Two experts in the field of distributed energy resources and virtual power plants join the podcast to discuss how utility operators can use things such as smart thermostats, batteries in homes and small business, electric vehicles and other resources to help manage peak energy demand.
Distributed energy resources or DERs, things such as rooftop solar panels on homes and small businesses, home or business batteries and electric vehicles are an important option in managing demand for electricity. When these resources are combined through the use of software, they can create what’s called a virtual power plant.
On this podcast, we talk with two experts in the field: Rebekah de la Mora, a senior policy analyst at the North Carolina Clean Energy Technology Center, and Lakin Garth, senior director of grid strategy at the Smart Electric Power Alliance.
They discussed state legislation and regulations that affect DERs and the benefits to consumers. Garth also explained how DERs can be aggregated to form virtual power plants that a utility can use to manage peak power demand.
N.B.: The NC Clean Energy Technology Center offers complimentary copies of the 50 State studies to federal and state legislators and staffers, utility commissioners, utility commission staff, state consumer advocate office staff, and state energy office staff. Contact the center to request a copy.
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Speaker 1 (00:12):
Hello and welcome to “Our American States,” a podcast from the National Conference of State Legislatures. I'm your host, Ed Smith.
Speaker 2 (00:21):
One of the biggest benefits is that DERs can be placed pretty much anywhere if there's something wrong with the grid, if there's an outage, something like that. You as someone with a just regeneration, still have electricity to do whatever you want to do, whether it's your house, a home, a hospital, a grocery store, something like that.
Speaker 1 (00:39):
That was Rebekah de la Mora, a senior policy analyst at the North Carolina Clean Energy Technology Center, which works with governments and businesses on clean energy solutions. She's my guest on the podcast along with Lakin Garth, senior director of grid strategy at the Smart Electric Power Alliance, a nonprofit focused on clean energy.
The focus of our conversation was distributed energy resources or DERs, things such as rooftop solar panels on homes and small businesses, home or business batteries and electric vehicles. De la Mora discussed state legislation and regulations that affect DERs and the benefits to consumers. Garth explained how DERs can be aggregated to form virtual power plants that a utility can use to manage peak power demand.
Here's our discussion, starting with Rebekah de la Mora.
Rebekah, welcome to the podcast. Nice to have you.
Speaker 2 (01:37):
Yeah, thanks for having me, Ed.
Speaker 1 (01:39):
So why don't we start with you explaining what your work is and the role of the NC Clean Energy Technology Center. What's the mission of the center?
Speaker 2 (01:48):
So, the North Carolina Clean Energy Technology Center, aka the Clean Tech Center, is an extension center of North Carolina State University. So we do public education outreach related to Clean Energy Center itself has its hands and a lot of pies. I'm on the policy team, so that means I track legislation and regulation at the state level related to clean energy across all 50 states, not just North Carolina. Our engineering team does a lot of feasibility studies and analysis for on fleet generation for commercial industrial customers. Our clean transportation team does outreach, fleet advisory services for public and private fleet managers who want to transition to electric vehicles. Our training team runs workshops and other types of training programs to help people get into the energy industry, but more on the solar installation side and things like that. Overall, we cover a lot of ground when it comes to clean energy. I specifically, like I said before, I'm on the policy team. We also run the database of state incentives for renewables and Efficiency. A Desire and Desire is an online database free to use public good that provides information on policies and programs related clean energy across the US If you're interested in that. Metering, we have information on it, renewable portfolio standards, we have information on it, dishwasher, energy store incentives, we have information on it. So anything you can think of, there's like a 90% chance that it's in our database.
Speaker 1 (03:14):
We're going to talk today about distributed energy resources, and I think some of our listeners may not be familiar with that term and exactly what that covers. So why don't you give us the primer on that.
