The Concrete Benefits of Virtual Power Plants — Episode 203 of Local Energy Rules

Chris Rauscher:

There is no reason why progressive utilities could not have started managing that on behalf of the customers years and years ago. I picture a utility that would manage all of that, walk you through your electrification journey that is super high friction, guarantee you savings from switching from liquid fuels to electricity. Let’s say they guarantee savings for five years, and then every month on your utility bill, sending you this huge diagram that says, John, you would’ve spent $700 total this month on energy if you hadn’t electrified, but you’re spending $500 this month instead. There’s no reason why the utilities cannot be doing that, and that’s a giant hole in the market.

John Farrell:

Last year in California, a group of 8,500 electric customers had their homes, solar panels, and batteries grouped together to provide energy for the electric grid operated by Pacific Gas and Electric, reducing costs for all of the utility customers and earning money for their trouble. This type of virtual power plant could similarly reduce electricity costs, provide clean electricity, and prepare the grid for electrification across the country. Joining me in February, 2024, Chris Rauscher, head of grid services and virtual power plants at Sunrun, shared where virtual power plants are already providing these services and why so many states have yet to tap this powerful resource. I’m John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance, and this is Local Energy Rules, a podcast about monopoly power, energy democracy, and how communities can take charge to transform the energy system. Chris, welcome to Local Energy Rules.

Chris Rauscher:

Thanks John, big fan of you and your work and all the good work that the Institute does and happy to be on with you on this important and exciting topic.

John Farrell:

Yeah, well, thanks so much for joining me. I wanted to just start off by asking you how did you get on a career path to working on virtual power plants and solar energy? What led you here?

Chris Rauscher:

Yeah, that’s a great question and things are always a straight line in hindsight, but at the time it never felt like a straight line. The short answer is that I was a staffer in the US Senate for the senator from Maine, Angus King, and I was working on the energy committee for him. He had a long history in energy from energy efficiency in the eighties to deregulation and then wind farm development. And so he didn’t want to do anything in the senate that had anything to do with what he had done previously so as to not even create an appearance of a conflict. So this was nearly 15 years ago now, I guess, and my job was to figure out what should he be a leader on and very quickly to me it became apparent that it was DERs, distributed energy resources. Behind the meter solar and batteries and EVs.

So I really started focusing on that as a staffer and created sort of leadership role for him then and helped him to write a bill maybe 12 years ago or so, 14 years ago called the Free Market Energy Act, which was a federal bill that would have put parameters around state level net metering fights and went from there to the industry. And then my tactic in this industry has always been to stay six months ahead of everyone else and then you’re kind of an expert because everything changes so quickly. And so that’s how I find myself running VPPs at Sunrun.

John Farrell:

That’s amazing. Well, I want to start off when getting into virtual power plants, which we will use the term VPP throughout this podcast, so tune your ears now, but could you just describe for folks what a virtual power plant is and maybe an example of one that people could kind of wrap their heads around?

Chris Rauscher:

Sure. I mean there’s a debate about the term virtual power plant because as you said, there’s nothing virtual about them and they can do more than a power plant, and so we’ve tried on the term distributed power plants and had quite a bit of traction with that, but unfortunately it seems like virtual power plants are here to stay and I think in its most basic form, VPPs virtual power plants are tens of thousands of homes that have batteries like a Tesla Powerwall network together with software providing energy to the utility grid so that the utility does not have to get that same service from a centralized fossil power plant. And we have examples of virtual power plants that we’ve run all around the country, but I’ll hit two really quickly because sort of opposite ends of the spectrum and it’ll give you a good idea of what we’re doing today and what’s possible, and I think it’ll also reveal that there are no technological barriers to VPPs around the country today.

So just this past summer from August through the end of October, we ran a roughly 30 megawatt virtual power plant in contract with PG&E, the largest investor owned utility in the country in California, and that was about 8,500 customers with Sunrun solar and batteries. And every day for 90 days straight, we provided a two hour block of power to the utility at the end of the time of use peak period and the hour following it. This allowed the utility to help knock back their new net peak as it’s called, which is the new surge in demand on the electricity grid that happens when the time of use window peak period window ends. And really exciting about that, we went from contract to operation in about six months. You can’t build any other resource at that scale in California in six months. I don’t even know if you could build a new fossil peaker plant in California at all, even if you had a hundred years, given all the permitting and all of the siting issues and all of that.

