We live in an unstable time for electric service. While some electric companies wring their hands, others are beginning to see exciting new business models. Distributed energy resources (DERs) present one big problem. Virtual power plants present one important solution.
“Distributed energy” is a weird term. Power companies have always generated electricity and distributed it. But that’s not what distributed energy means.
Power companies offer a centrally located power plant that serves a wide area. Distributed energy generates electricity where it will be used. We can think of it as distributed vs centralized power generation.
Electric utilities and disruptive technologies
Rooftop solar installations, for example, generate electricity for whatever building they sit on. Since they don’t work after the sun goes down, most are still tied to the grid—to the power company’s system.
The buildings don’t need the grid during the time when power companies can charge the highest rates for electricity. In fact, they generate more electricity than they use. Regulations in most jurisdictions require the power companies to buy the excess.
I wrote about how more and more utility executives have decided to embrace distributed energy earlier this year. They still seem to be in the minority, however.
At a recent conference on distributed energy, one energy company CEO presented a gloomy outlook. He compared the current state of the industry to the five steps of grief: denial, anger, bargaining, depression, and acceptance. Having been given a terminal diagnosis, he said, most utilities are still experiencing the first two stages. In other words, he seems to be saying that they’re all going to die.
Another presenter reminded the audience that electric utilities have always faced disruptive technologies. Alternating current displaced direct current while Thomas Edison was still personally running a power company. And so disruptive does not equal destructive.
Virtual power plants
Nowadays, utilities do not face a question of what kind of power to generate. They face a loss of control over generating it.
Traditionally, the utilities controlled innovation and change. Now, customers occupy the driver’s seat. DERs generate a growing percentage of all electricity.
Utilities can no longer simply produce more or less electricity to meet the demands of any given moment. DERs introduce the concept of management of demand.
One reality continues, however. Unless each user becomes a power generator, some entity will have to operate the grid. And DERs demand changes in how to keep it optimally working. We need robust, financially viable utilities.
Since then, a company called Blueprint Power has emerged. It helps office buildings in New York generate solar electricity, use it efficiently, and sell the excess back to ConEd at a nice profit. ConEd knows how to use it in the grid because of its experience with its own pilot virtual power plant.
Moreover, Elon Musk has built a much larger virtual power plant in South Australia, comprising 50,000 homes with battery storage. It generates about half as much electricity as a single coal-fired plant, about 250 MW.
Additional requirements for distributed energy resources
The emerging digital grid requires smart meters, smart inverters, and other technology. It’s distinct from the concept of a virtual power plant. Earlier, I mentioned electric vehicles in passing. They will actually become a very important part of maintaining grid stability.
Integrating DERs into the grid requires not only technology but new utility business models. It appears that, so far, regulators have had to prod utilities.
For example, ConEd’s virtual power plant happened only after changes in state regulation. Likewise, California’s regulatory environment has forced utilities to find creative ways to use DERs profitably.
Additionally, I notice that Duke Energy has incorporated rooftop solar installations into the grid in South Carolina, where state law requires it. Yet it continues to resist that same technology in North Carolina, where state law does not support rooftop solar.
Sooner or later, energy company executives will not need the spur of government regulation. On their own, they will start to explore how to cooperate with DERs instead of resisting them. And make a profit, too.
But first, they have to outgrow their hypochondria. The utilities have not been given a diagnosis of a terminal illness. It’s more like acute bronchitis. Unpleasant while it lasts to be sure, but not fatal. Creative thinking and optimism can be the antibiotic that puts the sickness behind them.
A blueprint for scalable virtual power plants & a new energy system / Memoori. August 3, 2018
Distributed energy is disrupting the power industry: is the sky falling? / Aaron Larson, Power. October 18, 2018
Distributed energy resources pose biggest disruption to utility business model / Editors of Electric Light & Power. July 5, 2017
Virtual power plants: our energy future is distributed, efficient and intelligent / Memoori. May 19, 2017
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