Speaker 2 (03:27):
Stepping back first, when we think of electricity, the way you make electricity, there's some sort of power plant. Traditionally coal oil, natural gas turns a turbine. Turbine makes electricity. Don't ask me how the science works, I don't know. And then from that power plant, electricity goes out into the grid to everyone who wants to use it. So when we're talking about distributed energy resources or distributed generation DERs for dg, that's talking about electricity generation. That is happening outside of the context of an established power plant. So that can be solar panels on your roof, it can be a backup diesel generator at your local grocery store. It could be small wind turbines, it could be onsite generation at a factory where it's technically yes larger than your rooftop solar, but it's still distributed. It's not localized at a power plant, things like that. So generally that's what we mean when we say distributed generation or distributed energy resources.
Speaker 1 (04:27):
So what are the advantages of that? Why do we want to have DERs as opposed to, as you just mentioned, the big power plant that most of us think of when we think about where our electricity comes from?
Speaker 2 (04:40):
One of the biggest benefits is that DERs can be placed pretty much anywhere. I'm in the clean energy industry. So when I think of DERs, I always think of solar, but like I said before, a backup diesel generator or a natural gas generator or a propane tank that you have on site that's also technically A DER. And so the benefits of DERs is if there's something wrong with the grid, if there's an out or something like that, you as someone with a just regeneration, still have electricity to do whatever you want to do, whether it's your house, a home, a hospital, a grocery store, something like that. Another benefit is if something is distributed, that means electricity doesn't have to go as far to get to its end source user. And so that brings a benefit to the utility in the sense of they don't have to upgrade as much infrastructure, they don't have to put in as many transmission lines, things like that.
Speaker 2 (05:33):
And now of course getting more complicated. There are other infrastructure upgrades you need to make because of DERs, but I don't want to get into that right now. But overall, generally it provides that resiliency in the face of outages. It improves the functioning of the grid because you can kind of localize where energy is being created and then also keep that localized energy close for its end use. So you're kind of shortening that length of time or that distance that it has to go. Oftentimes if you're say a residential customer and you have solar, you can get that metering so it actually saves you money on your electric bill. So that's more of an individual benefit you might see from DERs.
Speaker 1 (06:14):
You recently shared with me a couple of executive summaries of a report on solar and grid modernization, and those were very much looking at state legislative trends, and I wonder if you could talk about the current state policy landscape regarding distributed energy resources.
Speaker 2 (06:32):
First is a little bit more background for listeners about the reports. So at the center on the policy team, we release four reports every quarter called the 50 states reports. And so it covers legislative and regulatory action related to the four set topics. We do one on distributed solar, one on grid monetization, one on electric vehicles, and one of poverty decarbonization. Since we're focusing on DER state, I'm going to talk a little bit more about the solar and grid mod reports. And as a note, we provide all of these reports for free to state legislators and their staff. So if you're interested, feel free to send me an email and I can definitely send those to you. But overall, a lot of what we see, again, we track at the state level, we don't track as much at the federal level. Not saying the federal level isn't important, but more so because of the federal structure of how the US works, states have a lot of power when it comes to deciding energy issues and particularly distributed energy resource issues.
Speaker 2 (07:32):
So we'll see A lot of states focus on net metering rules or rules for energy storage. We're seeing a lot of that crop up more and more as energy storage becomes more affordable. For normal customers like you and me, we see a lot of states focus on interconnection rules. So how can a distributed system connect to the grid? What requirements are there if it triggers, if it forces utility to make upgrades so the grid doesn't explode, how exports to the grid can be compensated, things like that. So we do see a lot of work related to DERs at the state level. We don't see it super often at the federal level and then local level. So that's like talking city county level generally speaking, that really only tends to crop up for distributed resources, usually like a cooperative utility or municipal utility where they have that jurisdiction.
Speaker 1 (08:25):
One topic that is I think of particular interest to state legislators is the debate over net metering policies. And I wonder if you could just give us sort of the overview of net metering and net billing and how the difference between those two can affect incentives for homeowners using solar power and maybe distributing that power back to the grid or using it themselves
Speaker 2 (08:50):
First. Taking a step back when we're talking about net metering, net billing, what we're talking about is compensating a customer for any electricity exports they make to the larger grid from their distributed energy resource. So how it works is, again, we're clean energy and solar person. You have solar panels on your roof, you use some of the electricity during the day, but you don't use all of it. And anything you don't use, you can send off to the grid. And that technically means since you're injecting energy onto the utilities grid, you're essentially selling electricity to your utility and so they have to pay you for that. And so that's where net metering comes into play. That's the program, the set rules that apply to how much can you be paid for your export electricity, is there a limit on your system size? So you can't have a 500 kilowatt system on a house that only needs 25 kilowatts.
