NATIONAL HARBOR, Md. — The demand response business has changed so much in recent years that the term has fallen out of favor for “virtual power plants” (VPPs), and the trend is only going to continue as residential customers adopt more distributed energy resources. 

The only thing aggregators like LS Power subsidiary CPower used to deal with was actual customer demand, CEO Michael Smith said in an interview on the sidelines of an event his company hosted on Jan. 23. 

“Now we have on-site solar and storage,” Smith said. “Now we have a lot of backup generation fuel cells. We have interruptible computing loads, so we talked about data centers, or Bitcoin mining, that can change their load profile and actually change their operations. So, all of these things give us more tools in the toolbox. At the same time, the needs of the grid have become more complex.” 

With residential customers getting more involved in the electric grid with the adoption of electric cars, distributed solar and batteries, and smart appliances, that shift is only going to accelerate. 

“I think that the overall residential market just in terms of gigawatt-hours is going to be larger than the C&I [commercial and industrial] market, if you think about water, heaters, AC, that kind of thing,” Smith said. “But getting to it is a challenge; it’s a data challenge. But it’s also a controls challenge that has to be highly, highly automated.” 

Many of the large C&I customers that CPower serves trim their demand at least in part by having an employee flip a switch, but residential customers need to have that process, Smith said. 

That looming change has caught the attention of the U.S. Department of Energy, which is increasingly focused on helping VPPs roll out across the country, said Loan Programs Office Senior Adviser Jennifer Downing (no relation to reporter), who wrote the department’s “Pathways to Commercial Liftoff” report for the technology. (See DOE Report Lays out Commercialization Path for VPPs.) 

“Well, a big reason why now is that we are about to experience a tsunami of DER adoption,” Downing said in public remarks. “And that’s true across three categories of DERs.” 

Generation DERs like solar; flexible loads like smart thermostats and water heaters; and distributed batteries are all rolling out over the next decade with almost 25 GWh of capacity by 2030, she said, which pales in comparison to the amount of new load from electric vehicles over the same time period that will add hundreds of megawatts of batteries to be served by the grid. Not all the EVs will be plugged in at once, and often they will be unable to shift when they charge. 

“But if even a fraction of this capacity is available to virtual power plants to help balance supply and demand of the grid, that’s an enormous potential,” Downing said. 

The ability to orchestrate when some of those cars are charged will be key to supplying them with power reliably and affordably, and VPPs can make that happen, Smith said. 

All the changes going on now are transforming the grid, which has generally operated the same way it has since the days of Thomas Edison and Nikola Tesla, she said. 

“But now with increased distributed generation, we’re finally changing the physicality [of] the grid, which is what we’re experiencing right now,” she added. “So, it’s a balance: We’re always going to have central station generation, [but] we’re going to have less of it relative to the overall kind of load demand needs of the grid. More of that demand will be satisfied via on-site generation.” 

Solar is the main agent of change, but storage and fuel cells and other technologies will also play a part. That change is going to impact how much transmission and distribution grids are operated, Smith said. 

FERC Order 2222

FERC Order 2222 was meant to set the stage for that transition, and while it does represent a major step forward, Smith and other CPower executives at a media briefing said that its implementation has fallen short of what the VPP industry would have liked. The implementation was dogged by questions about cost and jurisdiction, said Kenneth Schisler, CPower senior vice president of regulatory and government affairs. 

“But it was a very positive step in the right direction,” Schisler said. “So, let’s recognize that regulation gets to where it needs to be over a period of time. I think we have to acknowledge that even in the markets where we’re not as happy with the result of the implementation of Order 2222, it’s a positive step in the next direction.” 

FERC left a lot of discretion on the details up to the ISO/RTOs and their utilities, which has led to uneven implementation and will likely require a follow-up “Order 2223,” he added. 

No regulator or politician is going to be able to stop the tidal wave of DERs that Downing spoke of, and that transition would be better served by having them play well with the wholesale markets, Schisler said. 

“The question is, do you want these resources operating in the underbrush?” Schisler said. “Or do you want them aggregated where you have visibility and a level of control, and you can begin to model and plan around their expected behaviors? And that’s, I think, where we have a very positive contribution to make.” 

NYISO is the only organized market that has changed its participation model, with all the others using the old DR participation model that does not reflect the major changes the industry has seen in recent years, he added. 

One common issue with ISO/RTOs is they still tend to plan around large, central-station power plants, said CPower Senior Director Aaron Breidenbaugh. 

“If the only tool you have is a hammer, every problem looks like a nail, and to them every problem looks like a 500-MW power plant,” he added. “So, of course, you have to have six-second telemetry. So, of course, it has to be nodally located, or it’s going to completely screw up the price. Of course, it has to be individually metered.” 

While FERC has some work left to do on VPPs and DER integration, the bulk of the activity is going to happen at the state level, where regulators have primary jurisdiction over the distribution system, Schisler said. State laws are helping to drive increased adoption of DERs, and even once skeptical states have started to embrace the role aggregators like CPower can play in coordinating those new resources. 

FERC Order 719 required ISO/RTOs to remove barriers to DR, but it also let states opt out of letting their customers participate in wholesale markets as DR. That was included in the 2008 order because some states felt that DR could be a backdoor way into federally mandated retail competition, Schisler said. 

The commission could end that opt-out now after some recent court findings; it has a pending complaint before it asking it to do so (EL21-12), while U.S. Rep Sean Casten (D-Ill.) has introduced legislation requiring that step. But Schisler argued that the issue should not be forced onto states. 

“I think the opt-out is not constructive, and I would prefer it not be there; taking it away is a different proposition,” he added. “And our approach has been to work with states in the Midwest, and we’ve enjoyed a fair amount of success in the last year. We’re seeing great progress and in states like Michigan, Missouri and Indiana.” 

Missouri especially was a landmark case in part because it never even considered endorsing retail competition, but now it has opened to third-party aggregators like CPower. It is also split between multiple wholesale markets. 

“If a state like Missouri that has figured out a model to make it work, you know, I think other states will follow suit,” Schisler said.