PG&E is testing different flavors of virtual power plant

What’s the best way for home batteries to help ease summer grid stress? This California utility is trying out two different models with Tesla and Sunrun.
By Jeff St. John

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Sunrun employee installing an LG battery at a California home
A Sunrun employee installs an LG battery at a California home. Sunrun’s new contract with Pacific Gas & Electric will aggregate thousands of batteries like these to provide grid relief during summer evenings. (Sunrun)

As a demand-response manager for California utility Pacific Gas & Electric, John Hernandez knows all about how hundreds or thousands of battery-equipped homes can be remotely controlled to serve the grid’s needs, much as central power plants do. These aggregations of controllable home solar-plus-battery systems are called virtual power plants, or VPPs for short.

The question is, what kind of power plants should these VPPs be modeled after? This summer, Hernandez’s team at PG&E will be testing two types of VPPs that use similar tools but different methods to help keep the grid stable during hot summer evenings.

The first VPP, born of a partnership with leading home battery provider Tesla, has been paying homes with Powerwall batteries since last summer to discharge power when grid emergencies strike. It builds on an effort that Tesla started on its own back in 2021. That’s more like a peaker plant,” Hernandez said, referring to the fossil-gas-fired power plants that sit idle most of the year but ramp up when electricity use spikes and threatens to outstrip grid supply.

The second VPP, announced this month with leading U.S. residential solar provider Sunrun, will also pay customers with Sunrun solar-plus-battery systems to discharge power during hot summer evenings. But instead of being tapped only during grid emergencies and paid for responding, these customers will receive a flat fee upfront in exchange for letting their batteries be programmed to discharge power from 7 to 9 p.m. every day during the months of August, September and October.

This steady, predictable resource is less like that of a peaker plant, and more like the 24/7 baseload” power generated by a nuclear power plant, Hernandez said. 

As homes and businesses equipped with solar-plus-battery systems proliferate in California, understanding the pros and cons of these different approaches will help inform what styles of virtual power plant are best suited to balancing the state’s summer-stressed grid, Hernandez said. What does a VPP need to look like going down the line?” He thinks the Tesla and Sunrun models are a good start to defining the bookends.”

From emergency demand response to permanent load-shift 

Tesla’s approach follows a more traditional model for how batteries can help the grid. Tesla launched its VPP in 2021 as a volunteer grid-stabilization effort in the wake of California’s 2020 summer grid emergencies. Last year, PG&E agreed to pay those participants with funds from the Emergency Load Reduction Program, which was created by the California Public Utilities Commission to entice customers to help the grid during severe power shortfalls.

During the summer of 2022, Tesla’s pilot grew from less than 3,000 participants to more than 4,500, and from just under 20 megawatts to a maximum of 33 megawatts of peak power contributions. That included 31 megawatts on the evening of September 6, when state grid operator CAISO was saved from having to order rolling blackouts by customers contributing gigawatts’ worth of voluntary energy conservation and hundreds of megawatts’ worth of decreased power use and battery backup.

This method of demand response — the practice of paying customers to reduce consumption or fire up batteries and backup generators during grid emergencies — has been the primary way for solar-and-battery-equipped customers to engage in grid-balancing activity.

The approach taken by Sunrun’s pilot project with PG&E sometimes goes by different names such as permanent load shift,” which captures its key difference from the Tesla pilot. Instead of only being triggered during emergencies, the resources are always there, providing a steady source of power that will — if the program is designed and executed properly — make grid emergencies less likely to begin with.

The PG&E project calls on Sunrun to deliver 30 megawatts of capacity from up to 7,500 new and existing solar-plus-battery customers across the utility’s service territory. Each participant will receive an upfront payment of $750 and a free smart thermostat in exchange for allowing their batteries to discharge their share of that 30-megawatt total commitment.

Different models for making VPPs work at the right price 

This isn’t a new concept for Sunrun. Over the past few years, the company has launched VPPs in New England, New York, Hawaii, Arizona and in multiple sites in California. Many of those VPPs are designed around daily, preplanned injections of power, rather than emergency response.

That’s true of Sunrun’s 5-megawatt deal with utility Southern California Edison, and of its 20-megawatt contract with three community choice aggregators serving customers in the San Francisco Bay Area region. Both offer long-term commitments that these entities can rely on for their long-term planning,” said Scott Peattie, Sunrun’s director of business development.