Speaker 2 (09:45):
And so with net metering, the traditional version is retail rate net metering. And so what that means is any exports you send to the grid outside of your net energy consumption would be compensated at your retail rate. So on your electric bill, you pay a certain amount of money for kilowatt hours each month. So under net metering, any electricity you send out to the grid will be recompensated back to you at that same amount. So theoretically, you could get a $0 amount on your energy charge for a month depending on how much energy you export. And so the benefits of that was when we first implemented that metering, it really encouraged people to install rooftop solar or other types of distributor generation because it was such a good deal. I mean to get an exact one-to-one on electricity you import and export to and from the grid.
Speaker 2 (10:38):
It's amazing Now as we are getting more DERs coming onto the grid states and states and utilities are seeing, okay, there are now technical issues coming up with these types of systems I talked about before, the benefits of distributed systems is that it can help during outage, but in return as you're injecting back onto the grid, it's essentially kind of like a back feed for utility system. And so that's something that you don't want to happen because it can create all these technical problems with the grid itself that can then cascade into a really big issue. I think for example, you might've seen a few months ago, California has a lot of solar now, but one of their big issues is if all of those solar panels are exporting energy at the same time to the grid noon to 3:00 PM AKA all the time, nobody's at home and can't use electricity, you're getting this huge surge onto the grid and that can cause a major technical issue and if not handle correctly, it could cause a brownout or a full blackout.
Speaker 2 (11:39):
And so utilities do have to add upgrades to the system to prevent all of that. So that means there's more cost to them. And as they're seeing that now states utilities are going, okay, now that there's more popular, they're cheaper, it's easier for people to get access to them. And we now see that as more and more come on, it's creating these bigger issues, we want to reframe how we compensate them in order to mitigate those negative effects and get to the true value of what this energy can provide to us. And so that's where net billing comes in. With net metering, usually it's a retail rate one-to-one across the full billing period, whereas with net billing the period is shorter. We’ve seen one-hour intervals, 30 minutes, even 15 minutes. And this gets back to the true value of distributed generation because the value of a DER is dependent on the current status of the grid, which changes second-by-second in real time. So, by netting DER exports in a smaller time frame--like one hour, 30 minutes, 15 minutes—you can get closer to the true value of those exports. In addition, as utilities shift their net metering or net billing policies to reflect this true value, the compensation rates tend to be lower and instead of the retail rate it’s often at the avoided cost.
Speaker 2 (12:32):
The avoided cost is if a utility has to have more capacity to meet its load or something like that, then it has to build a new power plant. But if we can meet that new capacity from the two generation, then that means the utility of avoided having to pay all this money to build a power plant. And so utilities and regulators able to do math to figure out, okay, what is the exact price of the avoided amount utility didn't have to pay? And that's what we'll pay that distributed generation customer. So again, getting back to the true value that this distributed generation adds to the grid
Speaker 1 (13:09):
And what that might mean is instead of getting 15 cents a kilowatt hour back, you're getting 5 cents a kilowatt hour back or something like that.
Speaker 2 (13:17):
Correct. So we can talk a lot about how cost-effective a net metering system or net billing system is for a regular customer, and it'll depend on the different rules in a state, but the number one determination of whether or not a system is cost effective is your electricity prices. Because even utilities that have high retail rates like California versus Nebraska that has really low retail rates, the avoided costs also follow that trend. So you have higher avoided cost rates in California than you do in Nebraska, and that metering customer in California will always get a higher rate of return faster on their system than someone in Nebraska. But that's again, in comparison to the electric rates that they pay.