Then we’re also running a VPP in Puerto Rico, a partnership with the utility operator there, Luma. Totally different use case. That VPP is intended to literally keep everyone’s lights on the island. The utility is very good at predicting demand, so usage on the grid but has a hard time predicting supply because the grid is pretty fragile there due to the hurricanes and then under investment over many decades. So oftentimes the utility will see supply starting to fall off. Maybe a generator is faltering and is going to go offline, and historically that meant that the utility would have to force rolling blackouts around the island to reduce demand and keep the grid energized and operational. This VPP instead calls on us to immediately push max power onto the grid as soon as possible to help the utility create a buffer and not force rolling blackouts. So you see perhaps the most rudimentary grid and operating room in our country, maybe even in our hemisphere, in Puerto Rico, plus the largest IOU, maybe the most sophisticated utility in our hemisphere, at least in our country, and we’re running VPPs in both, today. We’re not relying on utility software, we’re not relying on fancy utility meters or anything like that. This is all in-house with our own software and our own metering. Two ends of the spectrum. So that tells me we can run virtual power plants at scale anywhere in the country right now.

John Farrell:

You referenced when you were talking about virtual power plants that they are not only like a distributed version in terms of having, as you said, the example I gave in California 8,500 customers providing similar services to a utility scale fossil power plant. You also kind of implied that there are things that they can do that a traditional power plant can’t do. Could you talk a little bit more about that?

Chris Rauscher:

Yeah, sure. So I already hit on the sort of development cycle time, so we can stand these up much quicker because we either already have these customer batteries in the utility territory or we’re quickly installing them, and of course there are no NIMBY issues with residential solar and batteries because by virtue of the fact that it’s residential, the host sites, the humans that live in those homes want the solar and batteries. So we don’t face any of those issues that utility scale resources do.

So in terms of the services that we can provide just on the hard utility services, there’s always some level of what’s called line loss. So when you generate power at great distances at a centralized fossil plant and then you transmit that power on the transmission system and then you step it down and voltage and then you distribute it on the distribution system, there’s line losses let’s say on the order of 8%. So you’re losing 8% of power just getting it to homes. That’s number one.

Then number two, centralized plants of any kind cannot perform local distribution functions. So that big power plant that you see that you might drive by, that can’t help reduce the need to build a new transformer or poles and wires in your neighborhood, but residential solar and batteries can. In addition to that, there’s all sorts of customer level benefits. So our customers are still receiving backup power from the battery site in their homes. We never deplete the batteries down a certain percent so that customers always have backup power even if we’ve used the energy for a grid service event. Number two, we pay our customers for participating in virtual power plants. I never receive a check from my utility because they dispatch the fossil fuel power plant. Number three, virtual power plants tend to be cheaper, provide the service at a cheaper level, which means that we reduce costs for all of the rate payers on the utility system. So not just the person that has the solar batteries and is participating in the program, but also all other customers on the grid.

I’ll say number three and then I’ll stop there because I know this is a long answer, but number three, we’re selling a service, not an asset, which means the utility and or the wholesale market operator can sort of price this service. That’s very different from if a utility goes to the utility commission and says, Hey, let us spend, I don’t know, 10 billion on a nuclear power plant to build that asset and own it in perpetuity and then hopefully we’ll be able to have electricity generated from it. So very different when a utility procures a service and not an asset.

John Farrell:

It’s interesting that you put it that way. I mean there’s so many tensions on the policy side of things. One of my first thoughts here as you were talking about all of these benefits is especially when you’re talking about the local distribution functions, you’re talking about the customers get some backup power. I’m thinking about PG&E customers who are being subjected to power shutoffs due to wildfires or attempted wildfire prevention, a backstop to maybe not having done the maintenance that the utility needed to do. There is this debate that’s been going on often driven by utilities because this distributed energy resource can compete with the stuff that they might want to build and own. As you pointed out about how valuable or not these local energy is. How are virtual power plants helping to change if in any way that conversation because of the way that they can provide services collectively and at scale?

