Transitioning to a Smarter Grid: Virtual Power Plants
Three companies, sonnen, Swell Energy, and OhmConnect all stand on the leading edge of a new, promising trend in electrical power grids: VPPs.
This article is one in a series investigating the importance of modernizing and decarbonizing the electric grid.
If you want to understand the issue in context, see the article Grid Modernization; for cutting edge experts’ take on the topic, see the article Here Is How To Create A Clean, Resilient Electrical Grid. In the latter article, I touch on the topic of the present article, Virtual Power Plants (VPPs).
For a look at an innovative company spun out of Stanford University’s labs that have developed a battery with tremendous potential for providing grid storage, see the article, Enervenue: The Batteries We Need for Grid-Scale Storage. For a look at a company using superconductor technology to make our current, aging grid more resilient, please see Transitioning to a Smarter Grid: AMSC.
When I say the word “Power Plant”, what do you think of? Most likely, images of massive industrial installations, huge smokestacks, and high voltage wires come into mind.
This is what I thought too before I heard about Virtual Power Plants — VPPs.
VPPs pair inexpensive equipment installed at electrical customers’ homes and businesses with some very smart networking software to take over many of the functions that multi-billion-dollar natural gas, coal-fired, or nuclear plants did in the last century.
While VPPs are a new concept and have yet to be widely rolled out in all areas, I believe they have the potential to change our system of electrical generation and provision as much as Linux and open source have changed the software business.
This article offers an overview of three pioneering VPP companies:
- sonnen, Inc.
- Swell Energy
The consumer equipment that sonnen and Swell install include rooftop photovoltaic (PV) panels and residential battery storage systems.
sonnen works with builders to plan communities outfitted with PV and battery back-up units. The battery back-ups are then networked together to allow them to distribute stored energy to everyone in the community or even “dispatch” power back to the grid during peak energy use periods.
sonnen’s partnership with the Wasatch Group — a forward-thinking developer in the Western US — and a local utility — Rocky Mountain Power — resulted in the development of the Soleil Lofts in Harriman, Utah. Each Soleil unit comes equipped with a sonnen home battery, and the network of all the sonnen batteries supplies the energy needs of the community when the sun stops shining or the grid is disrupted like during the recent debacle in Texas. It also can sell stored power back to Rocky Mountain’s electrical grid during peak usage times — hereby earning Soleil residents an income from the power they sell.
Swell uses the same pairing of PV panels and battery storage to work in a similar way to sonnen’s planned communities, but it does so for existing homes and businesses.
Swell’s CEO, Suleman Khan, aspires to democratize the energy business by making PV panels and home battery systems affordable for everyone. He made the astute observation that investors like standardized projects that generate predictable cash flows over time.
He realized that by standardizing the installation of PV panels and battery packs and aggregating the stored energy as a single virtual energy asset, financial markets would fund the projects at lower interest rates than any single consumer could do with a one-off installation. Cash generated by Swell’s network of home battery packs collateralizes an asset-backed security that yield-hungry investors love. Customers like the fact that after the battery packs are installed, they can make money from the energy they contribute into the network and that they still have power when the grid goes down.
OhmConnect also uses a hardware / software combination, but rather than solar panels and battery packs, the hardware they supply to customers are smart devices — smart plugs, smart thermostats, and the like.
OhmConnect works on Benjamin Franklin’s principle of “A penny saved is a penny earned”. The company’s artificial intelligence-powered software sees every smart device in its network as a potentially energy saving tool. During peak times, the company sends a notification to its customers that it wants to shut off one of the smart plugs or turn up the smart thermostat a few degrees.
The customer can say no to the request, but if she says “yes”, she saves money by having the device attached to that smart plug — a lamp or even a refrigerator — shut down for a short amount of time.
You might think that having a refrigerator shut off doesn’t sound like a good idea, even for a short time. However, OhmConnect’s AI is smart enough to know that if the refrigerator door is not usually opened during a certain time period, it does not hurt anything to shut the power off during that time. The user doesn’t know the difference until the bill comes and she sees that she saved a hefty amount on her energy expenses for the month and also generated a subsidy of a few bucks because OhmConnect’s network shut down some of her appliances during peak power usage times — when energy is particularly expensive and when the grid is particularly jammed up.
40% of OhmConnect’s customers are low- to moderate-income families and the energy saved by OhmConnect’s system means that the grid — a public good that contributes to everyone’s wealth and comfort — is helped as well.
These companies are each contributing to a more resilient, efficient, and healthy energy system. We need these companies and competitors like them to scale very quickly to help solve the problems we face from the absolute certainty of increasing uncertainty from climate change.
Intelligent investors take note.