Speaker 1 (14:02):
You really can't have a discussion about any aspect of energy probably in this country or other countries. Without talking about data centers, and I've done a couple of podcasts that's touched on this and in some instances large companies talking about buying power from three mile Island or we're putting in their own electrical generation. What's the role of DERs, if any, in the AI data center situation?
Speaker 2 (14:29):
One thing we're seeing, not a lot yet, but it is definitely something we're noticing is some states are looking at passing legislation requiring onsite generation or onsite efficiency for large load customers and larger customers. It can be data center, it can be like a really giant factory. It really just depends on what that state's definition of a large load is. So I might use large load or data center interchangeably here. When I say on onsite generation requirements or onsite efficiency requirements, that means passing bills saying, okay, any customer over X size by X size, I mean that has a demand higher than X megawatts or any data center customers or other type of specific customer has to have onsite generation to serve their needs up to X amount of megawatts or from efficiency, they have to achieve X percent efficiency on their energy and water usage.
Speaker 2 (15:25):
We see a lot about water usage as well within a year. So states are super interested in that. And then we are also seeing, because we track dataset actions as well, so again, listeners if you're interested, our 50 states of power decarbonization report tracks all of this information. We track the onsite generation and efficiency or generation requirements. We track actual utility tariffs, so the way that utilities work in order to make money from customers is they set customers in different types of classes. You have your residential, your small business, your large business, your industrial, so a lot of them are now looking to make large low customers like extra-large load their new owned customer class. So that way you can proportionally each customer class is paying precisely what they actually use from the grid. Because think about it, if everyone who is a utility customer paid the exact same rate, you'd have residential customers paying hundreds of dollars a month to pay for a super-giant factory that is paying what is essentially pennies on the dollar for its usage. And so that's why they implement these types of customer classes to make sure each customer's type is properly paying for what they're using.
Speaker 1 (16:38):
And that is of course what legislators are particularly concerned about.
Speaker 2 (16:42):
Exactly, yes. Yeah, we're seeing a lot of that and so having either a state mandate through a bill saying, okay, utilities have to develop tariffs for larger customers or for data centers or something like that, is a really, I don't want to say easy because passing bills is hard, but a really effective way of making sure that utilities can properly receive compensation without cost shifting towards other customers and cost shifting, it's a very, very important thing when it comes to utility rates. It comes up all the time. We always see people being very adamant about making sure there's no cost shifting from business customers to residential customers because that would always be the biggest harm to residential customers is having to pay for other customers.
Speaker 1 (17:32):
So as we wrap up here, let me just ask you any other thoughts to share with state legislators, particularly those who maybe aren't on the energy committee, but things they might keep in mind if they want to learn more about distributed energy resources.
Speaker 2 (17:47):
I mean, I do have to bring up, I think a lot of people sometimes view this as a climate issue or a clean energy issue in the sense of, oh, we're getting rid of all these coal plants or natural gas plants and replacing them with distributed solar, and I'm not going to lie, there is a certain aspect to that, but I don't want people to feel like climate is the end all be all of distributed generation or rooftop solar or something like that because there are a lot of economic benefits to it. Again, saving money on people's electric bills, improving resiliency of the grid and certain areas. For example, we're working in a project currently at the center focused on community microgrids, and so that's looking at solar plus storage distributed generation systems specifically located in a way to benefit the community as a whole during an outage when you don't necessarily have access to the actual grid electricity.
Speaker 2 (18:42):
Other issues is there's economic development. If you have facilities that are manufacturing these components or businesses that are installing solar systems or wind systems or something like that, there are those economic benefits to your state. I think it's coming regardless. We see utilities more and more kind of accepting that DERs are kind of a fact of life now, and so you can't really stop it from happening, and we need to make sure that we have the guardrails in place to ensure that everything is from a technical perspective, working in alignment with the grid and also from a customer perspective that they are getting what they paid for and are actually getting these individual benefits from it.
Speaker 1 (19:26):
Well, Rebecca, thank you so much for sharing your perspective on this and really educating us about how DERs work. It's been very interesting. Thanks again.
Speaker 2 (19:36):
Yeah, of course. Thank you so much for having me, ed.