Chris Rauscher:

I think you’re asking the right question there, and the answer would have been different 10 years ago in the era of flat power demand, but now we are seeing load serving entities recognize the electrified future and changing their projections for power demand out into the future. So I think we’re starting to reach some level of consensus that the way to combat climate change is to electrify everything and run everything on clean energy. So what that means is switching energy supply from liquid fuels to electricity, so moving from gasoline, propane, whatever it is to electricity, electricity to run your heating and cooling, to run your dryer, your car, all of that. So we’re probably going to see while Saul Griffith has modeled this out, that if we electrify the entire economy, we’ll see about a doubling of electricity consumption over a given year from today, and it’s only a doubling.

That’s fascinating, right, and the reason it’s only a doubling is because electric motors are so much more efficient than their internal combustion counterparts. So we’re going to double the kilowatt hour usage on the grid as we electrify. Saul Griffith has also modeled that if we put solar on the built environment in all available spaces, so every rooftop that’s a good candidate, carports, et cetera, we can meet about half of that double demand that we’re going to see in the future. So for me, this means a couple of things. One is that due to the lack of barriers that we see for residential solar and batteries that I mentioned earlier, we need to start there because obviously no regrets and we’re going to build out very quickly much of what we need to meet the demand on the grid, but then there’s also clearly an opportunity for utility scale resources and other clean energy resources.

So I don’t think we should be having a binary fight about this. However, if we double the kilowatt hour usage over the year on the grid and we also double the kilowatt demand on the grid in any hour, day, week, month, or year, if we double that demand, we’re going to have to build out the poles and wires 2x. We can’t do that. That is insanely expensive, and what will happen is it will actually increase electricity costs dramatically, thereby slowing down or stopping electrification. So how do we solve for that? Well, virtual power plants are actually the only way to solve for that. Flexible demand side solutions, smart charging of your car using your stationary battery to sort of modulate your demand. All of that together in concert is the only way that we can keep costs down as we increase the electricity demand on the grid.

John Farrell:

It’s so funny too because I feel like so much of the conversation we end up having at the regulatory level or at the legislative level about solar right now is driven by this desire by some folks for a binary conversation of utility scale versus local solar. And that point you just made I think is so important for people to understand that the long view here, that the long range issue is actually not about where do we get the electricity generated, but how do we manage the demand in a way that our existing grid has the capacity to handle it. And for that really a utility scale power plant can’t do anything for you. Like you said, it’s not local, it’s not near where we use the power. It doesn’t have the capability to make those adjustments. Yeah, I wish the conversation was more about that.

It feels very much like we’re, as you said, kind of like in the 10 years ago conversation about whether or not rooftop solar or utility scale solar is cheaper, and I’ve done some analysis that suggests they’re about the same, depends a little bit on where you are, but very little of the analysis seems to be talking about this kind of future about managing the grid demand. Let me pivot a little bit though and just ask you about how do virtual power plants, obviously they can address issues like affordability because you just addressed this issue of grid infrastructure needs and being able to handle that. You talked about people who participate in a virtual power plant getting paid by the utility for the service that they’re providing, which is pretty awesome. How does it help with climate change, which is obviously one of the driving factors behind electrification and behind folks’ interest in clean energy?

Chris Rauscher:

Yeah, it’s another great question there and it’s so funny. It’s something that we don’t really talk about climate change all that much in our industry right now because so much of this is about economics and resiliency and reliability, but of course combating climate change is really the underlying foundation of all of this. The way that virtual power plants help to combat climate change is actually pretty simple. The 8,500 customer batteries and customers that I mentioned in our PG&E program from this last year, every single one of those batteries was charged only by rooftop solar. And so basically what those batteries are doing is they’re storing solar power when there’s excess solar on the grid during the middle of the day and then they’re time shifting that solar to provide solar power back to the grid after the sun is down. And it’s really beautiful to think about that you’re basically increasing the amount of sun hours in the day and because energy is flowing from the battery in someone’s home, Tesla Powerwall or an LG cam or another brand of battery, because stored solar energy is flowing from the battery, let’s say 7:00 to 9:00 PM and that energy is being used by the people in the home and then the excess is being exported to the grid to one, probably two neighbor’s houses because there’s enough power flowing there.

That means that three different homes in that neighborhood are using stored solar power after dark just because one of those homes is participating in the virtual power plant. So the other side of that coin is those three homes are not creating demand for fossil fuel power plants at that time because their demand is being met by local resilient solar and batteries.

