California’s patchwork push to scale up virtual power…

New rooftop solar systems are worth a lot less than they used to be in California, following the state’s dramatic changes in net-metering policy. Even batteries added to those solar systems to store power when the sun is shining and feed energy back after the sun goes down — a primary goal of the state’s new rooftop solar rules — are worth less after recent decisions from state regulators.

But residents still have one clear pathway to making solar and battery installations pay off. They can join a virtual power plant.”

Virtual power plants, or VPPs, use software to combine the power of hundreds or thousands of small-scale solar and battery systems to mimic traditional power plants. VPPs have been expanding in California over the past few years, thanks to a funding boost from a series of state laws and regulator decisions enacted to forestall summer evening power shortages like those that forced small-scale rolling blackouts in August 2020 and nearly caused more in September 2022.

From a power-grid perspective, the vision is to have VPPs help replace the fossil gas peaker” plants currently used to meet surging electricity demand on hot summer evenings. Solar advocates also see VPP programs as a way to boost sales of home solar systems in the state, which have slowed to a crawl due to regulators’ decision to sharply cut compensation from net metering.

About 100,000 solar-charged batteries are already installed at California homes and businesses, adding up to nearly 1.7 gigawatts of capacity — but only a fraction of that is being tapped for VPPs today.

Virtual power plants are all potential at this point,” said Kate Unger, senior policy advisor for the California Solar and Storage Association trade group. There’s so much potential there. But we’re really in the nascent stage.”

The question is how quickly these VPPs can expand to harness this potential — and whether they can prove to utilities and regulators that they’re reliable enough to serve the state’s peak grid needs.

Finding ways to bring VPPs to more California communities 

Chris Rauscher, head of grid services and VPPs for Sunrun, a major U.S. residential solar installer, thinks his company has proven the viability of VPPs with its project with Northern California utility Pacific Gas & Electric.

The project, launched last year, combined 8,500 residential solar-plus-storage systems to consistently discharge an average of just under 30 megawatts of battery power from 7 to 9 p.m. every weekday from August through October — the months when the utility tends to face the heaviest demand for power after sundown.

Participating customers received a $750 gift card and a free Google Nest smart thermostat in exchange for giving Sunrun control over their batteries during the months of the program. The chart below shows a typical daily cycle.

Chart of daily solar, battery and household load of Sunrun solar-battery customer enrolled in PG&E virtual power plant
A typical day in the life of a Sunrun solar-battery customer enrolled in the company’s virtual power plant program with PG&E, with batteries charging up with midday solar and discharging that power to reduce the grid’s peak demand in the evening. (Sunrun)

If there was a question about whether a virtual power plant could show up day in and day out at megawatt scale, we have proven it resoundingly,” Rauscher said. What’s more, PG&E and Sunrun were able to initiate the project, sign up customers and start controlling their batteries in less than six months, he said. There’s not another resource that can be stood up that quickly.”

The one thing that’s missing from the equation that could allow this particular Sunrun-PG&E project to replace a power plant is ensuring its longevity. Like many of the VPP opportunities now taking root in California, this project was created in response to grid emergencies, and it won’t be extended unless state policymakers, regulators and utilities take action to do so.

This lack of a steady support structure for virtual power plants is a problem for most VPP projects across the state, Unger said. It’s a serious barrier to expanding the tech to the point where it can meet its potential as a widespread alternative to the large-scale resources that the CPUC and utilities currently rely on.

That’s a major missed opportunity, clean energy experts say.

That’s because the distributed energy resources that make up virtual power plants — rooftop solar, batteries, electric vehicles and smart appliances — can do a lot more to help customers than big power plants can, according to Rafael Reyes, senior director of energy programs at Peninsula Clean Energy, one of the community choice aggregators that procure clean energy for a growing number of the customers of California’s big three utilities.

We obviously want to provide grid benefits…and reduce our costs.” But, he added, we also have a lot of power outages in our service area, so resilience is of importance.” PCE’s territory in San Mateo County is one of many parts of the state that have experienced multiple wildfire-prevention grid outages over the past few years.

And utility rates and bills are just astronomical — there’s no other way about it — and we want to use [distributed energy resources] to make electrification more affordable.” Rooftop solar and batteries can reduce the cost of charging EVs and running electric-powered heat pumps, two key technologies in California’s decarbonization roadmap.

But finding ways to capture the grid value of solar-plus-battery systems to reduce their upfront cost for customers is tricky, said Peter Levitt, PCE’s distributed energy resources programs manager. For PCE and other community choice aggregators, the best current option is using them to reduce their resource-adequacy costs, he said.

Resource adequacy” is how California utilities, community choice aggregators and other power providers refer to the process of securing enough grid resources to meet peak demand in future years. In California, the periods of highest power use occur during hot summer evenings when air conditioners are blasting, and solar power has faded from the grid. In the future, the state plans to use utility-scale batteries to alleviate grid stress, but resource adequacy today is largely supplied by fossil-gas-fired power plants.

As the state’s grid has become more stressed, the cost of securing enough power to ensure that resource-adequacy requirements are met has been climbing at a really concerning rate,” Levitt said — about two to three times more than a few years ago — and it really spikes in the summer months.”

But under a 2020 decision from the California Public Utilities Commission that shifted some resource-adequacy responsibilities from community choice aggregators to investor-owned utilities PG&E and Southern California Edison, PCE and other community choice aggregators can’t directly obtain the value of local load reductions that VPPs can provide.

To get around that barrier, PCE worked with the California Energy Commission, which is the state energy agency in charge of setting resource-adequacy requirements, to prove that its VPP-based batteries were indeed consistently reducing peak power demands.

Once that was proven, the California Energy Commission allowed PCE to subtract that from its load forecasts, reducing the amount of power supply it had to secure to meet resource-adequacy requirements, he said. That, in turn, leads to lower costs for all its customers, not just those who participate in virtual power plant programs, because the costs of resource adequacy are passed along to all customers in their electricity rates.

That’s a new and different approach from the traditional method of responding to grid emergencies by asking customers to reduce energy use or provide backup power, a tactic called demand response” that is much more commonly deployed in the state today. Instead, these VPPs proactively reduce peak power demands to reduce the risk of grid emergencies ever happening in the first place — and reduce the state’s reliance on fossil gas as the grid resource it relies on to meet those peak demands.

Distributed resources like VPPs aren’t treated as if they are as reliable as utility-scale power plants and solar and battery farms today, PCE’s Reyes said. But California’s plans for utility-scale clean energy growth are stalling in the face of crowded transmission-grid interconnection queues, and distributed resources could circumvent that problem.

At some point, you have to start asking the question, Are [distributed energy resources] an alternative to California reaching its energy storage goals?’” he said.

The customers with home solar-plus-battery systems that PCE is working with are part of a broader 20-megawatt contract that Sunrun launched in 2020 with PCE and two other community choice aggregators (CCAs) serving customers in the San Francisco Bay Area region. All three CCAs have used the load-modification method that Levitt described above to make the project economics work, Rauscher said.

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