Speaker 1 (19:41):
I'll be right back after this short break with Lakin Garth.
Speaker 3 (19:51):
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Speaker 1 (20:48):
Lakin, welcome to the podcast. Great to have you.
Speaker 4 (20:51):
Thank you, ed, it's a pleasure to join you today.
Speaker 1 (20:54):
To get started, why don't you tell the listeners a little bit about the Smart Electric Power Alliance and your role there?
Speaker 4 (21:00):
The Smart Electric Power Alliance or SEPA is a national nonprofit accelerating the transition to a clean, affordable, and resilient future for all. Our sweet spot is really working at the intersection of technology, policy and programs to identify energy solutions grounded in the real world experience of our member companies, utilities, state regulators, and policymakers. My name is Lakin Garth and I'm the senior director of Grid Strategy, and I'm primarily focused on providing research and resources related to making the electric distribution system more flexible, resilient, and affordable. I work with our member companies, utilities, regulators, policymakers and other partners to provide solutions and a forum for answering some of the most challenging questions about the distribution system.
Speaker 1 (21:54):
So, we're going to talk today about distributed energy resources and virtual power plants or VPPs, and I think that's probably something a lot of people are not that familiar with. So why don't we start there? What's a virtual power plant and how do they work?
Speaker 4 (22:09):
Sure thing. I think the best place to start is with the name virtual power plants, which unfortunately is really a bit of a misnomer. There's nothing virtual about. These are real resources, distributed energy resources that when combined with software can balance energy, supply and demand and provide utility scale and utility grid services much like a traditional power plant. The primary difference, of course, is that instead of a central generating power station, VPPs are aggregations of hundreds, thousands, or even hundreds of thousands of DERs that when they're aggregated, managed and controlled can provide essential grid services, whereas unmanaged DERs certainly provide homeowners and businesses with benefits. Much more value can be provided to the grid through the use of a distributed energy resource management system or what we call derms, which is essentially the software for utilities and system operators that aggregates and communicates with DERs to get them to provide grid services like capacity or energy or for some DERs even ancillary services. Ed, one important thing to remember is that for customers participation in A VPP is voluntary, it's not mandatory, and they receive financial compensation or bill credits for the services that they provide.
Speaker 1 (23:46):
So tell us what type of energy resources can participate in A VPP and how does that work? How does somebody sign on to be part of that?
Speaker 4 (23:55):
Yeah, sure thing. I think that the types of resources, distributed energy resources that can participate are varied and obviously by their nature distributed for residential customers, these things include smart thermostats, batteries, either standalone batteries or batteries that are paired with rooftop solar, PV water heaters and electric vehicles or electric vehicle chargers for commercial and industrial customers, the DER universe expands to include demand response, especially automated demand response that is dispatchable from a utility or a system operator signal. The important thing really to highlight about these technologies is that each can provide one of several grid services or more. The most flexible DER out there is batteries because they can provide multiple grid services, they can provide energy which batteries can export back to the grid, they can provide capacity when batteries are dispatched to serve loads within a home or business that a utility would otherwise have to provide.
Speaker 4 (25:12):
And in some instances, batteries can provide ancillary services like frequency regulation or voltage support. Most people are more familiar with smart thermostats and some of the bigger VPP programs are predominantly smart thermostats. These technologies really provide capacity, so by adjusting the temperature in the home by a few degrees before an event, that reduces the amount of capacity on the system. Most EV managed charging programs today provide capacity as well, but as bi-directional charging technology evolves and regulations improve their potential to provide energy and grid services is huge, especially considering that EV batteries can be three to five times the size of standalone batteries that provide whole home backup power. In terms of participation, there are really two primary VPP participation models for DER owners either through a utility LED VPP program or an aggregator LED model. There are advantages and disadvantages to both, but participation is really to a large extent, driven by whether or not a customer's distribution utility is vertically integrated or if it operates in an ISO that allows demand response or DER aggregations. This means there's quite a bit of variability from jurisdiction to jurisdiction. One really isn't, I would say, better than the other. It just really depends on where someone lives and what type of operations their utility has.