John Farrell:

Another thing I hear a lot about lately in conversations about clean energy and frankly it’s unavoidable, is the talk about needing more transmission capacity as this major barrier to deploying clean energy. And I think particularly obviously we’re talking about utility scale because you don’t generally need a transmission line to put solar on your home. So I was hoping you could talk a little bit about how virtual power plants can help with this issue. You talked about the distribution capacity problem, which is going to be coming as we use more electric devices. Is there a way that virtual power plants help us with this issue of transmission capacity for the large scale stuff that folks know that we also need to get to our climate and clean energy goals?

Chris Rauscher:

Yeah, it’s such an interesting topic and the question is nearly moot. Let’s, let’s pick New England. Various states in New England have been trying to get large scale transmission built to deliver hydro power from hydro Quebec down towards the Boston Load Center. This has been going on for geez, 15 years or so, and first there was going to be a big line in Vermont, then there was going to be a big transmission line in Hampshire. Then there was going to be a big transmission line in Maine. I’m not saying that that transmission line shouldn’t be built somewhere to bring hydroelectricity from Quebec down into the Boston Load Center. What I am saying is that over those 15 years or so, no transmission line was built. We’re not getting that hydro Quebec power, but for those 15 years we’ve built out megawatts and megawatts and megawatts of solar and batteries in the Boston Load Center and the surrounding states.

So the question is almost moot because it’s like what is being built today and what is working today? Let’s double down on that first. Separately, we should have the conversation about transmission obviously, but again, not a binary thing. And let’s take the no regret step now that we have that we know it works. The other way to look at this is any demand that you reduce on the distribution system or on the transmission system means that that capacity is then freed up for some other service. So if your goal is to bring large scale renewable hydropower, well, I won’t say renewable because there’s debate about that. If your goal is to bring large scale hydropower from Hydro Quebec through the transmission system to the Boston Load Center, if more and more demand is being met locally, then that means there’s more available capacity on the existing lines or the new lines don’t need to be built out quite as big.

John Farrell:

I had a great podcast with a Minnesota developer, Dan Juhl, who is talking about he pioneered the use of wind, solar and storage hybrids that he builds to be connected on the low voltage side of the substations. And he talked exactly about that too. So I think it’s really interesting for people to think about the fact that small scale power generation and storage is actually a way to expand transmission capacity. Maybe not as much as you get in building that power line, but the point being that sometimes you can’t get the power line built. It takes forever. So as you kind of alluded to this at the beginning about virtual power plants that really you have the technology to do this anywhere already. You have the software, you have the hardware, but I’m kind of curious what kind of rules or policies that states have around the electricity system help you take advantage of that, make it easier to do this, and where do those rules get in the way?

Chris Rauscher:

Sure, yeah. I mean I always come back to this that there is no sort of natural market for electricity or energy services in the US and that’s why we have monopolies and that’s why we have state granted monopoly franchises. Electricity is probably the most heavily regulated industry, perhaps only second to pharma, but I actually think that electricity is even more heavily regulated because as I said, there are no natural buyers and sellers of power in the utility system. There is when you’re talking about a Sunrun or another solar company selling directly to a customer. So what that means is that we can’t build and operate and sell virtual power plant services to a load serving entity to a utility outside of a regulatory framework that allows for that or creates that. And it’s no surprise that the wholesale tower markets and the vertically integrated utilities, the kind of whole ecosystem here has been developed for nearly a hundred years to orient completely around centralized power plants, initially coal and then starting maybe 30 years ago, reoriented around natural gas as the marginal resource on the system.

So what that means is the rules just simply do not exist and the markets don’t exist for virtual power plants to participate unless we go out there and create them. So you have very forward-looking progressive utilities like Green Mountain Power in Vermont that has been running virtual power plant programs, both utility owned as well as competitive ones, for nearly a decade now. And then we have partnerships with PG&E and others where we’ve gotten something across the finish line, but we are still looking towards the future of what does that partnership look like? And then you have places like Puerto Rico where they have no other option and they’re seeing that they need to rely on virtual power plant services today. But going to be honest with you, I’m based just outside of Portland, Maine, so we have a saying it’s still tough sledding and we have to fight these battles in the policy and regulatory spheres for some number of years to come, I think, in order to create these opportunities.

