This is the latest installment in Utility Dive’s “Taking Charge” series, where we engage with power sector leaders on the energy transition.
U.S. electricity demand is growing once more after years of stagnation, even as planned fossil and nuclear generation retirements raise questions about the grid’s long-term reliability. The North American Electric Reliability Council’s 2023 Long-Term Reliability Assessment singled out MISO and SERC-Central as the two highest-risk areas, where power supplies could prove inadequate under normal peak conditions.
Virtual power plants, or VPPs, are already helping to stabilize local and regional grids in places like Utah, Idaho, California and Puerto Rico, according to Blake Richetta, CEO of sonnen USA, a home energy firm that aggregates residential batteries and solar to provide dispatchable power and grid services. Richetta believes VPPs could play an even more important role in the American energy mix in the near future.
They’re already widespread in Germany, sonnen’s home base and largest market for residential solar and energy storage installations. Germany saw a massive buildout of distributed solar and utility-scale wind beginning in the late 2000s, stressing the country’s grid and forcing the German government to slash feed-in tariffs. That led to a surge in battery storage installations, and today, Germany is sonnen’s best-developed market, Richetta said in an interview with Utility Dive. According to Richetta, sonnen’s 250 MWh German VPP provides nine different grid services, such as demand response and grid frequency stabilization.
That sort of sophistication could soon reach U.S. shores, especially in solar-saturated markets like California. The dual impact of California’s NEM 3.0 feed-in framework, which encourages residential battery installations, and FERC Rule 2222, which is supportive of distributed demand response mechanisms despite ongoing implementation challenges that limit those mechanisms’ scale, means “we now have a platform to use the full VPP capability in the U.S.,” Richetta said.
VPPs’ grid benefits
Other states are following California’s lead in encouraging distributed energy storage systems. The Maryland House of Delegates recently advanced the DRIVE Act, which requires utilities to pilot distributed “electric distribution system support services” leveraging bidirectional EV charging and home generation and storage resources by May 2025. Participating consumers could earn compensation for demand response and other grid services.
“Ratepayers and consumers who invest in clean energy systems should see financial benefits when they provide meaningful grid services,” Maryland State Delegate David Fraser-Hidalgo, the bill’s lead sponsor, said in an email to Utility Dive.
When aggregated into VPPs, distributed energy resources can complement utility-scale renewables and storage to strengthen local and regional electric grids, Richetta said.
For starters, VPPs help relieve congestion at the grid edge, a different function “than a big [utility-scale] battery in a field somewhere upstream,” Richetta said. Sonnen aggregates batteries around specific substations to manage transformer loads and “reduce the need for additional infrastructure,” he said.
VPPs also help with what Richetta calls “classic demand response,” or load-shedding during periods of high demand. Similarly, in areas with high renewables penetration, VPPs help balance the grid — charging participants’ batteries during the daytime to reduce wind and solar curtailment, then discharging them in the evening when demand is higher. Both functions can trim gas-fired peaker plants’ capacity factors, smooth the duck curve and decrease carbon emissions.
VPP batteries can also charge overnight to soak up lower-carbon baseload power, Richetta said. Sonnen’s most sophisticated U.S. VPP serves Utah, where Rocky Mountain Power customers in the utility’s Wattsmart battery program enjoy upfront and ongoing participation incentives. With at least 4,000 enrolled batteries and a 2024 capacity target of 100 MWh, the Wattsmart battery program is big enough to influence Rocky Mountain Power’s capacity planning and secure distributed resources’ place in future integrated resource plans, Richetta said.
“Mission: Replicate Wattsmart”
Richetta credits Wattsmart’s success to pragmatic policymaking. Utah’s “Romney Republican”-dominated legislature, he said, set aside partisan politics and put together a straightforward distributed energy policy that required no significant government spending or general electric rate increase.
“Their position was, ‘We’re efficient, we don’t waste, we don’t do bureaucracy and when we want to do something, we do it,’” Richetta said.