Speaker 1 (26:55):
So if you are one of those homeowners or small business owners, what are the benefits for being a participant and A VPP?
Speaker 4 (27:04):
The primary benefit is that participants are financially compensated for agreeing to give some degree of control to their utility or an aggregator. Again, I can't stress this enough, it's a voluntary participation and the amount of compensation that a customer would receive varies widely depending upon the type of DER that's signed up and the type of services that it provides. In additional to financial compensation, there are a lot of other benefits including potential bill savings for customers who participate in smart thermostat programs. What that structure generally looks like is that from their utility, they generally would receive a one-time signup amount and then either an annual or seasonal payment anywhere between $25 to $75, and a lot of utilities now offer discounted pre-approved thermostats directly on their website that customers can buy. On the absolute opposite end of that spectrum are batteries, and these are technologies that have much higher upfront costs, but they also provide that much wider range of services.
Speaker 4 (28:24):
So the compensation to battery owners can be quite high, but again, that varies quite a bit from jurisdiction to jurisdiction. Some programs are what we call pay-for-performance only, which means a customer already has a battery installed, they sign up for a program, and then they get compensated based on either how much energy or capacity they provide in a given time period. Some programs provide upfront incentives to encourage battery adoption and some programs offer a hybrid approach where there's some combination of an upfront incentive and a pay performance program. Speaking about batteries for just a second, this is the DER class where there's just an absolute ton of innovation right now. Utilities in some states are allowed to own these assets and provide lease payments back to the customers to host them, and these customers, any customer that has batteries obviously also going to have some resilience benefits and the form of backup power. If there's a power outage and they need service at their home, then that battery can kick on. There's also a lot of product innovation happening this space, and it's something that we are really excited about. We've seen recent announcements from several companies with very innovative approaches to using batteries for managing electricity use.
Speaker 1 (29:53):
We're of course talking with state legislators, other people interested in state policy, and I'm wondering if there's a policy action at the state or federal level that involves VPPs and affects how they're going to be successful or not successful, I guess is the question I'm asking.
Speaker 4 (30:10):
This is something that SEPA has been tracking very closely. We have a partnership with the good folks over at the North Carolina Clean Energy Technology Center, and we've published a report called 50 States of VPPs in Supporting DERs, and that report takes a really in-depth look at both legislative and regulatory activities as it relates to both VPPs and the underlying DERs. We also provide quarterly updates throughout the year in addition to an annual report, and this is something that we do. It's free of charge. You don't have to be a SEPA member. It's available on our website. But in the past two to three years, there've been a number of bills that have been introduced across the U.S. in many different states, but there have also been several key bills enacted, including some landmark legislation in Colorado and Maryland as of today. I think really one of the more interesting and important pieces of legislation with HB 2346 that was passed earlier this year in Virginia, and that legislation was signed into law by Governor Youngkin in May.
Speaker 4 (31:23):
HB 2346 is notable for several key reasons. First, it's very straightforward, it's concise, it's written in clear, understandable language that doesn't require a law degree to understand it. It's a page and a half and it's just well written and very clear about what the intent of a law is. Secondly, HB 2346 gives very clear direction to Dominion Energy and the Virginia State Corporation Commission, which requires dominion to file a VPP pilot program by Dec. 1 of this year. And that's really important because between enactment and between the first filing, that's a relatively short runway. The bill also includes a complete timeline of key milestones over the next few years, and this is important because it sends a really clear signal to the utility its customers, to their regulators and to the businesses and communities who can deploy these resources. Furthermore, HB 2346 provides transparent objectives for the VPP to provide both peak shaving and additional grid services.
