The boom in smaller installations, which are benefitting from new technological developments and business models, is undermining the traditional advantages associated with building large centralized power generation, such as economies of scale. For example, self-consumption, where consumers become producers of their own power (or "prosumers"), has caused major utilities to respond with new business models designed to keep those consumers as customers.
Virtual Power Plants
One distributed generation technology with significant growth potential is the virtual power plant (VPP). In the VPP model an energy aggregator gathers a portfolio of smaller generators and operates them as a unified and flexible resource on the energy market or sells their power as system reserve.
VPPs are designed to maximize asset owners' profits while also balancing the grid. They can match load fluctuations through forecasting, advance metering and computerized control, and can perform real-time optimization of energy resources.
"Virtual power plants essentially represent an 'Internet of Energy,' tapping existing grid networks to tailor electricity supply and demand services for a customer," said Navigant senior analyst Peter Asmus in a market report. The VPP market will grow from less than US $1 billion per year in 2013 to $3.6 billion per year by 2020, according to Navigant's research — and one reason is that with more variable renewables on the grid flexibility and demand response are becoming more crucial.
Asmus called VPPs "an ideal optimization platform for the coming transformation of the power grid," adding that both supply and demand flexibility will be increasingly necessary to accommodate fast ramping periods and address corresponding supply forecast errors.
German utility RWE began a VPP in 2012 that now has around 80 MW of capacity. According to Jon-Erik Mantz, commercial director of RWE Energy Services in Germany, in the near future flexibility will become a commodity. Virtual power plants generate additional value from the flexibility they can offer the grid, he said-so, for RWE, "this is why we concentrate on building VPPs." As large utilities' market share falls in response to growing self-consumption, he said, utilities can still "be part of a VPP and profit."
Dr. Thomas Werner, senior key expert in product lifecycle management at Siemens, said that in order to integrate diverse smaller energy sources, "You need an energy management system with good data models which represents energy resources on the one hand and, on the other, the energy market environment." Werner believes VPPs fulfill these conditions and are the best way to integrate a growing number of power sources into the grid and the market.
"VPPs can be handled like other conventional generation," he said. "They can target different energy markets and regulatory environments. They can play as important a role as conventional concentrated generation."
"No Real Competition"
"From my point of view, there is no real competition for the VPP concept," Werner said, pointing to VPPs' use of cheap and ubiquitous information and communication technologies, while other technology trends like building energy storage systems incur comparatively heavy costs. VPPs can also avoid expensive installation costs in, for example, a home system, he notes. Self-consumption for home or industrial use is hampered by having to produce "the right amount of power at the right time."
VPPs can deliver needed energy at peak usage times, and can store any surplus power, giving the energy aggregator more options than would exist in a single power plant. Other advantages include improved power network efficiency and security, cost and risk savings in transmission systems, increased value from existing infrastructure assets and reduced emissions from peaking power plants. And, importantly, VPPs can also enable more efficient integration of renewable energy sources into the grid by balancing their variability.
For example, explains Werner, if one wind power source generates a bit more energy than predicted and another generates a bit less, they will compensate for each other, resulting in a more accurate forecast and making it easier to sell the capacity in the market or to use it in power systems operation.
A VPP can also combine variable renewable power sources with stable, controllable sources such as biomass plants, using the flexibility of the biomass source to smooth out any discrepancy between planned and actual production.
How a VPP Works
A VPP relies on software systems to remotely and automatically dispatch and optimize generation, demand-side or storage resources (including plug-in electric vehicles and bi-directional inverters) in a single, secure web-connected system, explains Werner.
Dems-Graphic: Schematic of a sample virtual power plant. Credit Siemens.
In order to bring diverse, independent resources into a unified network, complex planning and scheduling are required. The key ingredient that makes it all work, said Werner, is software. "There is a server system installed in a control room, with communication channels like mobile phone or DSL connections to connect to the energy management system," he explained.
"You have several advanced applications in the energy management system like forecasting applications, scheduling applications and an automatic generation control," he continues. " The VPP uses weather forecasts for calculating the electrical and thermal loads which have to be supplied, as well as for forecasting the generation of renewable units. These forecasts are used in the scheduling application, which is similar to a short-term unit commitment and economic dispatch in large power systems. It calculates the schedule for the entire VPP and all the distributed energy resources. The operator of the VPP uses the schedule to market the energy and the power on the energy exchange, or as tertiary or secondary control reserve."
Looking to the Future
There is currently no standard interface for the communication between the VPP control systems and the distributed energy resources, Werner said. "Today you need to know what the different communication interfaces can provide - which makes the connection a bit more complicated. Sometimes the cost for the interface is big. If you have a new energy resource, you need to figure out the best way to make the connection between the unit and the VPP. In the future, with a standard interface, you will not have this problem."
A Virtual Power Plant aggregates different types of energy generation and controls it as if it was one source. Credit Siemens.
A standard interface is in the works, he said, with an initial version in development. Some of these interfaces are already up and running, Werner said, but "the majority of the distributed energy resources which are already installed do not support this communication protocol."
The lack of a standard interface is the only technical problem with VPPs, according to Werner. But there is the non-technical problem of differing market conditions, and different regulatory conditions in different energy markets. "There is not a general concept of operating a VPP - Germany is different from the UK, which is different from the U.S.," he explained.
"You have to define a VPP solution for each energy market. In the European grids you will see similar market conditions and similar regulation conditions, but you may have to adapt a German system if you want to use it in Canada or the U.S."
And energy markets are often moving targets, he continued. "We had a project started, a VPP for a particular energy exchange with renewable energy. The regulatory authority in Germany told us that there were some aspects which did not fit with the regulation conditions, so we changed the model to participate in the market for control reserve. Two years later the regulations changed, and we could integrate renewable energy into the energy market for direct marketing. We adapted the business concept within a running project," he said, something VPPs are particularly suited for due to their low costs.
"In Germany a VPP can participate in the market for control reserve and secondary control reserve, but there are other energy markets in the world where that's not allowed: you need concentrated conventional units for those markets. I think this has to be changed as we see more and more distributed renewable energy sources in energy systems," Werner said.
But this change is happening. The VPP concept will be increasingly typical in energy markets, Werner believes. "What we see is that, in countries such as the UK and France, the concept is discussed more and more." New operational concepts are needed for renewable energy to participate in the market, Werner said: "Otherwise the restrictions of the electrical grids will limit the further increase of renewable generation."