John Farrell:

We’re going to take a short break. When we come back, I ask Chris to explain what the barrier is to deploying virtual power plants in most states where Sunrun has virtual power plants in operation and what the ideal policy would be to unleash virtual power plants across the country. You’re listening to a Local Energy Rules podcast with Chris Rauscher, head of grid services and virtual power plants at Sunrun.

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John Farrell:

Minnesota is one of roughly 30 states where we have vertically integrated monopoly utilities. So there was no restructuring of the market 20 years ago as there was in other places, which means that Xcel Energy, which is my utility, they own the meter that’s on my house. They own all the wires, they go through the alley, they own the substation, they own the transmission line, they own the power plant, they own all of it, and that’s how they make their money is by building and owning those assets.

Chris Rauscher:

Sounds like a good business.

John Farrell:

It’s a great business for them and it’s very rewarding. They get a return on their capital expenditure of nine to 10%, which I’m very envious of as somebody who is able to invest a little bit of my salary in stocks and stuff. It’s pretty hard to find that kind of return frankly, but they get it virtually guaranteed. So I guess my question is to get into some of that policy stuff, you mentioned tough sledding, which it rained today in February in Minnesota. It’s very tough sledding both in terms of climate and in terms of policy. I don’t know if you want to talk a little bit about, there’s a natural aversion to this from utilities and maybe natural is not the right word, but there’s a very rational aversion to this. They make money by building infrastructure. You’re talking about how virtual power plants save everybody money by avoiding infrastructure expenses. Well, the utility is not so excited about that, that’s how they make their money. So how do we reconcile this issue of virtual power plants?

Distributed energy resources are very good for the grid and for people. They reduce costs, they address climate change, but utility business models make them very resistant to it. And as such, I don’t know if you want to talk a little bit about this, but there’s not a lot of places where you can do this, unfortunately, despite how valuable it could be for everybody who’s on the grid,

Chris Rauscher:

The answer is pretty simple, change the business model. But as you and I know, that will take decades if it ever happens, but really that’s what needs to be done, right? You need to change how utilities make money and move to pure performance-based rate making as Hawaii is in the process of doing as well as other places. Chair Gillette in Connecticut at the Connecticut PURA obviously has been doing incredible work in this area to really change the incentives for the utility. I don’t know if you’ve interviewed her yet, but she might be a great guest. So that’s obviously the big answer that requires a shift and it’s probably going to happen on a glacial time period. I would imagine the sort of today answer is find where the incentives are already aligned and adapt that to virtual power plant programs. And the clearest example to me is the nearly clean sweep that we have in New England.

So every state in New England has some version of a virtual power plant program generally called Connected Solutions. There are a lot of nuances here, but I’m just going to speak in broad strokes. Generally, Connected Solutions is run out of the energy efficiency budgets that the utilities have, the utilities get paid to administer those energy efficiency budgets. Then for the virtual power plant programs that are run through those energy efficiency budgets, we use those VPP programs in partnership with the utility to knock down a cost driver on the system that the utility is apathetic towards. It’s just a pure pass through from the wholesale market down to their customers so they don’t lose money when that cost driver goes down and they get paid money through the efficiency budgets to administer the programs. Obviously New England is part of a unified wholesale market, ISO New England, the cost driver that we’re knocking down is generally the cost of the capacity market, which is a pass through from the market through the utility to the customers.

But this can also work in vertically integrated places, even in Minnesota. Just figure out what the budget is there that the utilities are already recovering on to operate, likely the energy efficiency budget, and slot the virtual power plant programs in there and then just create a shared savings mechanism, right? So for every a hundred dollars that are created in savings, utility is able to pocket, I don’t know, let’s say eight to 10%, just like their guaranteed rate of return. The rest is then split between participating rate payers of virtual power plant participants and then the leftover savings are spread across the rate base, so everyone’s bills go down. It’s really not rocket science and those programs in New England, we’ve been running those in partnership with utilities for six or seven years now, year in, year out, tried and true. It’s proven. So I said earlier, there are no technological barriers to this, no technical barriers. There are also no business or program model barriers. The only barrier is putting those programs in place.

John Farrell:

Chris, I’m curious. The southeast has been historically really challenging for third party anything. The monopoly utilities there have been very resistant. You see Florida Power and Light funding ballot initiatives to stop even rooftop solar, et cetera. Have you had any luck penetrating the market in the Southeast and if not, you talked about New England, California, Puerto Rico, are there other places around the country where you are successfully deploying virtual power plants, if not in the Southeast?

