Virtual Power Plants (VPPs) Offered Everywhere: Isn't It Surprising?

Virtual Power Plants (VPPs) Offered Everywhere: Isn't It Surprising?

Eric Morel 02/04/2019 4

Yesterday flexibility aggregators were in fashion; today, the trend favors VPPs, aggregations of production capacities and, in some cases, demand response capacities, whose flexibility is valued.

Why this evolution? Why would flexibility be less emphasized when it has never been so necessary?

When I visit the control rooms of DSOs, the operators are increasingly mentioning the difficulties encountered in balancing the network at the local level, to ensure balance in case of flexibilities activation by the TSO (Transport System Operator). For them, rely on flexibilities could also quickly become a necessity. The increasing penetration rate of intermittent generation plants has consequences at all levels of the network and the use of flexibilities is becoming more and more inevitable.

The use of flexibilities also becomes an option to be considered in network evolution doctrines and network evolution guidelines to avoid costly reinforcements. Companies like Roseau Technologies offer these options in a systematic way.

However, compensation for flexibilities remains unattractive:

– Balancing mechanisms managed by TSOs are a very small market representing less than 1.5% of a country’s consumption. These are the most profitable sources of income for aggregators today: primary and sometimes secondary reserves are more attractive, tertiary reserves provide less revenues. A saturation of these markets will lead in fact to a fall of the prices and thus a selection of the participating technologies still profitable. Will this selection be in the interest of TSOs and mechanisms?

Some TSOs are looking for a performance of balance mechanisms through lower prices: Will this pay for the most efficient and competent participants?

– Spot markets, moderately remunerative but easier to address with pure load shedding blocks.

– The flexibilities that can be activated by the DSOs do not currently benefit from clear and established remuneration mechanisms.

The sources of compensation for aggregators of flexibilities are thus limited and decreasing: it is not surprising that the aggregators have some difficulties.

There are also three major types of flexibilities exploited and valued in the markets:

– Production flexibilities, historical participants in the balancing markets. They sometimes tend to be less competitive than before or less available (in the case of dams in the spring for example)

– Load sheddings, fairly easy to implement and giving access to moderate revenues.

– Modulations of consumption, difficult to implement and better paid.

A flexibility aggregator necessarily starts with a valuation on the spot market and the tertiary reserves. The low revenue levels make it difficult for him to fund the development of skills needed to propose modulations on the primary reserve.

In this context, which is not conducive to the multiplication and diversification of the flexibility operators, the VPPs respond, in most cases, to several objectives:

– Revitalize a market a little out of breath

– To value, by aggregating them, flexibilities which are not adapted or too small to be valued individually (Solar, Micro-hydraulic etc …)

– Manage a first balance perimeter within the VPP to maximize revenue

– Limit yourself to the commitment of easy and inexpensive flexibilities to implement.

These VPPs seem to appear as the long-awaited miracle solution to reinvigorate the valuation of flexibilities. However, low revenues persist, the limited size of the most profitable markets remain relevant, the flexibilities needed by the DSOs remain unpaid.

Does the rush to VPPs observed today make sense? The know-how of the most advanced aggregators is essential: which business models will be able to make them live in the future? How not to lose the skills developed in recent years? I fear that TSOs and DSOs have a vital role to play. But do they really see it?

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  • Michael Bowker

    Informative

  • Graeme O'Neill

    Outstanding read !!!

  • Kirstie Harold

    Spot on with your analysis

  • Andrew Phillips

    I truly admire your efforts to raise awareness about the most important energy problems

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Eric Morel

Energy Guru

Eric Morel is a worldwide recognised expert of energy transition and digitalisation. In the past, he has served as VP Corporate Business Strategy and VP Global Smart Grids and Energy Efficiency at Schneider Electric as well as CEO of Ilevo, a telecommunication start-up. He is a founding member and a former Board member of the Gridwise Alliance, the main professional private/public association dedicated to Smart Energy.

   

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