Speaker 4 (32:42):
It includes all the key DER types we've talked about, plus it also adds in a requirement around electric school buses and it requires Dominion to propose a tariff that allows for either direct or aggregator enrollment, those two participation models we talked about and pay for performance mechanisms. What's really neat about that is that it gives the utility more flexibility to plan those programs and then see what their customers respond to. Overall, that bill is really clear about the timeline, but it also isn't overly prescriptive about how the utility meets its objectives, and I think it's really well balanced in that regard. And also, as someone from the Deep South, one part of the bill is really important to me, the filing must also consider potential incentive enhancements for historically economically disadvantaged communities. So we've talked about the different types of DERs that can participate, and we've talked about the language in this bill, and so something as simple as a thermostat to something as complex as a battery, this legislation is directing the utility and the regulator to think about all the people within their service territory and to look at the possibility for enhancements to get folks who typically haven't participated in these programs in the past to do so.
Speaker 4 (34:09):
And lastly, I'll just add many of your listeners are probably aware, Virginia is experiencing tremendous load growth from data centers and other sources, be that electrification, new industry moving to the state, folks migrating to Virginia from other parts of the country, and this legislation recognizes that through really innovative programming and a strong stakeholder outreach component, that there's another option for the utility to better utilize its existing infrastructure that its customers are already paying for potentially really putting some downward pressure on rates. And that's a critical element.
Speaker 1 (34:51):
Well, I can't tell you how frequently Virginia comes up when I do podcasts about energy. It is the case study, I guess, for how to handle a lot of these innovations, and that's great advice. We really appreciate that because I think legislators do like to look at what their colleagues have done, and simple is not something that comes up real frequently when I talk about public policy.
Speaker 4 (35:13):
I think it's important, right? Because we've seen legislation in other states, and I certainly don't want to call anybody out, but the more complicated it is, the more challenging it is to understand then the harder it is going to be to enact that legislation and to get to action. And so what's really unique about the legislation in Virginia is that it has this clear timeline. It is written in simple language and it's very clear about who's doing what and when. And I think that that sort of short runway between enactment and filing is also critical and it recognizes like, Hey, there's a lot going on in this state and here's a proposal, here's legislation that really allows the people that are involved to get to work quickly. And I think that that's critical.
Speaker 1 (36:03):
So, let me ask you whether it's economic, whether it's demographics, whether it's policy, what's the biggest barrier to moving VPPs forward?
Speaker 4 (36:15):
Yeah, I mean, I think it's a great question. I'll start by saying really simply put as easy as I can. VPPs are the fastest, most affordable way to add grid capacity. Traditional generation can take years to build, it can take even longer to interconnect, but virtual power plants and other DERs can be launched and scaled quickly at 40 to 60% lower cost and provide operators with options for managing the grid during resource adequacy events. So, as of today, the technology is there, it performs reliably and efficiently under a range of circumstances for an even wider range of utilities and system operators. We see that across the investor owned utility space with municipal utilities, with co-ops from coast to coast and points in between. So, we know that the technology is there now at this stage, really though, the primary barriers are policy and regulatory. We talked a little bit about Virginia already, but states need good straightforward legislation that is time bound, but also really allows flexibility for utilities and regulators to do their jobs effectively.
Speaker 4 (37:33):
We don't need something that's overly prescriptive, right? Because regulated utilities especially, they'll respond favorably when they're incentivized to do so. And with the increasing demands from load growth, increasing costs from traditional supply side solutions, supply chain constraints, extreme weather, VPPs provide utilities and system operators with a lot of optionality within the regulatory framework. I would say there are still a number of unresolved issues, and these range from things like customer data access to appropriate compensation mechanisms to the extent to which these programs should be open to third party aggregation and management to where the money is going to come from to pay for these programs. These are all real issues, but we've seen across the country dozens of great examples that sort of address each one of these issues individually, and that's a big part of what my organization does. We're not an intervener, we're not an advocate.
Speaker 4 (38:38):
We don't lobby legislators. We do sort of sit in that space to translate what's happening in the market and where there is success and how that can be replicated and duplicated elsewhere. One other thing I'll add, again, I can't stress. I really think that the technology is proven it's there, but the biggest barriers are really policy and regulatory. And my organization, the Smart Electric Power Alliance, is excited to be part of a new effort called the VPP Convergence Project that really will help on the ground regulatory staff assess the policy readiness levels for VPP programs and markets within their state. The key thing here is that we can't let perfect be the enemy of the good. It's much better, in my opinion, to have an imperfect VPP program design than no VPP at all. With that said, though, there's a need to act quickly with all this forecasted load growth and pressure on rates, we think VPPs can provide solutions to both of those challenges.