Chris Rauscher:

We had a limited virtual power plant pilot with Duke Energy in the Southeast a few years ago, and there are some folks at Duke at senior levels that really understand this stuff. And I think it’s a matter of changing the whole of the organization both for Duke but then for other utilities in the Southeast and thinking about the future a little differently than they thought about the past. And I think that’ll take some time, but we’re starting to see some progress in North Carolina and elsewhere. But in general, most of the virtual power plant action is happening in California, Puerto Rico, New England, and then to a lesser extent Hawaii, although they’ve really recently kind of gone off the rails in Hawaii. And then Texas. There’s been a lot of news recently about Texas and what I would say about Texas is the demand for virtual power plant services is absolutely there and the supply is being built every day, so deploying solar and batteries every day, but the programs are really not at a level of maturation yet where we can unlock the services from the virtual power plants. But I would say keep a close eye on Texas. I think that’s a place that’s really going to develop soon.

The other piece here is talked a lot about stationary batteries, Tesla Powerwalls, LG Chems, et cetera, being the backbone of virtual power plants. And that’s true today and I think that will be true out into the future. But increasingly we’re also seeing exciting stuff happening with electric vehicles both on the managed charging side, which I wouldn’t necessarily describe as a pure virtual, that’s really just demand response, but also increasingly on the bidirectional side, so electric vehicles that can push power from the vehicle to the home and to the grid. And of course Sunrun, we have a partnership with Ford on the F-150 Lightning and through that partnership we were the first to market with a true bi-directional electric vehicle offering in the U.S. which we unveiled I guess maybe two years ago now. And so I would say keep a very close eye on that space as well because I think you’re going to see an explosion of both bi-directional vehicle offerings as well as programs for bi-directional vehicles to form virtual power plants with those.

John Farrell:

It’s really exciting to hear about. I did do a podcast interview with someone from the New Hampshire Electric Cooperative who had their deploying their first what they call transactive energy rate, and the idea was having seen that solar and batteries could provide this value, basically creating a tariff, creating a price that they would be willing to pay for it in order to more formalize that. It was interesting to see a co-op doing that too, where they’ve often been a little bit more closed as with other utilities. So I’m kind of excited to see how that turns out.

Chris Rauscher:

That was probably my good friend Dave Erickson, who’s now retired.

John Farrell:

His name came up. I ended up talking to Brian Callnan at the co-op, but I imagine Dave was involved in it. I wanted to ask you two more questions. One of them is just thinking about this as someone who is personally on the journey of electrification hoping going to get a heat pump sometime this year, is there something that you would recommend to a homeowner who is thinking about solar or storage or any of that kind of stuff, but maybe in a state where the programs aren’t there yet, right? There’s not going to be anybody coming up to me to offer me to participate in a virtual power plant yet in Minnesota, but should I be getting ready for that and is there something I need to be thinking about that will make me more ready for that as I make those investments?

Chris Rauscher:

On the electrification journey first, my wife and I have gone through that journey twice now with two different homes, the home we used to live in and the home that we live in now. And I can appreciate some of the pain points dealing with so many different contractors and trying to figure out what makes sense for your home. And we in our house now, geez, we probably have, I don’t know, maybe six heat pumps total between space heating, then our heat pump water heater, and I look at our enormous electricity bill, even though we have rooftop solar, we still have a large electricity bill because our roof simply isn’t big enough to provide for the demand for one electric vehicle plus a plugin hybrid, plus all electric heating and water heating and closed drying and all the other stuff. So for me, that’s a good news story. That means the utility is making more money and solar is also making more money. Then us as the customer, the consumer, our total energy spend on a monthly and yearly basis is lower than it was before we electrified. When we get that big utility bill in February, I call up a spreadsheet that I use to track all this and I show my wife and I say, but this is what it would’ve been if we had propane and home heating, oil and gasoline. So I can appreciate the journey you’re on.

John Farrell:

Yeah, I love that spreadsheet. I have something similar as well when we got an electric car and it is really interesting to go back and look at that, but then also to look at my electric bill and be like, wow, I no longer have the smiley face on my electric bill that says I use less than my neighbors. They have no way of telling that I’ve got all these electric things I’m plugging in.

