California discovers the potential of virtual power plants

According to a study prepared by Brattle Group, virtual power plants in California could reach around 7500 MW of installed capacity by 2035 and cover up to 15% of peak demand. Adopting innovations such as virtual power plants is expected to help the state address looming supply disruptions, the accelerating transformation of the power sector and other challenges. However, the state still has a long way to go, and consumer willingness to participate in flexible demand management will be key to success, among other factors. 

California has narrowly avoided widespread power outages several times in recent years as the imbalance between electricity generation and consumption has grown. The risk of outages in the Golden State is increasingly in focus because of more frequent extreme weather, reduced flexibility from hydropower resources and limited opportunities to import electricity from other regions. According to a study published in April 2024, the cost of resource adequacy has doubled since 2017.

The state is therefore constantly seeking innovative solutions, in cooperation with private companies, to help keep the entire power supply chain stable and secure while enabling California’s ambitious policies to decarbonize the local economy and reduce the impact of climate change.

One solution with the potential to help address the situation is virtual power plants (VPPs). They use intelligent control systems and two-way technology to aggregate energy from grid-connected resources located at multiple sites, such as solar and storage systems, electric vehicles and other distributed energy resources (DERs). The technology creates a reliable energy network by combining hundreds of separate energy resources into one that can be flexibly used during peak periods, just like a conventional power plant.

Virtual power plants have significant potential

Despite the optimistic outlook, traditional energy sources currently provide almost all resource adequacy. Just 3% of the required resource adequacy is currently provided by loads that can be considered VPPs and are not controlled by traditional utilities.

However, the situation could change as smart thermostats are gradually adopted and electric vehicles and battery storage systems become more widespread. According to research published by Brattle Group and GridLab, installed VPP capacity in California could potentially exceed 7 500 MW by 2035. That is more installed capacity than the state’s largest power plant. The modelling also shows that, if this scenario is achieved, VPPs could meet up to 15% of total peak demand.

"With energy bills rising rapidly across the state, this report shows the enormous potential of VPPs to provide affordable, clean capacity as well as critical support for grid reliability. VPPs can play an important role in helping California achieve its goal of 100% clean electricity by 2045," said Ric O’Connell, executive director of GridLab.

The research also finds that widespread VPP deployment could save consumers more than 550 million dollars a year and avoid more than 750 million dollars a year in spending on traditional energy systems.

Customer engagement is key to further development

Customers’ willingness to participate in sharing their electricity is key to the further development and success of the virtual power plant concept. In short, the more consumers with electric vehicles, air conditioners and other electricity-intensive devices participate in the system, the greater the potential for dispatchable capacity.

"Virtual power plants can essentially be ‘built’ as quickly as customers adopt the technologies and sign up. VPPs can scale flexibly as demand grows and mitigate risks arising from unprecedented uncertainty in electricity demand forecasts," the study’s authors said.

Solutions to get more end customers involved are therefore already being sought. One way to encourage customers to participate actively is through various incentive programmes. For example, one programme compensates participants with incentive payments worth hundreds or even thousands of dollars a year.

California, Texas and other states

VPP technology is now being deployed in pilot projects across the United States. Utilities are also contributing to this trend, seeking to use the solution to minimise the enormous costs of upgrading and expanding physical infrastructure, which is no longer sufficient.

In California, San Diego Gas & Electric operates a VPP pilot project designed to help the grid meet electricity demand during periods of high summer temperatures and increased air-conditioning use.

Two pilot projects in Texas work in a similar way, coordinating the operation of connected, consumer-owned devices to provide an additional dispatchable energy resource for the Electric Reliability Council of Texas during periods of high demand. Puget Sound Energy, the largest utility in Washington state, recently announced that it is expanding its partnership with software company AutoGrid in an effort to reduce costs and improve the reliability of energy supplies.