Virtual Power Plant Workshop: NARUC 2024 Winter Policy Summit

As utilities and regulators work toward aggressive clean energy goals, virtual power plants (VPPs) are key for ensuring grid stability and reliability, distributed energy resource integration, and cost savings for both utilities and customers. Successful VPP implementation is complex, and stakeholders including VPP providers, utilities, and regulators will benefit from knowledge sharing throughout the process. Following the National Association of Regulatory Utility Commissioners (NARUC) 2024 Winter Policy Summit in February 2024, NARUC, the Smart Electric Power Alliance (SEPA), the U.S. Department of Energy’s Loan Program Office, and Rocky Mountain Institute (RMI) hosted a workshop to facilitate collaboration on this crucial topic. The workshop offered an opportunity for participants to begin creating a “playbook” to inform commissioners and commission staff considering VPP implementation in their jurisdictions.

Key Utility Highlights

Team members from Rocky Mountain Power (Utah), Portland General Electric (Oregon), and National Grid (Massachusetts) presented on VPP implementation in their respective service territories. They emphasized the following points for successful VPP implementation and overcoming common challenges:

• Prioritizing easy customer participation from the onset is essential; transparency is important to customers.
• Increasing demand flexibility and reducing peak loads generates cost savings compared to grid upgrades that may be needed to address grid needs, and may also help meet renewable energy goals.
• The whole ecosystem must work together for VPPs to be successful. This includes utilities, program implementers, VPP partners, and public utility commissions (PUCs).
• Power operations integration is critically important. The full value of VPP benefits can only be realized if VPP solutions are connected to utility control rooms.
• Enabling regulations can be helpful. Some examples include ensuring that the full value of peak demand reduction is defined (including temporal and spatial variations), export allowances that enable battery energy storage systems participation in demand response and VPP programs, and requiring the analysis of non-wires alternatives to address grid constraints.
• The right planning tools can be valuable. For example, PGE and its consultants created a unique DER adoption model called AdopDER that estimates the locational hourly impacts of DER adoption and informs a lot of their planning.
• Regulators should remain aware of customer data and resources being collected.

Key Regulator Highlights

• Cost-effectiveness is a critical component of evaluating VPPs. Depending upon the tests required in each jurisdiction, utilities should identify their costs and benefits, and VPPs should pass demand-side management (DSM) cost-effectiveness tests. There are a wide variety of current pilots and programs that are evaluated under different cost-effectiveness frameworks and tests.
• There is a need for program maturity and operationalization and measurement and validation (M&V) to determine if operators are dispatching optimally and if system visibility is being leveraged. It is also important to set clear expectations around the total time and time required to develop a full program during the pilot stage.
• Existing energy efficiency (EE) programs can provide a solid foundation for VPPs.
• VPP control technology must be able to integrate with utility management systems, including but not limited to advanced distribution management systems (ADMS) and distributed energy resource management systems (DERMS).
• Compensation models, especially post-pilot, are important. For instance, participants raised the question of how to incentivize strong VPP performance after it graduates from being a program to becoming part of a utility dispatchable supply stack, especially given net energy metering (NEM) dynamics.
• There is still a need for more education and socialization on VPPs, including the basics, as these technologies and concepts are newer for customers. PUC leadership and collaboration with companies make innovation possible.
• The VPP value stack must be further defined and expanded:

• • Some utilities would like to integrate greenhouse gas (GHG) mandates into VPPs to prevent fossil fuel peaker plants from coming online and avoid new infrastructure.
  • VPP providers indicated the importance of communicating the full value proposition to customers.
  • The Utah legislature allowed its public utility commission to authorize funds for exploratory VPP efforts, and creative funding authorization (e.g., via DSM funding allocation).

Some pilots may require further assistance to scale because of cost-effectiveness concerns. It is important to work with regulators to develop appropriate cost-effectiveness tools and frameworks.

Consumer protection, customer privacy, and information visibility are important challenges to be solved and may entail regulating VPP partners and enforcing strict utility data security requirements.

VPP for Regulators Playbook Brainstorm

Attendees participated in an interactive brainstorming on an implementation playbook for regulators. The results of this session may inform NARUC’s technical assistance priorities and resource development for NARUC members. Participants – both regulators and non-regulators – voted on a proposed list of playbook topics. These were the results from the poll:

Attendees also identified the following key resource gaps, needs, and rationale for each of the top priorities they had selected in the vote. These resource gaps will inform a NARUC VPP playbook:

• Cost-Benefit Analysis – This includes standardized benefit-cost assessment methodologies, metrics to quantify DER value, tools and best practices for planning, and lists of policies to inform which benefit-cost analysis (BCA) values are included in different jurisdictions. Cost-benefit analysis is particularly important to break down traditional planning silos and establish a common BCA understanding for DERs.
• Distribution System Planning – This includes strategies to revise system and regulatory planning processes for more effective coordination (e.g., complementary DSPs, IRPs, DSM, and grid modernization plans and timelines), and consideration of new partners (e.g., state agencies, external funding sources) within system planning processes to coordinate on developing cost-effective VPP solutions. Distribution System Planning is an important tool for educating regulators which becomes increasingly important in the case of integrated resource plans (IRPs), demand side participation, demand side management, and grid modernization plans.
• Participant Incentives – This includes example tariffs and rate structures, mapping incentives to use cases, customer preference surveys/educations, identification of penalties for non-performance, opt-out for EV time-of-use (TOU) tariff structures, and variable grid fees (e.g., rate tariffs, variable distribution fees). Participation incentives are particularly useful in the context of rate cases and EE/DSM programs to inform BCA and engage customers.
• Utility Compensation – This includes performance-based regulation (PBR) frameworks, model language for incentive structures, different resources for different business models/markets/VPP ownership structures, compensation models, comprehensive analysis of different compensation structures (e.g., cost of service, PBR, performance incentive mechanisms, TOTEX ratemaking), and performance metrics. Utility compensation is particularly important to properly align compensation with regulation, ensure reliable services, make VPPs competitive, and be useful for utility proceedings (e.g., IRPs) and legislatures to provide statutory oversight.
• Grid Services – This includes the database of NIST standards, measurable/variability performance standards segmented by region, understanding of grid services/standards, and recognition of NEM resources. Grid services shorten development cycles, drive innovation, and benefit communities.
• DER Affordability – Consistent definition of “affordability” (e.g., percentage of energy bills cap). DER affordability is particularly important to avoid cost shifting and advance equity; it is good to involve ratepayers in these discussions and can inform the need to include other partners (e.g., housing agencies).

What’s Next?

NARUC will begin work on its VPP playbook for regulators sometime in the second quarter. To learn more about NARUC’s future work or to offer input into research design, please contact Jeff Loiter.

SEPA also operates topic-specific industry working groups that offer opportunities to meet, learn from, and work with peers. (Participation is limited to SEPA members.) If you’re interested in utility programs, virtual power plants, battery storage, or resilience, we invite you to join SEPA’s Customer Programs Working Group, Energy Storage Working Group, and Microgrids Working Group. Education and collaboration on VPP implementation can pave the way to cleaner energy – we hope you’ll join the conversation.