Chris Rauscher:

Yeah, you might have to edit this out, but I have an app, a sense app that tracks my usage in real time and demand in real time, and I have fun turning on the induction stove, running the dryer heat pumps and having the cars plugged in to see how many kilowatts of demand I can hit. And I call it big demand energy, like horsepower, how many horsepower does that truck have? And it’s like how many kilowatts you pulling from the grid today?

John Farrell:

Oh my gosh, that is so funny. I was just looking at getting a heat pump. I also have one of those panel apps or whatever to see how much demand I’m pulling and was doing sort of back of the napkin math to figure out am I going to go over my panel rating by doing a heat pump if I look at all the coincident demand from the electric stove, the washer, the air conditioner, all that kind of stuff. So it’s fascinating to look at that. I love that I’m not the only person out there nerding out on that.

Let me ask you a serious question actually though. You mentioned Hawaii and then you said Hawaii had gone off the rails, and I was particularly interested because earlier in the podcast you had talked about Hawaii when we were talking about business models. Hawaii is like this one state that has made that full transition to performance incentives for the utility. The order first just came out a couple of years ago, so I know that it’s early yet. I was just curious if you could talk a little bit about what Sunrun’s experience has been in Hawaii and if that business model change is actually helping, or I guess what I’ve read, what I’ve read is that there was a particular program that was working really well and they decided to completely get rid of it around storage. So maybe it’s not working as well as we’d hoped.

Chris Rauscher:

Yeah, I think Hawaii has always been called a postcard from the future, and I think that was maybe true in the past, but we should be saying that about Puerto Rico now because it’s another island in the U.S. that now is really taking leadership. And so first in Hawaii, obviously they moved away from any sort of net metering like tariff, which had impacts on the solar side. And then increasingly we deployed batteries, although the market is still not nearly what it was when there were healthy economics on the solar side and then some virtual power plant programs were created that had some early promise.

However, I think that a lot of the virtual power plant action in Hawaii has gotten overly complicated. You have all these competing dynamics there now between what value you get for electricity that’s exported to the grid outside of a virtual power plant program. Then what value you get if you are exporting during a virtual power plant program, then how is that value captured? Is that bill savings? Is that paid out to an aggregator or directly to a customer? Then there are heavy, heavy complexities around the software connections, right? What software, what type of protocol do you need to connect to a utility derms? Should you even need to connect to a utility software platform or can you do that in-house with an aggregator? What level of dispatch is required, how many calls? And then just at the end of the day taking out your calculator and looking at all of that and saying, is the customer better off if they participate in this virtual power plant program or are they not? And a lot of times the answer is they’re not better off, they’re just simply not better off. And so I think it’s just gotten a little overly complex in Hawaii, and I like to say complexity kills and simplicity sells, and that’s true both when it’s an aggregator providing virtual power plant services to a utility or that same aggregator trying to get customers to sign up for solar and storage and be in a virtual power plant program.

So I think it’s a high level answer, but the truth is it’s just gotten a little too complex and they’ve lost sight of where they’re trying to head.

John Farrell:

I really appreciate that phrase, complexity kills and simplicity sells. I think about that a lot as we watched states wrestle with this idea of a value of solar tariff. I was involved in the creation of the one in Minnesota, and one of the things we were really insistent about was that it be predictable and that it be booked for 20 to 25 years so that someone can go out and say, I know how much money I’m going to make by providing this solar service or by building the solar project on my house, and therefore I can get financing for it. I can actually make a business out of it. And I remember at around the same time New York was developing their first version of what they call it, VDER – value of distributed energy resources. And it was like, well, there’s this thing and it can vary by this much on a monthly basis or a weekly basis, and then there’s this other component, but we’re going to revise that every year. And I was like, nobody’s ever going to do this. You have no idea how much you’re going to make. You might as well just go out and gamble. So I think those are very wise words.

Chris Rauscher:

New York could be such a promising market, but there are no residential virtual power plants outside of one that we are running right now with Orange and Rockland. There are no VPPs really in the state at all. And so that complexity really did sink the progress there in New York, but then also the more complex these things get, the harder they are to manage on behalf of the customer. And I think there are kind of two views on virtual power plant customer interactions. There’s one view which is that this should be gamified and customers should be excited to look at their battery app and see how much money they’re earning and all of that. I think that’s great for early adopters in California who have lots of money and time – not to put too fine a point on it, but that just simply does not work for most average middle class American families who are going about their busy daily lives and want cheaper power that’s clean and resilient.