Speaker 1 (39:47):
Let me ask you, as we close up, it's a question I find myself asking people on a lot of podcasts, is where does AI come in on this? Is that a critical factor in making this kind of system work or is this doable without AI?
Speaker 4 (40:05):
Certainly, yeah, and I'm a trained economist, so I try to tell people that in advance, and my background's actually in econometrics, so to be clear, I'm not an engineer. But when I get the AI question, when folks ask me about AI, I try to reverse that question a bit and first think really clearly about what problem or challenge exists that needs to be resolved. I think the first place where machine learning or AI is playing a big role for VPPs is with respect to predictive analytics.Utilities generate tons and tons of data. You mentioned customer engagement, enrollment, we'll talk about that in a second, but using these tools, using AI, using machine learning, the vendors that provide VPPs and the DERM solutions providers have really evolved their forecasting algorithms in a huge way over the last few years. And this is important so that system operators have a better picture, a better sense of what's going to happen hour to hour, day to day and week to week.
Speaker 4 (41:16):
So just by improving the forecasting algorithms, we can use these resources much more wisely, efficiently and reliably. We mentioned customer engagement and enrollment, right? VPPs are obviously customer cited resources and they require voluntary customer participation. Machine learning algorithms and AI are really helping to make the engagement and enrollment process as smooth as possible for utilities and customers. This is extremely important and in an often overlooked part of this bigger equation. I think that that's an area where there's still room for improvement. Good old fashioned marketing and customer awareness and engagement is critical, but there are tools to make people more aware. We speak to our members, we learn a lot about a lot of innovation in this space. AI machine learning is also really valuable for optimizing what we call dispatch of these resources. So when we actually press the button to have an intervention and either adjust thermostats or discharge batteries using AI and machine learning tools really helps resolve some of the technical challenges that can happen when you're running an event based dispatch.
Speaker 4 (42:34):
Another really important example, and this one's coming up actually quite a bit in Colorado and it's a bit more forward looking, is what we would call operational visibility insight within utility operations. So, as of today, most if not all, the [utilities] out there in the U.S. are primarily focused on peak demand management at the overall utility system or [independent system operator] or [real-time] market level. And so when that's the primary use case, the bulk system operators don't necessarily need a ton of visibility at the local level within the distribution system. However, we think as of today, these programs are leaving about a third of the value of DERs on the table, and as a result, customers aren't getting compensated for the full value that these DERs could provide in order for VPPs and DERs to provide their full grid value system operators, particularly distribution system operators, need better real time visibility tools to understanding what's happened at a much more granular level.
Speaker 4 (43:48):
And this is a space where there's a ton of product innovation and opportunity, and both machine learning and AI algorithms are expected to play a huge role there. When you think about moving from the bulk system level to a much more granular level, there are a lot more interacting parts, there's a lot more data. And so having these tools is really critical for unlocking that last third of the value, and that's really of critical importance. If operators can use VPPs at a really local level to address distribution constraints or even to defer substation, feeder and transformer upgrades, then the participating customers can be compensated more effectively for their contributions. And that sort of creates a cycle. If you know you're going to get paid more, you may be more likely to adopt these things. And then as equally if not more important here, non-participating customers can benefit from not having to pay more in their rates for these infrastructure upgrades. So we think that's a win-win for everybody. And I do think as this market evolves that AI and machine learning will have a huge role to play.
Speaker 1 (45:08):
Well, this has been a fascinating conversation and I really appreciate you taking the time to do this. I think a lot of this will be new information to most of our listeners, so thanks for taking the time to do this and take care.
Speaker 4 (45:21):
Yeah, thank you so much for your time, ed.
Speaker 1 (45:26):
I've been speaking with Rebekah de la Mora from the NC Clean Energy Technology Center and Lakin Garth from the Smart Electric Power Alliance about distributed energy resources and virtual power plants. Thanks for listening.
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