Thinking thematically: Virtual power plants and the grid of the future

Overview
The global energy grid is rapidly aging just when we need to expand energy rapidly for new technologies
However, by combining the technology we already have, we could potentially solve our energy needs without relying on simply building new powerplants
Through the use of virtual powerplants, new transmission lines, and better customer involvement, we may just see the grid of tomorrow sooner than we think
Let’s face it, unless you’re an electrical engineer, electricity is a bit magical. You flip a switch and boom, there it is. Even trying to quantify this ability is no less astounding. Electricity moves at a speed of 300,000 kilometers per second (671 million miles per hour), and it has a wavelength of 5,000 kilometers (3,100 miles), which is a large part of what allows so much of our modern world to be nearly instantaneous.
Unfortunately, just when we need to begin electrifying our world en masse to respond to climate change, the infrastructure surrounding this technology is groaning from old age. In Europe, the average age of the power grid is 45-50 years old, while in North America, it averages around 35-40.1 Meanwhile, new technologies like artificial intelligence (AI) are set to expand electricity demand even more than previously expected, reversing recent declines in projected demand. According to experts, AI could represent 8% of total US power demand by 2030, representing 323 terawatt hours of new demand.2
So, what’s a grid to do? Some in the industry want to simply build more natural gas power plants, responding to current incentives that only reward utilities for building new capacity –even if it’s only necessary for a few dozen hours of peak demand each year.3 However, that is clearly out of step with our current climate goals – and a grid that’s currently only approving 13% of new connection requests for distributed renewables.4 Thankfully, that’s not the only way. Today, we’ll be looking at new ways of thinking about – and incentivizing –the grid and how we can chart a path forward that hopefully meets all our goals.
How the many replace the one
The beauty – and complexity – of a better grid means there isn’t a single solution. In a recent report from the US Department of Energy, they named this multi-faceted path
“Innovative Grid Deployment.” And in many ways, it’s just that: deploying the grid we have in new ways. From virtual powerplants to bi-directional distribution and more active customer involvement, the grid of the future is often about working smarter not harder. Let’s start with what a virtual powerplant even is.
Virtual powerplants (VPPs) are aggregations of distributed demand and supply that can offer the same services as a traditional powerplant: namely, ensuring electric capacity for all the grid’s users. It involves using the power of the internet of things to connect all our energy producing and consuming devices: electric vehicles (EVs), solar panels, thermostats, batteries, and more. Most importantly, it involves – and rewards – consumers at factories, homes, and businesses by paying them for using energy at the right time to keep the grid working at its current capacity.
The best part? They’re incredibly cheap compared to new physical powerplants, combining the baseload power we already have with the data we’re currently wasting. According to one analysis, implementing VPPs could lower utility costs by up to $35B over the next decade, and can be built at only 40%-60% of the cost of an alternative option – with cheaper operation after.5 In fact, over the last decade, we’ve added 110 gigawatts to the grid primarily for resource adequacy – simply to ensure there’s enough peak power – at a cost of $120B. VPPs could help avoid some of those costs – and with fewer emissions.5
Estimated net operating cost of providing 400 megawatts of resource capacity5

Keeping the lights on – and solving the traffic jam
Another problem our grid has, of course, is how hard it is to build new things. Permitting is complicated and in desperate need of reform, and getting land rights for new transmission lines can be a challenge. We also have the potential to build more than ample clean energy, but – as noted earlier – it’s currently very hard to get those renewables on the grid given limitations of our current transmission infrastructure.
However, we don’t have to be stuck with our current transmission reality. In many places, we’re using old technology in our wires: steel wrapped in aluminum, a 100-year-old design basically unchanged from the early days of the grid. One solution is “reconductoring,” which essentially involves hanging new wires from your existing poles. New designs frequently feature a carbon fiber center and increased aluminum, which can increase grid capacity by as much as 50%. More importantly, reconductoring could – if implemented more fully – improve our planned grid expansions by 4x through 2035.6 In Europe, this is already in flight, with Belgium and the Netherlands reconductoring nearly their entire high voltage transmission network.7
Transmission also clearly needs new incentives. Currently, most transmission networks are run by a hodge podge of utility providers, and there is often little desire to expand the network beyond preventing outages on the fly. However, in May, FERC (the US Federal Energy Regulatory Commission, which oversees the grid) passed new rules requiring grid operators to take a 20-year planning horizon into consideration when managing their networks. This would mean doing the work now to start the long process of building new high voltage transmission lines that we’ll clearly desperately need as we add powerful new capacity from renewables.8
To that end, regardless of which route we take, more grid investment is needed. Globally, $3.1T of investment is needed by 2030 to get the grid ready for the energy transition – before considering AI energy needs.9 Meanwhile, we’re likely to see more renewables “behind the gate,” providing on-site electricity for data centers – and hopefully shoring up the grid before they even draw power from it. Technologies like hydrogen, which are still in their infancy, could be in a unique position to provide carbon-free back-up energy.10 Industry experts are also seeing interest in nuclear. Even in Chicago, where we’re writing from, data center energy use is expected to rise 9x as providers chase the high proportion of nuclear energy in Illinois.11

Where do we go from here?
The grid is a technological wonder. It’s also getting a little long in the tooth. Just as we’re starting to learn about the limitations our current grid setup is placing on the energy revolution, we’re also realizing just how much capacity we need for new technologies like AI. However, as we’ve shown today, innovation isn’t only happening in the realm of robots. With a mix of data, updated transmission, and good policy, we can realize the grid we need. It’s simply time to start.
Investment Risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Investments focused on a particular industry or sector are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.
Footnotes
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1
Climateweek, September 2022. Most Recent Data
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2
CNN, May 2024
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3
New York Times, May 2024
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4
Bloomberg New Energy Finance, May 2024
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5
Brattle, May 2023
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6
Berkely GridLab, April 2024
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7
Volts, January 2024
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8
FERC, May 2024
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9
Rystad, February 2024
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10
Reuters, March 2024
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11
Bloomberg, April 2024