Unlocking Customer Value: The Virtual Power Plant
How does a utility manage the complexities concerning the rollout of pricing, demand response and distributed energy resources for load reduction, ISO/wholesale market participation and/or distribution management? One way is through the use of Virtual Power Plants (VPPs).
By Aaron Zurborg T
he utility world has changed drastically in the last 10 years. New technologies like Smart Meters and fully functional Smart Grid concepts have made large inroads
into the utility space and no one should want to be left behind. Utilities also face additional pressures from regulatory bodies who are continuing to encourage carbon reduction and greater customer flexibility. Utilities need to balance these new requirements with the financial obligations of providing reliable power (at a reasonable price) while attempting to meet shareholder expectations. Each of these goals are not necessarily complimentary, thus utilities need to determine how to address each one. Some of the ways utilities are addressing these concepts is
through the rollout of dynamic pricing for reducing peak-load, demand response to shed load during emergency situations or other trying times, large scale distributed generation to reduce usage of fossil burning plants, localised distributed generation or demand response to improve grid balancing or reduce outages, and leveraging Independent System Operator (ISO)/wholesale markets where utilities bid customer demand response or distributed energy resources into the market. While each of these present great opportunities they are also riddled with challenges. Issues arise from how to forecast appropriately the level of customer participation in programs, how to include demand response or distributed energy resources into a utility’s operational portfolio, and how to execute very localised demand response to address grid specific issues. Each of these challenges are complex and while not all opportunities will be addressed by each utility, any combination of each of these will require a solution that can address operational concerns of how much load will be reduced and how does that impact a utility’s procurement/generation of power. How will demand response impact a utilties distrbution system, and in what ways can a utlity aggregate these available customers into something that makes logical sense. This paper explores one concept to confront these challenges which is the Virtual Power Plant.
on their meter investments. AMI implementations are normally funded through rate adjustments, or board approved capital expenditure projects that are justified through the benefits of remote readings, connects and disconnects. Those benefits only scratch the surface of the benefits that smart meters can provide. Many utilities are evaluating other benefits, whether that be through load reduction from new DR programs, or dynamic pricing programs that will shift or reshape load, reduce peak periods, or contribute to spinning reserves. Southern California Edison has included a benefit for their
Phase II smart meter rollout – an expectation of 1,000 MW of peak-load reduction through DR and pricing programs that become available through the smart meter rollout.2
Include in-
home displays, in concert with pricing programs, and a utility can achieve so much more. A recent study by the Brattle Group on dynamic pricing found
... utilities need to also consider how best to achieve the full return on their meter investments
that across the US critical peak pricing programs induced a drop in peak demand/usage by 13-20%, while Peak Time Rebate (PTR) showed a drop in peak demand of 8-18%. With technology in place to respond automatically to Demand Response, these falls increased to 20-45%.3
The findings are significant
to any operations organization and cannot be ignored when included within the utility’s overall generation portfolio
plans. Through these studies and existing programs, utilities now have the ability to utilise DR and pricing programs to consistently reduce or shift peak demand, offset intermittent renewables, relinquish short-term contacts and even utilise them to contribute to spinning reserves.
Wholesale Markets & Demand Response Markets are encouraging bidding of DR into their wholesale
Smart Meters, Dynamic Pricing & Demand Response In the United States alone there is the pressure of thirty
eight plus commissions looking to enforce new Smart Grid AMI and Demand Response (DR) implementations, along with Presidential expectations of a rollout of 140 million Smart Meters by 2019.1
While utilities continue to rush to meet these demands, they also need to consider how best to achieve the full return 102
or retail markets. Since 2006, the DR contribution to peak- load reduction within the ISO/wholesale market in the US has increased by 10%. Even in Europe, wholesale markets are looking at how to increase the ability to bid DR into their respective markets. As utilities begin to participate in ISO bidding strategies they are not only seeing the benefits, they are also understanding the challenges. The biggest challenge that utilities face of market bidding is
the relationship between the physical and financial models. Bidding into an ISO, utilities are supplying a financial bid of price and MW quantity to the ISO market. This bid is based on the defined Locational Marginal Price (LMP) which is defined by the ISO. While this makes bidding consistent in
worldPower 2010
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