Not all VPPs are set up as bilateral contracts between utilities and technology vendors, as PG&E has done with Sunrun and Tesla. In some parts of the country, VPPs interact with the grid operators that run wholesale energy markets. That’s the model being pursued through a newly launched pilot program in Texas, for example. The Federal Energy Regulatory Commission has ordered grid operators across the country to open up their energy markets to VPPs.

Both approaches can coexist. In New England, Sunrun has enlisted solar-and-battery-equipped customers in the wholesale capacity markets of grid operator ISO New England, but it also participates in utility-run programs.

The primary question for utility-run VPPs is whether the money that utilities pay participants is worth the grid benefits they provide. Utilities pay for these kinds of programs via the rates they charge customers for electricity. That raises questions about whether it’s fair for money collected from all customers to go to payments to customers who can afford solar-plus-battery systems — an issue at the heart of debates over solar net-metering policy.

The California Public Utilities Commission authorized PG&E to spend $10.5 million on its contract with Sunrun, which includes paying customers and paying Sunrun based on how well it executes on its commitments. But the CPUC also emphasized that it should be explored whether similar procurement could be done at a reduced cost to ratepayers in the future.”

At the same time, getting lots of homes and businesses to enlist in grid-balancing programs could be one of the most cost-effective ways for California to meet its clean-energy and grid-reliability goals. Research from Lawrence Berkeley National Laboratory finds that smart investments in technologies and efficiency on the customer’s side of the meter could cost-effectively reduce energy use enough during the state’s summer evening peaks to eliminate the need for billions of dollars of batteries and other utility-scale resources.

Meeting the needs of customers and utilities alike

The tricky part about relying on these demand-side” resources lies in developing a model that gives both customers and utilities what they need. In this case, utilities need consistent, reliable grid support — and customers need their batteries to do what they bought them to do.

Sunrun has promised customers signing up for its PG&E project that their daily evening battery discharges won’t leave them without sufficient battery power to ride through unexpected grid outages, Peattie said. Nor will it erode the value those batteries provide by storing up rooftop solar energy to inject back into the grid when it’s worth more money, he said.

To operate its U.S. VPP deployments, Sunrun has teamed up with Lunar Energy, a well-funded Silicon Valley startup with software that’s orchestrating VPPs involving tens of thousands of battery-equipped customers across the world. Lunar helps us juggle those critical priorities with our customers,” Peattie said. We have to be impeccable with our dispatches, making sure that nobody’s battery is too low to supply backup power during that dispatch window.”

How well Sunrun and Lunar Energy balance these competing customer and utility needs is something that PG&E will be studying closely over the course of the yearlong contract, Hernandez said. Utilities are leery about relying on thousands of customer-owned batteries to provide critical help to the grid on a daily basis — and they need real-world evidence of reliability to start using them at larger scales.

Right in the middle of that is customer behavior,” he said. The more we plant the seeds of this repeated 79 p.m.” contribution, the more we’re able to see how customers are able to deliver that.”

Ted Burhans, director of distributed energy resource technology at the Smart Electric Power Alliance trade group, highlighted reliability as the main thing that VPPs must prove in order for utilities to expand their use.

It’s easy for a utility to go to their peaker plant and say, give me 100 megawatts in a half hour,” he said. To give up that confidence is where utilities get scared.” 

That’s particularly true for programs that move from treating batteries as just one of a number of resources that can respond to emergency demand-response calls to something that utilities and grid operators rely on as part of their core reliability plans, he said.

There’s always the concern when you start to turn it into firm power,” he said. From a grid-operator perspective, you need to give me that 30 megawatts because that’s what we’re depending on.”

Analyzing just how solar-and-battery-equipped homes operate in the real world is a vital step in that confidence-building process, he said. There’s going to be a lot of value in understanding what the characteristics of solar-plus-storage [are] in a home in California during late-season summer.”

Peattie stressed that Sunrun is confident that it will be able to deliver the full 30 megawatts of power between 7 and 9 p.m. from customers who sign up. PG&E is looking at this as sort of an experiment,” he said. Could it evolve into something bigger with PG&E? Sure.”

Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.