And so our role at Sunrun as the aggregator, as the VPP provider, is to manage all of that complexity on the backend for the customers. They don’t even have to think about it. They just get a check at the end of the year for participating. And then manage all of that complexity for the utility so the utility doesn’t have to interact with 8,500 customers and respond to customer inquiries when their battery isn’t dispatching the way they thought it should or when the check didn’t come through the mail and the way they thought it would or whatever. So that’s our fundamental value proposition is managing that complexity from both sides to deliver that service to the utility and that value to the customer.

John Farrell:

That’s great. Even as a nerdy person who looks at my energy app, I would be more than happy to have somebody else manage all of it, just thinking about the complexity that will be coming of both managing the demand within my own house to make sure my panel doesn’t get overwhelmed, but then thinking about multiple appliances or car chargers or whatever, that could all be interfacing at the same time. Nobody actually has time for that unless it’s their full-time job.

Chris Rauscher:

There is no reason why progressive utilities could not have started managing that on behalf of the customers years and years ago. I picture a utility that would manage all of that, walk you through your electrification journey that is super high friction, guarantee you savings from switching from liquid fuels to electricity. Let’s say they guarantee savings for five years, and then every month on your utility bill sending you this huge diagram that says, John, you would’ve spent $700 total this month on energy if you hadn’t electrified, but you’re spending $500 this month instead. There’s no reason why the utilities cannot be doing that, and that’s a giant hole in the market,

John Farrell:

No doubt. Getting back to market rules, my final question for you is, if you had a magic wand, is there one federal policy or state policy or utility business model change that you would want to just make universal? Is there one jurisdiction that does this really well already? And you’d be like, you know what? Maybe that’s not the ideal. Maybe you’d go further than that, but maybe you would just wave your wand and say whatever Puerto Rico does for VPPs, I’d want to see that everywhere.

Chris Rauscher:

That’s such an interesting question and I really, I’ve got to go back to Connected Solutions in New England. If we could wave our wand and copy and paste that program into every single state in the country, I think that we would be probably 90% of the way there in virtual power plants. Connected Solutions, as I mentioned before, aligns all of the incentives between the utilities, the aggregators and customers. And that single program incorporates not just stationary batteries, but also thermostats, electric vehicles, pretty much anything in the home that can provide flexible demand. So if I could just put that program in place everywhere in the country, I think we could stop talking about VPP so much and just start seeing more VPP action.

John Farrell:

What do you think makes that hard to do? You’ve said it aligns the incentives, right? In theory, everybody who’s part of this should be interested in it. Why do you think that’s not happening or why hasn’t it happened yet?

Chris Rauscher:

Who serves your electricity, again?

John Farrell:

Xcel Energy.

Chris Rauscher:

I challenge you to find three people at Xcel who work in different states and have the level of understanding of connected solutions that you might have. And so I think even if you have people at utilities who are really progressive, really want to do the right thing and really forward looking, the institutional inertia just is a big barrier. And the lack of understanding of what the landscape looks like is a huge barrier.

John Farrell:

Well, we’ll get there because people are going to hear about what is possible and they’re going to get excited about it. So I’m going to remain an optimist even if my own utility right now is not one that gives me optimism. Chris, thank you so much for joining me to talk about virtual power plants and all of the opportunities with them and the complexity of the policy and how they work. It’s been a real pleasure.

Chris Rauscher:

Thank you, John, and good luck on your electrification journey. I hope the sledding gets easier.

John Farrell:

Thank you so much for listening to this episode of Local Energy Rules with Chris Rauscher, head of grid services and virtual power plants at Sunrun. On the show page, look for links about Sunrun’s virtual power plant projects, as well as an overview of what makes a virtual power plant. We’ll also have links to some related podcasts, including my interview with Brian Callnan at the New Hampshire Electric Cooperative about transactive energy rates, and my interview with Dan Juhl about how wind solar hybrids can free upgrade capacity. We’ll also have a link to an interview by David Roberts on the Volts Podcast with Connecticut Regulator Marissa Gillette. Local Energy Rules is produced by myself and Maria McCoy with editing provided by audio engineer Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear how we can take on concentrated power to transform the energy system. Until next time, keep your energy local and thanks for listening.