How does a virtual power plant work when electricity prices have skyrocketed more than 20 times and compensation is $14 per kilowatt hour?

Recently, Texas (hereinafter referred to as “Texas”) has been hit by a severe heat wave, with outdoor temperatures exceeding 41 degrees Celsius. The high temperatures have led to a tightening of the power supply, and the price of electricity has even soared more than 20 times at one point, once again confirming that the extreme weather has exacerbated the problem of tense electricity.

Markets Insider and other foreign media reported that the evening of September 6, U.S. time, responsible for grid trading and scheduling of the Electric Reliability Council of Texas (ERCOT) issued the second level of Energy Emergency Alert (EEA2), requiring all users to conserve electricity, and may be in emergencies, prioritize industrial power users to limit power, do not rule out the possibility of taking further rotating blackouts in different zones, in order to ensure that power supply Stabilization.

This is the first time ERCOT has issued an EEA2 alert since the February 2021 snowstorm that caused massive power outages in Texas. Fortunately, just a few hours later, ERCOT announced that power conditions had returned to normal.

The Dallas Morning News reported that as of 8:20 p.m. local time on Sept. 6, ERCOT’s spot market price for electricity had risen above $5,000 per megawatt hour, a more than 20-fold increase from that morning.

The record-breaking heat wave that swept through Texas was the main cause of the sudden rise in load on the power system. on September 7, the temperature in Dallas, the third-largest city in Texas, soared to 41.6°C, breaking the 2012 high temperature record of 40°C, and for five consecutive days, temperatures were at a high level.

In order to avoid a repeat of the 2021 Texas blackout fiasco, this time government agencies prepared ahead of time. In addition to issuing alerts, residents were reminded to limit their electricity usage if it is safe to do so, turn up their thermostats, turn off unneeded lights, use fans to cool down, and refrain from using large appliances. If there is a swimming pool, residents are also asked to turn off pumps and avoid charging electric vehicles.

In addition to these measures, Texas has teamed up with companies like Tesla to launch a virtual power plant to regulate electricity use on the customer side.

At the end of August, the Texas Public Utilities Commission announced that it had approved two new VPP (virtual power plant) qualifications capable of providing dispatchable power to the Texas grid, which is operated by the Texas Electric Reliability Council. This is a first for the state’s electricity market.

The two virtual power plants in this instance involve Tesla Electric customers who have installed Powerwall energy storage systems in their homes and will sell surplus power in the ERCOT market. This isn’t a first for Tesla, but for Texas, the launch of Tesla’s virtual power plant is a milestone for Texas residents, distribution companies, and the ERCOT grid.

How does Tesla’s virtual power plant play out? Why would customers want to participate in such an event? How sustainable is this business model?

Tesla’s “virtual power plant” map

A virtual power plant (VPP) is an image that is not essentially a power plant, but an IoT management system. It is a system of IoT management that aggregates demand-side, distributed power sources and energy storage devices, then schedules and distributes the power to provide additional power during peak demand hours, thereby enhancing grid reliability.

During peak demand periods, “power shortages” have become the norm in countries around the world, not only in developing countries with weak infrastructures, but also in developed countries such as the United States, Europe, and Australia, where power outages are still a major problem in the face of peak demand. How to ensure the stability of electricity consumption, in addition to increasing the construction of infrastructure equipment, increase power generation, “virtual power plant” has become a very effective way to make up for the power.

The virtual power plant to smooth out the peak demand, than simply expanding the power generation equipment is more economical. A study by the Brattle Group, a Boston consulting firm, estimates that by 2033, U.S. utilities can save $35 billion by specifically deploying VPP to meet peak capacity.

VPP pilot programs have been in place in the U.S. for several years. As a low-cost alternative that benefits both the grid and the end user, VPP technology has the advantage of competing with utility-scale centralized power plants, making the market increasingly mature and attracting a number of companies to the industry, ranging from software systems companies to energy storage equipment manufacturing companies like Tesla.

It is targeting this demand that Tesla has entered the market by capitalizing on the hot sales of its growing home energy storage device, the powerwall.

Back in 2015, Tesla launched its Powerwall energy storage battery program and envisioned a business plan for a “home power plant”. Over the years, Tesla has partnered with a number of energy companies to further refine its virtual power plant footprint. This was to provide grid services to utilities and to compensate homeowners for the use of their home battery packs.

In 2021, Musk confirmed his plans to build virtual power plants when he said he wanted to use the Powerwall to transform individual homes into small power plants that would also feed the utility grid.

Tesla’s largest VPP is located in California, where it partnered with California utilities PG&E and Southern California Edison to launch the first official virtual power plant last June.

Reports say Tesla has invited about 25,000 PG&E customers with Powerwalls to join the virtual power plant together for the project. More than 3,000 of those customers expressed interest in joining within the first two weeks of the program’s launch.

Most recently, Tesla is working with EnergyHub, a provider of distributed energy management systems, to build a new virtual power plant in the northeastern U.S. Enrollment in the ConnectedSolutions program is enabled through the Tesla app. The new in-app experience makes it easy for electric customers in Massachusetts, Connecticut and Rhode Island to enroll in the utility’s program, which is EnergyHub’s largest captive battery demand response program.