It helped that other local power industry stakeholders, notably the Utah Public Service Commission and Rocky Mountain Power, saw the value in a distributed, dispatchable portfolio that could potentially scale faster than new fixed generation.
Instead of running a 20- or 30-battery “science project” pilot that “didn’t actually prove anything from a grid services perspective,” Rocky Mountain Power went for “speed and scale,” Richetta said.
The utility also kept the Wattsmart program simple for participants by offering a flat, $400-per-kW upfront incentive and an ongoing annual bill credit of $15 per kW for residential batteries. And unlike some VPP or demand-response pilot programs that require more hands-on participation, Wattsmart is essentially plug-and-play for customers, Richetta said."
“I’m of the opinion that for the energy transition to scale, we need things to be very simple,” he said. Many VPP participants “don’t need to understand how it works, they just need to understand that the system will be doing stuff — but if they are interested, we will tell them.”
For its part, the Utah Public Service Commission embraced its mission “to protect the people, not a specific political interest,” like the regional investor-owned utility. In some other regions, Richetta said, relations between utilities and distributed energy resource operators suffer from “bad juju,” Richetta said.
Sonnen’s Utah success offers lessons for policymakers and industry stakeholders elsewhere in the country, and for sonnen itself. In other U.S. markets, “it’s now ‘Mission: Replicate Wattsmart,’” Richetta said.
Different paths forward for distributed energy
However, energy storage users’ objectives, and thus their experiences as producers and consumers of distributed energy resources, differ across utility and ISO/RTO territories, Richetta noted.
Richetta contrasts sonnen’s experience with customers of Pacific Gas & Electric, which recently completed an 8,500-system VPP pilot with Sunrun, and LUMA, a Puerto Rico power provider beset by reliability challenges.
Though both are important markets for sonnen and for distributed energy writ large, California and Puerto Rico customers want very different things from their home solar-and-storage systems, Richetta said. In Puerto Rico, the top priority is reliable backup power. In California, it’s optimizing the state’s new NEM 3.0 tariff structure through the sonnenConnect VPP, which — perhaps ironically — utilizes the same digital infrastructure sonnen parent company Shell relies on to sell fossil gas to CAISO power plants.
“We embrace NEM 3.0, we think it’s terrific,” Richetta said. “We’re probably among the very few who do.”
sonnenConnect has a “patented time-of-use algorithm” that uses weather data to predict day-ahead solar panel efficiency and manage the system accordingly. If the forecast calls for heavy cloud cover or rain, sonnen charges the attached batteries during the off-peak period the night before. That’s important for customers whose time-of-use tariffs can swing from 20 to 80 cents per kWh, Richetta said.
This level of sophistication has Richetta confident in sonnen’s focus on customer-owned solar+storage systems. While potentially useful, bidirectional EV charging can’t add the same value to the grid, he said, in part because they can only help when they’re plugged in. If demand response or some other grid service is needed “at 9am, when most cars are on the road,” an EV fleet is less effective.
But other solar-and-battery business models do exist. Sunrun, whose customers lease rather than own distributed energy systems and pay no upfront installation costs, took its 8,500-system PG&E pilot “from contract to operation in six months,” Sunrun Head of VPPs and Grid Services Chris Rauscher told Utility Dive in an interview.
To encourage uptake, sonnen recently partnered with PPA provider Solrite to offer “virtual power plant PPAs,” in California, Puerto Rico and Texas, with additional markets to follow. Solrite owns participating solar-and-storage systems, the sonnenConnect VPP operates them and users enjoy reliable backup power alongside similar financial benefits as VPP participants who bring their own systems.
“Solrite is basically saying, ‘We’ll put solar and a battery into your house at zero cost and sweep in [utility] cash incentives for grid services to finance it,’” Richetta said. “They’ve disrupted the whole VPP game.
Correction: A previous version of this story gave the wrong title for Blake Richetta. He is sonnen USA CEO. We have also clarified the incentives of utility battery programs.
