High costs, high demand, and regulations are changing the energy landscape in the United States. This is especially true for commercial buildings, which account for 40% of the nation’s energy-use, with most of it coming from fossil fuel sources. The costs for fossil-based fuel and energy, in general, are set to rise, especially the prices for electricity at peak-use times of day. In addition, regulators and legislators are demanding compliance with directives and rules aimed at reducing fossil-fuel use, with fines or taxes for carbon output becoming an increasing reality.
For buildings that can’t just turn off their power during these hours, they will have to absorb the extra costs or single-handedly oversee the often complex and timely processes of optimizing a property’s energy management.
Virtual Power Plant (VPP) programs are a key tool to help commercial buildings create a new valuable revenue stream while helping utilities balance supply and demand using renewable energy and on-site distributed energy resources.
VPPs are run by utilities and consist of members with distributed energy resources who agree to let the utility virtually control some of their power use in order to help alleviate stress on the grid. This can include the utility drawing on power that members store or produce on-premise, from sources including, solar, batteries, EVs, or heat pumps. Members can also grant VPP operators the capacity to remotely adjust thermostats, storage devices, car-charging stations, or other applications that use electricity to reduce demand on the grid at certain times and limit buildings from using power at the most expensive times.
By tapping into, or shifting the use of, these distributed energy resources, grids can better balance demand and work toward reducing blackouts or brownouts. VPP members receive payment, either in credits on their power bills, or cash for participating and reducing the load on the grid. Of course, this all happens within the bounds of agreements, with VPP members receiving notifications of when power may be reduced or when excess energy from their energy-producing systems is released to the grid. Smart software systems, powered by AI, help run VPPs and automatically manage all the distributed energy resources.
While they have yet to catch on en masse, VPPs have existed for years, and an entire corpus of best practices, regulations, legislation, and infrastructure for them already exists. Currently, as much as 60 GW of power in the US is being produced and stored via VPPs. However, most participants are residential customers in California and other states where grid electricity prices rise and fall throughout the day depending on the source of power and amount of demand.
This is only a fraction of the potential of VPPs. By 2030, federal energy officials aim for as much as 20% of peak demand power to be addressed by VPPs. In return, their members may be eligible for various incentives - including demand response program incentives, feed-in tariffs, and other subsidies and grants. The need for VPPs is great; by the end of the decade, officials say, demand for energy in the U.S. will rise to as much as 800GW from its current 740GW. Thus efficient distribution is going to be crucial to ensure America’s energy security in the coming years.
Much of this growth should come from commercial customers, who are particularly well poised to provide it, given the increasing use of electricity for more applications within buildings, and the ability to control them remotely. In addition, with more buildings producing power from renewable sources, and storing that power, either in batteries or with safer thermal solutions, there are valuable opportunities to participate and make revenue from decentralized distributed energy programs like VPPs. There is a great opportunity today for every kind of facility, including office buildings, academic institutions, and factories to participate in VPP programs.
Buildings that are proactive and already have renewable production systems and/or on-site storage systems contributing to their own power needs are of course saving money and cutting carbon. Buildings' own energy generation reduces their reliance and money spent on grid-delivered electricity. On-site storage systems allow buildings to control when, exactly, they use grid electricity, which often differs in price throughout the day. Grid energy is often cheap during daylight hours when solar energy is abundant and demand constant, and leaps in price in the evening when the sun sets and demand spikes
But buildings can benefit even more by becoming members of a VPP, with the extra unused power they generate transferred to the grid as needed, in return for payment or other financial credit.
Even buildings and facilities that do not produce or store power can benefit from VPPs by letting the systems control some of their power use. For example, a VPP can turn off certain non-essential loads at times of high demand on the power grid. Or, a VPP can remotely adjust thermostats turning off air-conditioning or heating systems, which, according to data, account for nearly half of overall energy use in commercial buildings, at night or when businesses are otherwise closed.
The grid benefits as well, motivating utility companies to bring more buildings into VPPs: Although the renewable energy provided by every VPP member is far less than the amount of energy produced by, say, utility-scale solar farms; the number of participants creates a significant load. In addition, VPP members offer one big advantage to grid operators – they are already connected to the grid. This makes transferring power out of their stored excess far easier than connecting a new solar array to the utility.
In addition to the immediate financial and ESG benefits for individual buildings that participate in VPPs, the growth of this model itself will help guard against a future filled with frequent blackouts — a future scenario that any business surely wants to avoid.
As Nostromo Energy's Chief Business Development Officer, Boaz Ur oversees the company’s global business development and regulatory affairs. Throughout his career, he has held multiple senior positions in the energy, cleantech, and semiconductor industries, where he was responsible for managing, commercializing, and developing new technologies and services in these markets.
Mr. Ur holds a dual bachelor's degree in Electrical Engineering and Computer Science from Tel Aviv University and an MBA from Haas School of Business (UC Berkeley).