Virtual power plants (VPPs) are an innovative new way energy companies are addressing the problems of energy management and climate change. A combination of renewable energy generation, storage, and sophisticated software that reacts to changing energy demand in real time, VPPs are reducing reliance on fossil fuels and creating more stability in energy access during times of increased need.
Before you can understand all their advantages and innovations, it is important to wrap your head around some of the most commonly used virtual power plant terminology and all the various parts that comprise a VPP system. In this post, we have compiled a VPP glossary to help you understand this exciting new technological energy solution with key definitions. This is a great place to begin understanding this modern technology that is becoming a crucial part of how we use energy in 2024.
Virtual power plant (VPP): Virtual Power Plants are a relatively new invention that springs from the proliferation of IoT infrastructure and the need for more energy availability on the grid. A virtual power plant is a system of renewable energy sources such as solar panels and battery storage, which can be bundled with each other and with other communicating energy saving devices, like smart thermostats, to control usage and demand levels across many locations. This relieves stress on the energy grid in specific locations and can be used to sell energy back to the electrical grid. Why do we need this? As we use more and more energy for our electric devices across the US, the aging energy infrastructure can become strained. VPPs help lower the need for fossil-fuel energy by integrating with the existing energy system and supplementing it with green, renewable sources. They can protect the infrastructure of the grid by reducing energy consumed during peak demand hours as well as reduce the price of energy for everyone by providing essential savings with additional energy reduction when prices are high.
Electrical grid: An electrical grid (also called a power grid or just “the grid”) is the way we get energy from the generation source to the end customer. It typically involves a source for generating the electricity, like a power plant, where fossil fuels such as coal, oil, and natural gas are burned, or large scale solar and wind farms that are now being built and used across the U.S. to generate renewable electricity. The power is then carried through the huge electrical lines, like the ones you see on the side of highways and distributed to buildings who use it to keep the lights on, run HVAC systems, and most other electricity needs.
Peak demand: Certain times of the day (and year) are more popular for electricity use. For example, during the hottest days of the year, more people will have their air conditioners running, leading to much higher energy consumption as the sun beats down. The times when use is highest are known as peak demand, and energy companies typically charge a higher rate for electricity used during these windows of time.
Peaker plants: These are power plants that only run during times of peak demand, to help create more energy when the normal power plants are not able to generate enough to meet increased energy needs. These peaker plants are commonly run on fossil fuels and may be the ‘dirtiest’ alternative for creating energy. Virtual power plants help reduce the need for peaker plants, and they are a more sustainable and cost-effective alternative. In fact, when used during peak demand periods, VPPs are up to 60% more cost effective than peaker plants.
Grid reliability: Grid reliability refers to the ability of the grid to meet demand. One example of a grid reliability focus is when peak demand is too high. When the demand is too high and does not have enough generation for the usage being required, there is a high risk of blackouts or rolling brown outs. By controlling how much energy is used and when, VPPs offset peak demand, lowering the likelihood of events like blackouts and improving the reliability of the grid.
Demand response: Demand response is behavior that, to put it simply, responds to the demand of energy at a given time. In a simple case, if you know the utility company is going to charge more during certain “peak demand” hours, you might turn off your light or air conditioning to use less energy during that time. These days, though, demand response has gotten a lot more sophisticated, with sensors and software that can understand changes to demand in real time and adjust energy usage immediately while keeping end customers as comfortable as possible. So, during a peak hour, a demand response management system (DERMS) would be able to setback a thermostat by a few degrees to reduce the energy needed at that location or could swap energy sourcing to solar panels or battery storage at a moment’s notice.
Energy reduction: Another way to help grid reliability and lessen dependence on fossil fuels is reducing overall energy usage. This can be done through installing energy efficient equipment, comprehensive energy monitoring, cutting-edge software, and more. This helps ensure energy consumption can be more easily managed, leading to cost savings and carbon emissions reductions. It also makes the overall impact of VPPs higher, as lower energy usage means renewables like solar can account for a higher percentage of overall need.
Distributed energy resources (DERs): This term refers to smart IoT devices, such as smart thermostats, pool pumps, or water heaters, commonly found near the actual site of energy being used, as opposed to the grid-produced energy that comes from a power plant far away. It also includes more sophisticated energy generation equipment, such as solar panels, storage units like battery backs, and electric vehicles. These are the critical components of a VPP.
Solar energy: Solar energy is a type of green, renewable energy that leverages the power of the sun to generate electricity for buildings. To learn more about how solar energy works, check out Budderfly’s Solar Energy Glossary: 10 Must-Know Solar Terms and Phrases for Business Owners.
Renewable energy sourcing: This simply refers to powering your electric appliances with environmentally friendly sources of energy like solar or wind. They are called renewable because unlike fossil fuels, of which there is a finite amount on earth, these are easily provided by ongoing natural processes. They are better for the planet because they do not involve burning materials that release greenhouse gases.
Batteries/energy storage systems: When more energy is generated than is needed at a given moment, the excess luckily does not have to go to waste: it can be stored. This can take the form of a battery, and on-site battery storage is becoming an increasingly common companion to solar panels installed at business facilities or homes. Electric vehicles (EVs) also have energy storage systems that can hold excess renewable energy generated to power the vehicle and cut down on emissions.
DERMS software: DERMS stands for distributed energy resources management system. This cloud software is a critical part of VPP infrastructure. It aggregates various DERs, such as fuel cells, battery storage, smart thermostats, and other smart devices into a comprehensive power ecosystem that operates closer to the customer’s need. This allows a VPP to optimize energy production and consumption, curtail usage during peak demand, support and charge electric vehicles and other electrified assets, and provide energy back to the grid when needed.
At Budderfly, we are bringing VPPs into the fold, to further the significant outcomes we provide for our customers, the grid, and the climate. We recently acquired a grid-edge DERMS from Sunverge Energy, and we are making this essential technology available to the middle market, “allowing our customers to benefit from renewable energy and contribute to a more sustainable, reliable, and affordable energy future,” as Budderfly CEO Al Subbloie put it.
To learn more about our vision and VPP plans, read our latest press release here.