What Is a Virtual Power Plant, and Why Is Elon Musk Building One?
Advancements in next-generation energy technologies can make for a confusing landscape where it can be difficult to distinguish valid potential from overblown hype. But given the fact that wind and solar are now cost-competitive with fossil fuels, and energy storage costs are coming down dramatically, it’s reasonable to forecast that the current series of innovations will upend the energy industry as we know it.
One such innovation is the virtual power plant, which ties hundreds or thousands of small energy-storage systems together and allows them to behave like a power plant for the grid. If deployed effectively, the concept could save the grid operators money, make homeowners money, and create a massive new market for companies like Tesla (NASDAQ:TSLA). And the market for virtual power plants may finally be opening up.
The virtual power plant Elon Musk is building in Australia
The most notable example of a virtual power plant was just announced in Australia. South Australia Premier Jay Weatherill’s press release announcing the plan said this:
Beginning with a trial of 1100 Housing SA properties, a 5kW solar panel system and 13.5kWh Tesla Powerwall 2 battery will be installed at no charge to the household and financed through the sale of electricity.
Following the trial, which has now commenced, systems are set to be installed at a further 24,000 Housing Trust properties, and then a similar deal offered to all South Australian households, with a plan for at least 50,000 households to participate over the next four years.
In theory, the cost-effectiveness of energy storage is so strong that batteries can be installed for free, as long as the utility gets control of the devices for charging and discharging. If all 50,000 energy storage systems are installed, they could supply a total of 250 MW of power, similar to the output of a small natural-gas power plant.
A model for the future
Virtual power plants aren’t a new idea for advanced energy companies, but a 250 MW virtual power plant takes the concept to a new level. Stem Inc. completed a 1 MW energy storage virtual power plant in Hawaii early in 2017 using commercial energy storage installations. SunPower (NASDAQ:SPWR) is running a virtual power plant pilot with Con Edison (NYSE:ED) in New York using 300 energy storage systems in homes. And Sonnen is building a 2,900-home virtual power plant in Arizona.