoming obsolete; both sides have to let go. Those old rules need to go out the window.”

As the cost of solar and batteries drops, we need more efficient systems that respond to real-time grid conditions, Asmus said.

What’s different about transactive energy

“What this report tried to grapple with is how would transactive energy work within a virtual power plant. You need to have a program in order to sell your service. You need to know the price you’re going to get paid. Usually it’s a fixed price. What’s different with transactive energy is you can get away from those basic programs and move into a total energy market and there would be localized transactions,” Asmus explained.

Instead of relying on a generator 100 miles away to back up a solar power plant, a renewable resource nearby would do the job, he added.

A few microgrids now use transactive energy concepts, said Asmus. For example, the Brooklyn Microgrid — which could also be viewed as a virtual power plant — aims to create a peer-to-peer energy market for locally generated renewable energy. And Horizon Power of Australia is looking into using transactive energy in remote microgrids, he said.

Navigant’s report focuses on the revenue streams that could be created by using transactive energy and virtual power plants. The tasks would be managed by an entity creating a virtual power plant; the entity wouldn’t be a utility but would have a contract with a utility or grid operator, said Asmus.

“A company like an Enbala could do this,” he said. Enbala is a major virtual power plant provider that can control in real-time, for demand response purposes, water heaters, dryers and other home appliances, he noted.

Revenue streams for virtual power plants

The first revenue stream identified by the Navigant report is localized clean energy. Right now, many renewable power plants are backed up by traditional fossil-fuel generation, said Asmus. These are often big centralized power plants. Instead, it makes sense is to use local renewable energy to back them up.

“Basically the goal of VPP and transactive energy is to localized renewable energy,” he said.

You can do this to some degree and trade energy with your neighbors. However, at some point, being part of a larger virtual power plant network yields greater benefits, he said.

“We’d have little pools of transactive energy operating locally as part of this larger aggregation. The value could increase,” Asmus said.

A second revenue stream would be virtual capacity from virtual power plants. Again, the focus is finding ways to back up renewable energy with something other than centralized power plants.

“Rather than being backed up by large generators — like backing up solar with large gas-fired peaker plants — you would back up the DER with another DER,” he explained. “It doesn’t make sense to have large generators spinning and waiting until needed.”

“It doesn’t make sense to have large generators spinning and waiting until needed.” — Asmus

The third revenue stream identified by the report is real-time demand response. Under this concept, people could trade clean energy and loads. Instead of backing up demand response with diesel, another local load could do the backup.

A fourth revenue stream is fast frequency regulation. Some markets in PJM territory call for frequency regulation. EV charging equipment is well suited to this task, Asmus said.

EV charging as submarket

“A transactive energy program would manage EV charging and make it a sub-market within the broader fast frequency market. It would tap into those resources and focus on those that can provide transactive energy versions of that service,” Asmus said. Right now, this is happening with EV charging, but participants are selling into a market run by grid operators. In this case, the market would be more regional or localized.

“One feeder with EV chargers and solar might sell into a statewide market for frequency regulation. There might be a market under that feeder that might be localized and aggregated into a bigger market,” he said.

Smart voltage control would be another possible revenue stream.

“It’s the same concept. You could develop more localized smart voltage control resources with all those smart inverters out there. You could create a market to address voltage issues,” said Asmus.

Big data from small sources would be yet another possible revenue stream, he said. As we shift to more VPPs and transactive energy, data will become more valuable.

“You would have markets that would focus on the data,” said Asmus. For example, vendors like Blue Pillar have begun offering data management for DER. The data covered would include for example, the status of a solar plant, or how much energy a home uses. “This information will become more valuable as we move away from schemes like net metering and feed-in tariffs. It’s all about the value of your asset and how it can feed into the market.”

Read more on about virtual power plants on Microgrid Knowledge.