Is FERC Order 2222 enough to push virtual power plants into the energy mainstream?


Virtual power plants (VPPs) are on a roll. Within days of each other, two California companies — OhmConnect and Swell Energy — announced partnerships aimed at expanding the scale of their models for aggregating distributed energy resources (DERs) to shape or shift power when the grid is under stress.

Northern California-based OhmConnect went first, on Dec. 7, announcing a partnership with Sidewalk Infrastructure Partners. Their goal: build out a 550 MW VPP using a software platform called Resi-Station to aggregate the demand response resources of hundreds of thousands of customers.

Swell Energy, a Southern California company, followed on Dec. 10 with its announcement of a financing deal that would allow it to build four VPPs combining 100 MW of distributed solar with 200 MWh of distributed storage. The $450 million in project financing is coming from Ares Management Corporation and Aligned Climate Capital.

The timing of  both announcements is significant. Aggregating DERs via VPPs — including solar, storage and demand response — is at a point where customers, utilities and financiers all are ready to buy in. Or at least they are in California, which in 2017 began allowing aggregated DERs to participate in wholesale markets.

The Federal Energy Regulatory Commission (FERC) moved to open wholesale markets nationwide to DERs in September through Order 2222. The order could significantly broaden the opportunity for VPPs to scale up and play a big role as part of a distributed, decarbonized U.S. grid. For aggregators like Swell, Ohm and others, the challenge now is tailoring their models to take part in other, possibly less DER-friendly, energy markets.


On the plus side, the flexibility of VPPs, and their use by utilities for customer engagement as well as grid support, could provide  highly adaptable value streams. Both Ohm and Swell already have multiple utility partnerships in place. Scaling across different regional markets could open opportunities for local DER providers to expand their businesses through partnerships with utilities and DER aggregators.

But, Suleman Khan, Swell Energy’s CEO, believes FERC Order 2222 in and of itself will not be enough to accelerate VPP adoption. “It will be the combination of various federal, state and regional regulatory and commercial activities that will allow for the mass propagation” of storage and other DERs he said.

Santosh Veda, who manages a grid modernization research team at the National Renewable Energy Laboratory (NREL), also sees basic technical challenges.

“Right now we need harmonization of industry players,” Veda said. Electric vehicle chargers and smart thermostat companies, for example, don’t come from the same industry. “There is a need to harmonize their interfaces with the grid industry. How do you make sure that they all talk to each other? Aggregation at the home level and then regional aggregation; I think it’s going to be all over the place.”

Customer engagement is key

The idea behind virtual power plants sounds relatively simple: aggregate distributed energy resources — that is, some combination of behind-the-meter solar, storage or demand response — to shift or shape electricity demand when the grid is under stress. Third-party aggregators supply the software platforms that manage the resources to either cut or deliver power to the grid as needed. Customers get paid for their participation.

OhmConnect and Swell Energy operate under different business models, but both versions hinge on customer engagement by leveraging distinct value propositions for somewhat different demographics.

OhmConnect may be the more classic demand response aggregator. It manages its customers’ smart thermostats and other connected home devices to cut energy use at times of high demand. For example, during California’s heat wave-induced rolling blackouts in August, the company’s software platform toggled its customers’ smart devices and appliances off and on. Doing so cut almost 1 GWh of total energy usage, and also helped to avoid additional blackouts. In return, OhmConnect paid out roughly $1.3 million to its users.

By contrast, Swell Energy’s platform leverages customers’ behind-the-meter solar and storage systems to provide a broader range of grid support, in addition to demand response. According to Khan, the company’s aggregated storage can be used as a renewable “sponge” to soak up excess solar or wind energy that might otherwise be curtailed, or even provide frequency support to the grid.

On the customer engagement side, OhmConnect markets a behavioral and lifestyle model. The company offers the highest payouts to customers who shut down circuits and turn off power to their homes during demand response events that the company calls “OhmHours.” Ohm spins the inconvenience of such planned outages as opportunities for customers to get out of the house and take a walk, or have a candle-lit dinner or family game night.

Swell’s appeal to homeowners is more about peace of mind, with its solar and storage systems providing backup power during outages, as well as community resilience and lower electricity bills. In California, the company is using the state’s storage rebates to provide low- to no-cost residential batteries to some customers, while it offers no-downpayment financing to others.

According to the company’s website, customers in Orange County can get residential solar and storage for monthly payments of around $113, versus $147 for customers in Santa Barbara and Ventura counties.

DERs do Airbnb

Given the trend toward broad electrification across the economy, Veda sees ongoing expansion of aggregated DERs and VPPs, with no one model predominating, and with electric vehicles and charging stations very much in the mix. A recent report from NREL envisions distribution-level transactive energy markets, including VPPs.

OhmConnect CEO Cisco DeVries has likened the potential impact of aggregated DERs to that of shared-economy icons like Airbnb.

“Within a few years, almost everyone in the country will think of their appliances, their car chargers and the energy use in their homes as something that they can make money from when they are not using them,” DeVries said in a recent interview with pv magazine.

But, Veda cautions, even with FERC Order 2222, barriers remain. The order, in effect, creates a new class of resource — aggregated DERs — that will have to be integrated into segments of existing wholesale markets, such as capacity or frequency regulation. New metrics will also be required to ensure DERs meet individual grid operators’ performance requirements, he said.

Another issue is ensuring that VPPs that provide transmission grid support don’t affect power quality on distribution lines. On that point, at least, Veda said that “the utility industry isn’t there yet.”

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