Imagine transforming your energy system into a goldmine. That’s the vision behind Virtual Power Plants (VPPs), and it’s not just a pipe dream. As the world leans into the renewable revolution, savvy investors are eyeing VPPs as a promising avenue for substantial returns over the next decade. Events like last month’s battery surge in California will soon become common, thanks to established technologies, new business models, and the power of AI. So, let’s dive into why VPPs might just be the smartest addition to any Greentech fund portfolio yet.
The new (fast) kids on the block
VPPs rely on a vast array of new technologies. These technologies have several common factors: they are digitally enabled and have minimum rotating parts. VPPs are ill-suited to a conventional grid, running on bulky combined heat-and-power plants, or nuclear reactors. Key to VPPs is the speed of dispatch of an energy source or energy consumption unit. Rotating turbines of most conventional power-generating technologies take time to power up or down – anything from 20 minutes to a couple of hours. On the other hand, lithium-ion batteries, solar panels, and smart thermostats, managing your electrical heat pump, can respond within microseconds to electronic signals.
Yes, in my backyard
Another key factor for VPPs is the existence of distributed and largely unmanaged power sources. If you own a gas-fired turbine, you will pay a lot of attention to how and when it’s working. If you own a solar panel, most of the time you don’t think about it. This combination of power sources and power-consuming devices that could be managed every second, but are largely left unattended by their owners makes the existence of VPPs possible.
The groundwork is done
These enabling technologies are called the “smart grid” technologies. It is widely known that you can only manage what you can measure, so it is no surprise that the core of smart grid technologies are smart meters. These devices continually measure not only energy consumed, but also energy generated. Their readings are wirelessly transmitted. Other smart grid technologies include smart thermostats, batteries, solar panels, and digitally enabled substations. These technologies have been heavily invested in the last decade, laying the groundwork for demand response and VPPs.
Demand response
So, what is demand response? It is an immediate adjustment of consumption or generation of energy in response to changes in grid loads. The most primitive form would be a system operator issuing a warning of energy deficit and asking large consumers to limit their consumption in certain hours. The advanced version would be electricity tariffs, differentiated by the time of day. The VPPs however, are a whole new game in demand management.
VPPs
VPPs take advantage of millions of smart grid devices to manage energy generation and consumption. The owners of these devices agree to let VPP control them in exchange for a small fee. The VPP in turn regulates energy generation or consumption through algorithms, leveraging the time differences in energy prices.
AI: The Steroids for VPPs
Perhaps the most thrilling aspect of VPPs is their use of AI. This isn't just automation—it’s innovation. AI in VPPs handles complex decision-making processes that adapt to market conditions instantaneously, ensuring optimal operation across networks. It’s like having a supercomputer for an investment partner, one that knows exactly when and where to sell energy for the highest return. I believe that VPPs have all the potential to be the largest and most impactful AI applications in energy transition.
Asset-light step
The VPP model is a new utility model that is not based on owing generation or distribution assets. It is thus much less capital intensive. Thus, it presents a great opportunity for outsized returns in investments. Most of energy transition technologies require high upfront investments and rarely have a clear business model (just look at the EV-charging business). In this case, the required investment resembles your usual VC tech investment, where all you need is a team of geeks who can deliver.
Time to place your bets
As the energy sector evolves, VPPs stand out as a cutting-edge investment that offers both profitability and a badge of sustainability. They’re a testament to how technology can transform traditional industries and provide investors with exciting new opportunities. If you’re looking to diversify with something that promises to be at the forefront of technological innovation, VPPs deserve your attention.