Global behemoths GM, Ford, Google, and clean energy firm RMI are teaming up to expand the use of so-called ‘virtual’ power plants (VPPs), according to an announcement released by RMI on Jan. 10. With initial funding from General Motors and Google Nest, the Virtual Power Plant Partnership (VP3) aims to advance a cleaner energy future by scaling the market for VPPs.
“Virtual power plants are poised for explosive growth, and RMI is committed to being at the forefront of their success by launching VP3,” Rocky Mountain Institute CEO Jon Creyts said in the press release. “Our analysis shows that VPPs can reduce peak power demand and improve grid resilience in a world of increasingly extreme climate events.”
So what exactly are virtual power plants? VPPs are essentially decentralized energy management systems, which gather power from thousands of scattered energy sources linked to the electric grid like home energy storage units, smart thermostats, solar panels, household batteries, electric vehicles (EVs), and other connected devices. When all of these discrete distributed energy resources (DER) are pooled together and bundled into a larger cloud-based system, they are known collectively as VPPs.
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“A VPP is a grid-integrated aggregation of many individual DERs,” the VP3 website states. “The many DERs of any given VPP act as a coordinated unit as if they were a single, larger power plant.”
With consent from clients and advanced software, RMI says authorized energy network operators can “adjust charging, discharging, output, and demand from DERs in response to signals from markets and grid planners.” For example, a VPP may prompt energy-intensive household appliances like electric heaters to reduce their consumption in anticipation of an upcoming heat wave. Similarly, a VPP or distributed ‘fleet’ of energy resources may work together to help ease grid loads and optimize energy levels during periods of short supply or peak demand. In this sense, VPPs can play a crucial role in avoiding blackouts and ensuring the nation’s electric grid runs smoothly at all times. They are also vital to accelerating reliable and affordable electric sector decarbonization.
By 2030, VPPs could reduce nationwide peak demand by 60 gigawatts (GW), the equivalent of powering some 50 million households. That number is expected to grow to more than 200 GW by 2050, according to a recent report from RMI. Meanwhile, the nascent technology is predicted to save the electric power industry $17 billion in annual costs beginning in 2030.
For now, the focus of the partnership is on developing industry-wide best practices and standards for scaling up the use of VPPs. Other goals include effectively touting the benefits of VPPs to the general public and industry stakeholders, as well as working with lawmakers to influence policy development in the sector.
Industry experts predict massive growth ahead. According to data from Fortune Business Insights, the global market for VPPs is projected to surge 33% year-over-year to hit $6.47 billion by 2028. That is up from the $88 million in 2021. The fast-paced growth of VPPs can not only be traced to their new-found status as sustainable energy solutions, but is also being driven by climate-friendly government policies. Increased federal emphasis on meeting green energy targets and attaining net-zero emissions is also propelling rapid investment.
Although the technology is relatively new in the United States, cloud-based distributed power plants have already enjoyed tremendous success in countries like Australia and Germany. Even here in the U.S., VPPs were used to avoid a blackout during a scorching heat wave in California last September. EV maker Tesla even has its own plant in the state.
Virtual power plants may play a pivotal role in our energy future. The Virtual Power Plant Partnership is a testament to the role of the free market in accelerating the global energy transition.
Nathalie Voit is a freelance content creator and a graduate of the University of Florida. She is an alumni of The Heritage Foundation’s Young Leaders Program.