Remote-controlled fleets of distributed energy resources could conservatively cover about 15% of California's peak power demand by 2035, according to a report released April 11, highlighting the potential of virtual power plants as state lawmakers consider a proposed procurement mandate.

The report, prepared by economists at The Brattle Group for nonprofit organization GridLab, found 7,671 MW of virtual power plant (VPP) market potential in the Golden State over the next decade from orchestrated electric vehicles, behind-the-meter batteries, smart thermostats, water heaters and demand response. That is roughly five times more than California's current demand response capacity used for resource adequacy, the report found.

"Historically, there's been plenty of demand response that has come from controlling residential households' air conditioners or getting basic manual demand reductions from commercial and industrial facilities," Ryan Hledik, a Brattle principal who co-authored the report, said in an interview. "But where there's a real significant growth opportunity for VPPs is from batteries that are sitting behind the meter of homes or commercial facilities or the ability to manage the charging load of electric vehicles."

But new policies may be needed to remove barriers to mass VPP deployment, which the US Energy Department views as an essential part of the country's clean energy transition.

Senate Bill 1305, a recently proposed measure from state Sen. Henry Stern, would require the California Public Utilities Commission, California Energy Commission (CEC) and California ISO to take actions to accelerate the rollout of virtual power plants. That includes PUC adoption of VPP procurement requirements for investor-owned utilities.

Such a mandate in California could be effective, according to Hledik.

"A lot of it will depend on the details of how a VPP procurement requirement ultimately is enforced and how you define VPPs and all of the ... nuanced issues we would have to get into once the policy was established," he said.

SB 1305, which is set for an initial hearing on April 22 in the Senate Energy, Utilities and Communications Committee, would also direct the CEC and CAISO to estimate the potential of "resource adequacy-qualifying virtual power plant resources" and to help resolve "regulatory barriers."

The measure builds on the state's existing statewide goal of 7 GW of flexible demand by 2030, adopted in May 2023 to help cut consumer electricity demand when the grid is most stressed.

'Very real opportunity'

Batteries installed at homes and businesses, often paired with rooftop solar arrays, are the highest potential technology assessed by The Brattle Group for inclusion in software-steered VPPs, capable of covering 5.1% of California's peak power demand by 2035. Synchronized smart thermostats could provide 4.3%, followed by managed EV charging with 3%, automated demand response with 2.3% and "grid-interactive" water heating with 0.5%, according to the report.

The nearly 7.7 GW of VPP market potential from the five technologies could add up to large savings by 2035, the report found, citing over $750 million per year in avoided investments into traditional system infrastructure, with an estimated roughly $550 million of those savings flowing to consumers.

"Virtual power plants offer a very real opportunity for Californians to get paid back directly for helping keep the lights on in communities across the state," Edson Perez, California lead at trade association Advanced Energy United, said in an email. "This report shows that everyone would benefit from VPPs."

Residents with "increasingly accessible VPP technologies like smart thermostats and electric vehicles" would receive payments for their participation, and ratepayers as a whole "would benefit from more affordable rates and increased grid resiliency," he added.

Recommendations

The report recommends California adopt "emerging best practices" for VPPs, leveraging experiences from other parts of the US and the world.

California has already accumulated valuable early lessons from using VPPs to help plug peak summer capacity crunches in recent years. Pilot projects have included a wide array of technology suppliers, including VPP software specialist Uplight Inc., energy management company OhmConnect Inc. and residential solar and storage suppliers Sunrun Inc., SunPower Corp., Sonnen Inc. and Tesla Inc.

Utilities Pacific Gas and Electric Co., the operating arm of PG&E Corp., and Edison International subsidiary Southern California Edison Co. have also been involved in pilot projects.

But now, California must move beyond pilots, according to Hledik.

"It's often the case that pilots just end with a pilot," he said, encouraging regulators to ensure that such programs move to "full-scale deployment" once early "wrinkles" have been ironed out.

The report also recommends sufficient incentives be made available to entice consumers to participate in VPPs with their distributed energy resources as well as for utilities or third-party aggregators to implement and operate VPPs.

For customers, current payment levels do not reflect "the full value stack," Hledik said. "They may reflect the opportunity to provide resource adequacy but not, in addition to that, the value that's associated with managing that customer's load to provide energy value and potentially also avoid investments in the transmission and distribution system."

Utilities could be encouraged to support VPPs with performance-based incentives or by "allowing utilities to capitalize the operational costs of VPPs," the report said. Third-party aggregators could be incentivized to accelerate VPPs with "better access to wholesale markets, more opportunities to participate in distribution investment deferral opportunities ... or the wide-scale introduction of more granular time-varying rate structures," according to the report.