Decentralized Energy Production Shakes Up Traditional Grids

Power grids must adapt to challenges such as increased electricity demand, variable energy sources, and a more decentralized model.
Virtual Power Plants, formed by prosumers, are emerging as a resilient solution for managing power production and storage.
Significant financial investments are needed to upgrade energy infrastructure, with the US Department of Energy already allocating $100 million for VPPs.

The renewable revolution is forcing a major evolution in the way our power grids operate, as well as the way utilities regulate energy flow. While a major retooling of the system will be required to support the scale of the change brought on by the green energy transition, evolution has so far been slow and piecemeal. But that won’t be the case for long, as grids will be forced to update themselves to keep up with a more intensive and flexible energy flow – or risk collapse.

Grids will be faced with three major challenges as a result of the massive growth of renewable energy: a much higher demand for electricity, more variable energy sources, and a more decentralized grid. As more and more services become electrified and plug-in electric vehicles proliferate, the amount of demand on the energy grid will skyrocket. The renewable energy sources that will be expected to meet this demand, primarily wind and solar energy, are variable – meaning that, unlike fossil fuels, they don’t produce energy on demand. Instead, they depend on the weather and the seasons, and peak production times are often at odds with peak demand times. This will require a high degree of grid flexibility, as well as long-term energy storage capabilities. Finally, as energy markets become more and more diversified with new forms of energy production and new forms of energy producers (especially now that any home or business can produce solar power to sell back to the grid), the grid is becoming more and more decentralized.

As solar panels and home batteries become increasingly accessible and more widely adopted, the newly decentralized nature of power production will change the way grids and utilities work at a profound level. While this could cause some destabilizing shifts to an industry that was only prepared for a one-way flow of energy, from producer to consumer, it could also represent a crucial source of grid resilience. This is where Virtual Power Plants (VPPs) come in. VPPs represent a decentralized and diversified pool of producer-consumers (known as ‘prosumers’) working together to form a power plant without a home base. “Bundled together by the hundreds or thousands, [solar panels and home batteries] can also serve as a critical tool: they can be called on to supply vast amounts of power when grid supplies are stretched or store it when there is more solar and wind power than needed,” Reuters explains.

Source: Next Kraftwerke

Some experts believe that VPPs – somewhat rare now – are positioned to become the new normal. The solar industry’s days as a “net metering type of industry” are “starting to be numbered,” according Jigar Shah, the director of the US Department of Energy’s Loan Programs Office, as quoted from the recent RE+ 2023 conference in Las Vegas. “Most solar systems come with batteries, and most are integrating smart panels,” he went on to say. “They’re integrating demand response and load control capabilities into the inverter controls.”

The potential uses of VPPs extends beyond distributed energy storage and production. VPPs could also include electric vehicle chargers, smart thermostats, and smart electric water heaters which could collectively function to improve energy efficiency – another key imperative of the global decarbonization movement. While it makes good economic sense to employ VPPs, says Shah, there’s also really no alternative. “Frankly, it is the only way for [electric utilities] to integrate all of the huge load that is coming their way.” As such, VPPs are already underway in large parts of the U.S. (especially via Duke Energy in the Carolinas) and in Puerto Rico.

And private sector actors aren’t the only ones taking notice – the United States Department of Energy anticipates lending support on the order of $100 million to advance VPPs, PV magazine reports. This is just a drop in the bucket, however, of the kind of monetary investments that will be required to bring energy grids up to speed. The International Energy Agency estimates that annual investments in energy sector infrastructure and technologies will need to quadruple from current levels to reach $4 trillion by just 2030 to enable the world to reach its goal of net-zero by 2050.

By Haley Zaremba for Oilprice.com