While huge utility-scale solar projects capture most of the headlines, the residential market also has an important role to play in the country’s transition from fossil fuels to renewable electricity. Individual home solar + storage systems may not necessarily help the grid, but when aggregated together into virtual power plants, that changes.
Virtual power plant (VPP) technology combines many smaller solar, storage, EV chargers and other renewable energy sources to supply the electrical grid with near-instantaneous power and other grid services when called upon.
“Any smart device that is capable of providing load control can contribute to the VPP future,” said Sarah Delisle, VP of government affairs and communications for VPP aggregator Swell Energy.
Instead of these installations just serving as backup power or rate arbitrage tools for the homeowner, they can then help the grid function better and even replace traditional fossil fuel peaker plants that would typically be employed in high-energy-demand scenarios.
In 2023, the Dept. of Energy made its faith in VPP technology clear. The DOE’s Loan Programs Office, led by Jigar Shah, entered into a $3 billion partial loan guarantee agreement with Sunnova via its Project Hestia program to help the company expand solar, storage and VPP investments.
“The goal for us is for the solar industry not to look like it’s ‘other’ and outside of the electricity system, where it’s sort of like a backup generator for homeowners,” Shah told Solar Power World at RE+. “The goal is for solar, and then all of these other pieces, whether it’s smart inverters, smart panels [or] batteries — for those to be integrated into the entire way in which the electric grid operates.”
Project Hestia systems must include both solar power and Sunnova’s proprietary VPP aggregation software, but can also include storage and other distributed energy technologies. VPP capabilities give customers the chance to receive additional incentives for participating in utility demand response or grid services programs.
“We’re looking forward to building out our fleet and giving the customers that we work with through Project Hestia the opportunity to further monetize their investment,” said Meghan Nutting, executive VP of government and regulatory affairs at Sunnova.
The purpose of the VPP loan guarantee agreement between the Loan Programs Office (LPO) and Sunnova is to expand access to renewable energy for underserved populations. The $3 billion federal loan guarantee means Sunnova’s investors will receive a return on investment even if solar customers default on their loans, allowing Sunnova to take on traditionally riskier clients.
Sunnova doesn’t require income verification for solar customers, but it does have credit score requirements. The company’s agreement with the LPO requires that at least 20% of Project Hestia loans are given to homeowners with low credit scores and at least 20% to homeowners in Puerto Rico.
“This concept of a credit backstop is something that utilities currently have. Even if people default on their electricity bills, [utilities are] still made whole on that and that allows them to serve customers without prejudice. We, on the other hand — private companies — have to raise equity, raise money to serve the customers that we serve,” Nutting said.
LPO’s loan assistance is especially important as loan interest rates climb higher and higher.
“Especially at a time like right now, where the cost of borrowing money is extremely expensive, any additional things that the federal government can do to help bring down that cost of capital is going to in turn be passed on to customers, and that’s a really helpful thing,” Swell’s Delisle said.
Loan guarantee programs like Project Hestia are crucial for making solar and VPP technology available to underserved populations, but widespread utility incentives for VPP participation could also help make systems pencil out for more homeowners.
The DOE outlines seven different values VPPs offer to utilities, including resource adequacy, reliability, decarbonization, transmission and distribution relief. Yet historically, utilities are compensated for large capital expenditures like building new natural gas plants, Shah said. VPPs are low-capital solutions that typically don’t yield the same profits for utilities, so embracing this technology could require adjustments to how regulated utilities are compensated.
“Utilities have an opportunity to be the heroes of this story,” said Shah in an email. “By supporting increased electrification, they’re enabling consumers’ home efficiency upgrades, enabling economic growth, reducing emissions from enterprises and more.”
Some major utilities have already worked with their regulators to revise frameworks and make VPPs possible, he said — including Duke Energy, Portland General Electric and Green Mountain Power.
Along with utility changes, more work is needed from private companies to increase accessibility of VPP programs for more homeowners across the country.
“In addition to, what do the incentive structures look like on the utility and the PUC side, what is the process like for a customer who wants to participate in a virtual power plant, and how do we make that as simple and elegant and carefree as possible — and almost invisible?” Delisle said.
Virtual power plants are a way for both homeowners and utilities to reap more benefits from solar, storage and other residential load control technology. Government support, utility acceptance and technological advancements can expand the market and speed up decarbonization of the electric grid.