Texas is one of the more independent states in the U.S. power grid and one of the largest consumers of electricity. Because the Texas grid has little or no interconnection with neighboring state grids, it is difficult to “borrow” power from other grids. This time, Texas approved Tesla’s two virtual power plants to enter the electricity market, which will usher in a major benefit for Tesla’s virtual power plant expansion.

In addition, Tesla has also launched virtual power plants in Australia, the United Kingdom, Europe and other regions.

Tesla’s virtual power plant model has also led to a boom in sales of the Powerwall, a home energy storage product that generates renewable electricity from solar rooftops and provides storage and an interface with the grid. This not only can be automatically switched to emergency power to ensure normal electricity in the event of a power outage, but also works in concert with rooftop solar panels or photovoltaics, and is therefore well received.

In the future, Tesla also hopes to gradually co-ordinate vehicle batteries, Powerpacks and Megapacks as energy storage power stations to form a larger scale virtual power plant. This system is to revitalize the energy storage resources through the trading system, which will also increase the future prospects of the energy storage system.

How does the virtual power plant play?

Tesla’s virtual power plant, the most core and powerful place lies in a set of software systems developed by Tesla, which leads the industry chain change in the use of energy software technology, and the layout of AI technology into the real-time supervision, management and battery monetization of the sale and purchase of energy products, and realizes the innovation of energy products and technological barriers.

Tesla uses software and controls to automatically analyze the market and specific sites to ensure the effectiveness, scalability and safety of the energy storage system. At the same time, through a software system that connects Tesla’s energy systems together to form a virtual power plant to support the U.S. power grid.

Participation in the Virtual Power Plant is also relatively simple for users, as long as you are a Tesla Electric member who meets the eligibility criteria, you will automatically become part of the Virtual Power Plant. When participating in the Virtual Power Plant, your Powerwall will be dispatched when the grid needs support.

In Texas, for example, as long as the user is a Tesla Electric member in good standing in Texas, is not enrolled in a conflict with the Electric Reliability Council of Texas (ERCOT) or in a non-utility demand response program or other virtual power plant, matches the Powerwall hardware device, and signs a valid interconnection agreement, the user will be able to participate in the VPP.

Of course, this process requires that the user maintains an active Tesla account, Tesla application, and Internet connection for the Powerwall at all times and is within the active scope area.

The rest, the user doesn’t have to worry about, Tesla, through its software system, will do the power scheduling automatically.

Most of the time, users won’t notice any difference in Powerwall behavior. When the Powerwall’s capacity is needed, participating users will dispatch together to support grid demand, but never below the user’s backup reserve.

With this VPP, users are paid for having available power and the occasional “reserve” power deployed for grid emergencies.

How do I make money by participating in a virtual power plant?

Why are U.S. residents so willing to participate in virtual power plants? It’s largely profit-driven.

Virtual power plants are a win-win situation for the grid, for the customer, and for Tesla, the provider of the equipment.

As described earlier, it is cheaper for the grid to be regulated by virtual power plants during peak power needs than to increase capacity and expand power plant equipment.

For Tesla, one, it drives sales of energy storage products, and two, it can negotiate a package deal with the grid and earn the difference in price.

The bottom line, of course, is that here the user also gains financially.

A Powerwall unit, at its cheapest, cost $9,000 (13.5 kWh) when Powerwall 2 was launched in 2017. Since then, the price has reached $16,500 in 2022 due to an explosion in demand, before dropping to $12,900 (including GST) in early 2023.

Users who install this equipment can use it to store excess power from PV during the week, as well as to absorb power from the grid when it is cheap, and then release it during peaks and when electricity prices are high.

There is also an additional income if one participates in VPP activities.

This income consists of two things, an equipment requisition fee of $10 for each Powerwall you participate in an event, or $20 if you have 2 Powerwalls.

In addition to the equipment requisition fee, you can also earn a tariff subsidy.

Whenever a virtual power plant needs to mobilize a Powerwall user’s electricity, a compensation incentive of $2 (over 14 RMB) will be paid to the user for each kilowatt-hour (kWh) of electricity mobilized. In total, it is estimated that Powerwall users could receive between $10 and $60 per power emergency.

One California user shared online that he earned $75 in one night by participating in the VPP campaign. At that pace, it could theoretically pay for itself in six months. Of course virtual power plants aren’t often called upon.

A Powerwall user living in California participated in 10 Tesla Virtual Power Plant VPP events last year, and the California grid reimbursed him $574. This money does not require you to do anything, there will be a system automatically called, equivalent to lying earn.

Through this series of operations, Tesla has moved from new energy vehicles, across to solar energy, energy storage, charging piles, smart microgrids and other businesses, and classified itself as a utility company, building a complete new energy and transportation ecosystem.

Of course, the reason why Tesla plays so smoothly is related to the huge electricity price difference in the United States and the perfect power market. But it could also be the direction of China’s energy storage market and virtual power plant development.


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