The Energy Changemakers community is full of smart, passionate experts who contribute valuable insights about the future of our energy systems. Forum and podcast discussions are dense with useful information that relates to energy policy design. But community members would like to see innovative ideas turned into thoughtful, forward-thinking policy. And policy designers – the hard-working people tasked with implementing our energy laws – need a way of capturing ideas and turning them into tangible regulations.
In this blog series to accompany Energy Changemakers podcasts, I’ll do my best to offer helpful thoughts about how some of the more intriguing ideas that surface on podcasts can be translated into actionable policy. For this inaugural edition, I’ll be focusing on virtual power plants (VPPs), and specifically on the discussion entitled “Are We Expecting Too Much from Virtual Power Plants?” (posted August 28, 2024). I’ll often quote directly from the podcast and occasionally paraphrase for readability.
First, some background about me: I head the Energy Policy Design Institute (EPDI), which I founded last year after working on energy policy for 15+ years and leading policy and government affairs at Stem; before that, I developed software products at Yahoo! At EPDI, our mission is to accelerate the energy transition with tools for better, faster policymaking.
A framework for successful policy design
In the blog series, I’ll take key points and quotes from Energy Changemakers podcasts and plug them into the toolkit framework EPDI uses to help regulatory commissions design successful energy policies. The framework consists of four tools – Roadmap Template, Dictionary, Design Question Library, and Design Playbook – that are customized to the specific policy topic and challenges at hand. One fundamental idea to keep in mind is the importance of design thinking: it’s how EPDI’s tools are able to transform traditional, adversarial processes into accelerated, collaborative design projects.
Roadmap template
EPDI’s Roadmap Template helps clarify the ultimate destination of a policymaking process, as well as important milestones along the way. It helps stakeholder groups quickly define a shared long-term vision and then work together to achieve it. It also helps states develop an actual roadmap to achieving specific policy goals (as opposed to simply memorializing a goal in a document called a “roadmap”).
In the podcast, Mark Paterson sets up the need for an overarching resource like the Roadmap Template to guide policy development efforts:
“Is our approach to change and transformation in any way commensurate with what our policymakers are saying we’re doing with our power systems? In many cases, absolutely not. And we’re not actually applying the tools to really give us rigorous answers as to how we actually get from where we are to where we need to go.”
In other words, in the absence of a clear long-term vision, policymakers have no way of knowing whether proposed policy changes are good or bad. Going through a roadmapping process clarifies both the destination and ways to verify whether you’re getting there.
The first step of making a Roadmap is setting a vision and a timeframe for the vision. Paterson talks about the “need to think about this as a 10-year transformational challenge,” and that timeframe seems about right for energy system planning.
Visioning exercises bring different ideas to the fore for stakeholder discussion and evaluation. So when Kay Aikin asserts that “where we want to go is a fully democratized, local system,” that’s a perspective the group could consider before potentially confirming it as a vision.
Let’s say a group shares a vision of a highly distributed energy future. In that case, Paterson’s question – “How do you operationally coordinate a power system that’s moving from hundreds to tens of millions of resources?” – becomes essential, and the Roadmap must at least sketch out its answer.
Roadmaps are also the point in the process where objectives are clarified. These can be broad, like “building resilience” and “supporting environmental justice,” or more technical, like “valuing DERs appropriately.” On that topic, Paterson says: “The reason we have this fiction of the value of DERs needing to be monetized at the wholesale market is because essentially there is no market construct for valuing those resources where they are.” Points like this allow stakeholders to recognize early on that valuing DERs (in this case) is a core objective of desired policy.
Dictionary
EPDI’s Dictionary defines critical terms and establishes a shared terminology. Clear definitions help in two ways. First, they clarify the rules’ applicability to specific resources (“what’s in and what’s out”). Second, they give stakeholders and policy professionals a common language so policy development can proceed efficiently.
In a VPP proceeding, “distributed energy resources” would certainly require definition, and Lorenzo Kristov offers an excellent starting point: “anything that’s an energy resource that’s connected at distribution level, not necessarily on-site at a customer’s premises behind the meter (BTM).” The latter point is important, as many people still assume that DER necessarily implies BTM.
VPP function would also be clarified in a Dictionary. On the podcast, Aikin described VPP function as “aggregating loads and generation on the distribution grid and applying them to the wholesale market.” In a recent article for UtilityDive, I proposed definitions for the three distinct types of VPPs I see; Aikin’s definition aligns with what I call a Level 3 VPP, in which DERs are aggregated into a “fleet” that operates as one resource in a wholesale market while staying coordinated with the local distribution utility.
Other terms, like “bottom-up planning” and the aforementioned “democratized power system,” could be clearly defined in a Dictionary supporting a VPP proceeding.
Design question library
The Design Question Library is a comprehensive resource containing relevant policy design questions pertaining to a given resource – in this case, VPPs – for the stakeholder group to select and prioritize, or else discard.
For the DERs that go into VPPs, visibility is a key issue; as Aikin argues, “every utility operator is going to say, ‘I need full visibility.’” From a policymaking perspective, the way to handle this is to frame it as a design question: What level of visibility do utilities and grid operators need for DERs? Then a level is discussed and decided, and policy is designed to achieve it.
One particular design question gets at the crux of large-scale VPP implementation for me: Where should DER value streams be aggregated? Paterson observes that:
“If a VPP is functioning to virtually re-aggregate the value streams of resources at different levels of the system, then that would certainly be far more effective and feasible if, in fact, you’ve got an appropriate way of monetizing the value at the different layers or tiers of the system.”
Arguably, aggregating DER value streams only makes sense where you can’t fully monetize the value streams of individual DERs. So if a state is working towards a system that fully monetizes individual DERs, then VPPs are only a temporary, “bridge” solution – and their compensation must be considered in that context.
Design playbook
If the Design Question Library offers a master list of questions, the Design Playbook provides tools for answering them. It contains both Design Principles for effective policymaking and a Fact Base of relevant resources so proceedings can build from research findings and lessons learned and avoid reinventing the wheel.
Here are some examples from the podcast where Design Principles could accelerate effective policymaking:
- Kristov points out a disconnect between physics and wholesale market regulation. Two potential Design Principles here: 1) Regulation should obey physics; 2) Resources should be subject only to appropriate charges.
- Kristov also notes that “if you don’t have good planning scenarios that look at high DER growth rates, you won’t see them reflected in transmission planning.” Potential Design Principle: Transmission planning must account for high DER growth rates and potential regulatory incentives for DER deployment.
- Finally, Kristov asks how much new demand can be met locally? Design Principle: Meet load locally first.
The NREL study Kristov mentions would go into the Fact Base and pose an important research question for the proceeding: How much of annual kilowatt-hour of load could potentially be served by DERs?
Final thoughts
You can see how many useful ideas from the podcast can be harnessed to inform thoughtful policy, and I’ve barely scratched the surface. Kudos to the speakers and to Elisa Wood for an excellent, enlightening conversation.
It’s important to keep in mind that takeaways from this podcast go towards the broader topic of DER policy, of which VPP policy is a subset. The overarching goal is a clean, resilient power system that fully leverages DERs, and in that context VPPs may have an important role to play over both the short and long term. Capturing ideas in a framework like this and refining them in a facilitated group process can reveal what VPPs’ role should be.
Again, this blog is the first in a series, so stay tuned for future installments. And if you have questions about VPPs, DER policy, or the tools we’re building at EPDI, please feel free to get in touch!
Get the Energy Changemakers podcast delivered to your mailbox by subscribing to the free Energy Changemakers Newsletter.
