Virtual power plants need 'heavy lifting' from US government: ex-FERC chair

The US government needs to step up its support of small-scale solar, behind-the-meter batteries and other distributed energy resources to realize their enormous untapped potential to compete in wholesale power markets, Jon Wellinghoff, a former chairman of the Federal Energy Regulatory Commission, said March 31.

"We need a standard set of market rules everywhere so that these distributed resources and customers ... know what the value of these distributed resources is," said Wellinghoff, who is now CEO of consulting firm GridPolicy and chief regulatory officer at Voltus, a distributed energy software company. "From a policy standpoint, we need to do some heavy lifting at the federal government, in my opinion."

During a media briefing hosted by the United States Energy Association, Wellinghoff, who headed FERC from 2009 to 2013, said the agency's attempt to open wholesale energy markets to remote-controlled networks of small-scale resources "has a long way to go."

FERC's landmark Order 2222, issued in September 2020, required grid operators to implement rules and procedures that would allow aggregated distributed resources — sometimes referred to as virtual power plants (VPPs) — to participate in wholesale energy markets and support the reliability of the broader grid.

"We're seeing pushback from the [regional transmission organizations], we're seeing pushback from, primarily, the investor-owned utilities," Wellinghoff said. Investor-owned utilities "have conflicts," Wellinghoff added. "The more money they invest, the more money they make, which is contrary to opening up markets to the areas where they can't invest, where they don't invest, which is behind the meter."

The energy industry and policymakers must acknowledge and "work through" such conflicts of interest to implement FERC Order 2222 "in a robust way" so that utility customers with distributed energy "can be paid for the value that these resources actually bring to the system," Wellinghoff said.

'You'll see a lot of progress'

Speaking on a virtual panel with Wellinghoff, utility representatives voiced support for distributed resources and the VPP networks that could thrive under full implementation of the FERC regulation.

"It's not at all easy to implement, but once we start implementing it, you'll see a lot of progress," added Ahmed Mousa, utility of the future manager at New Jersey-based Public Service Electric and Gas, an investor-owned utility subsidiary of Public Service Enterprise Group.

Mousa attributed the challenge in part to moving from a power system designed for a smaller number of large-scale resources to one that accommodates vast new volumes of small-scale resources.

"But the good news is a lot of us have been through this journey," Mousa said.

There have been some recent successful VPP collaborations between grid operators, investor-owned utilities and competitive distributed energy retailers.

During a late December 2022 winter storm largely affecting the US East Coast and Midwest, Voltus activated VPPs spanning 11 programs and five grid operators, providing 11.6 GWh of electricity reductions.

In September 2022, during a prolonged heat wave that hit the Western US, several installers and operators of residential battery systems, including Sunrun and Tesla, networked behind-the-meter batteries from tens of thousands of customers of PG&E utility subsidiary Pacific Gas and Electric to provide peak power during a multiday grid emergency.

Sunrun, the largest home solar and storage provider in the US, dispatched more than 80 MW during critical moments of peak demand during the event. A new pilot program with PG&E, unveiled in February, would enhance financial incentives for participants with a $750 upfront payment and a free smart thermostat.

"We're very bullish on it," Sunrun CEO Mary Powell said of VPPs, in an interview with S&P Global Commodity Insights after announcing the program.

Untapped potential

The vast majority of distributed energy resources on the US grid today, which also include rising numbers of electric vehicles, are not networked into VPPs. But they provide a glimpse of the immense potential.

Nearly 3.8 million US utility customers have distributed solar arrays and are compensated for excess generation sent back to the grid under net energy metering programs, according to US Energy Information Administration data through January. Those systems, a large share of which are in California, total nearly 39 GW. While only about 131,000 solar-powered customers have battery systems, which could enable on-demand dispatch, those numbers are expected to multiply in coming years.

California's sweeping reform of its rooftop solar program, effective mid-April, is widely anticipated to encourage most distributed solar arrays to be equipped with batteries. That change, combined with new and enhanced federal investment tax credits for solar and battery installations, should further support the development of VPPs, according to distributed energy providers.

"Hopefully, we all understand that these resources ... are competitive resources that ultimately should be aggregated by competitive providers," Wellinghoff said. "Certainly, the distribution utilities have a role to play in ensuring that the distribution system provides a gateway for these services to get value both at the distribution level and transmission level."

Keeping those roles of aggregators and utilities separate is needed "to realize the full potential of these distributed resources," Wellinghoff added.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.