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Energy Gang
Are VPPs really a viable solution for easing strain on the grid? Tesla say yes, and they have big plans
00:57:58
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- [00:00]
Colby Hastings
The need for additional capacity on the grid and to find creative solutions to deliver additional capacity on the grid quickly is just greater than it ever has been.
- [00:10]
Amy Myers Jaffe
How do we get people who are in the mindset rightly so, that we have to provide reliable service that we can do that by doing something that's a little bit different than what we did 10 years ago.
- [00:22]
Colby Hastings
We have over 100,000 PowerWalls on the island of Puerto Rico because that's 10% of all homes having a powerwall on site.
- [00:32]
Ed Crookes
People then are seeing the levels on their batteries running down thinking well hang on, if this carries on then I'm going to be left with less storage capacity that I will want to actually keep the power on in my home.
- [00:46]
Wood Mackenzie Announcer
Wood Mackenzie Solar and Energy Storage Summit is back in Denver on the 29th to 30th April 2026. It's co located with a brand new North American Power and Renewables forum featuring senior speakers from across the US power sector. Join over 450 senior leaders from US power developers, utilities and independent power producers who will be coming together to address the industry's biggest challenges from navigating life after tax credits to tackling the load growth boom. Discover how the energy mix is evolving and how the US will meet surging demand for power. Seats are limited, so Register now@woodmac.com
- [01:23]
Ed Crookes
this episode is brought to you by ACOR, the non partisan, non profit organisation uniquely operating at the intersection of energy affordability, reliability and clean energy deployment. ACOR is focused on strengthening the electric grid and driving clean energy investment that delivers for the American people. ACOR's membership includes industry leaders across the clean energy economy. Utility scale clean energy investment has been booming in the US. Nearly 80% of it was financed, developed, owned, equipped or contracted by ACOR members. Visit www.acor.org to learn more about ACOR's work and upcoming events like the ACOR finance forum on May 12th to the 13th in New York City. Hello and welcome to the Energy Gang, a discussion show from Wood mackenzie about the fast changing world of energy. I'm Ed Crookes and on the show we're going to be Talking again about VPP's virtual power plants. It is a pretty contentious topic. I think it's been proved in terms of people debate the real potential for the technology and people also debate pretty heatedly the reasons why it might have difficulty in realizing that potential. To get into all that, we have a great guest to talk about it who I will introduce in just a moment. Before I do though, it's Always a pleasure to welcome back Amy Myers Jaffe. Amy is the director of the Energy, Climate, justice and Sustainability Lab at New York University. Hi, Amy, how are you?
- [02:47]
Amy Myers Jaffe
I am great, Ed, Great to be here. And you know, my VPP is a topic of passion of mine for which I debate many people on X and so I told them I would have an expert guest on the podcast. So really looking forward to today's show.
- [03:02]
Ed Crookes
Yeah, that's, that's exactly right. We do indeed have a top expert. It's a great pleasure to welcome for the first time Colby Hastings, who is the senior Director for Residential energy at Tesla. Hello, Colby. Welcome to the show. Hi.
- [03:14]
Colby Hastings
Thank you so much for having me.
- [03:16]
Ed Crookes
So say, want to talk about VPPs, Tesla's role in that industry and some of the challenges and opportunities it faces. Before we do, though, as you probably know, the first time we have anyone new on the show, we always like to ask them a bit about their careers in energy, how they got started, how they got to the roles they now hold. So what's your story? What made you decide to pursue a career in energy?
- [03:39]
Colby Hastings
So I've been with Tesla since 2015. I started really right when we launched the energy division, when we launched the first powerwall and power pack products. And I knew that I wanted to make a transition and focus on something in renewable energy. Storage at the time was really the missing link in the transition to a grid run on 100% renewable energy. And at the time, particularly with lithium ion technology, you could see that storage was beginning to come down the cost curve and that some very interesting applications were about to open up for batteries. And so there were a lot of exciting developments going on in the technology, but also a lot of new business models that needed to form. I think we'll talk about it on the show. But storage is a pretty unique asset. It's fast, it's flexible, it's bi directional, it can be centralized, it can be distributed. And so I thought this was a fascinating business problem in addition to being at the cutting edge from a technology perspective. And at the time, Tesla was one of the only companies in the US that was making significant investments in battery storage. We just announced that we were going to be building the Gigafactory. So I came here and my first role was on the business development team. Just a couple of us at the time and we were really figuring out what are the economics for storage, what are the markets that are going to be viable for this, who is going to buy it, what, what are the commercial constructs that we need to unlock sales. And so I did a lot of that early growth work. I had the opportunity to work on some of our first big transactions, such as the Hornsdale Battery in Australia, one of our first big utility scale projects, and work on some of our first distributed energy markets like Hawaii. I had a number of different roles over the years. I went on to lead sales and operations for the megapack utility scale business for a while and and then took over the residential energy business about two and a half years ago. And so that is our powerwall home battery business as well as our solar products business and direct to consumer solar installation business and home charging. And extremely relevant for today's conversation, our virtual power plant and retail energy businesses.
- [05:50]
Ed Crookes
So I think this is probably one of those cases where it's worthwhile just spending a little bit of time defining our terms. I think we should talk a bit about what a VPP actually is. I know different people often have different definitions of what they mean by those letters. You may have heard we had Paul Bhargava of Weavegrid on the show recently, had a good line. He said it's like that old joke about the Holy Roman Empire, you know, which was neither holy nor Roman nor an empire. He says a VPP is neither virtual nor a power plant. And it might be something in that. But I'm interested in your definition, Colby. What do you mean when you talk about a vpp? How do you think of it?
- [06:32]
Colby Hastings
I think big picture of VPP in the broadest definition is any group of assets that can be controlled in a coordinated way to provide services to the electricity grid. So any group of distributed assets can be a vpp. It's not unlike a traditional power plant. It just happens to be in many different places on the grid rather than in one centralized place. I think important to note that VPP is a very broad term like renewable generation. It means a lot of different things, a lot of different asset classes. There are a number of different assets that could be called a VPP and they have very different performance characteristics and we should talk about them differently. A VPP could be traditional behavioral demand response. You text people to turn off loads in their home. It could be more intelligent load flexibility. So things like managed and price responsive charging or smart thermostat control, all of that can also be a vpp. Or all the way on the other end of the spectrum, it can be behind the meter batteries which are dispatchable and can export. It's not just dropping load. And so that represents an entirely different category of assets unto itself. So VPPs can, can be a huge number of different things.
- [07:55]
Amy Myers Jaffe
So back in the day I used to think of VPP as being what you're describing, your final definition, which is, I've got a bunch of batteries and I'm going to aggregate them and connect them with software and they can serve as an asset to the grid. And so, you know, originally on, I guess I had that in my head that that meant I have batteries and they have one function in the customer home or customer business or whatever, then they have an additional function. So in other words, maybe the sizing of the battery itself includes sort of a contracted portion that can be deployed to the grid and the customer agrees that that portion will always be available. I gather that that's no longer the way contracts are being done, or is it still the way contracts are being done? Or was my original understanding not clear enough? Just like your comment on that.
- [08:53]
Colby Hastings
It's rare to see that VPPs are actually the single driving force behind somebody putting solar and storage at their home. And the VPP revenue streams typically don't cover the entire cost of putting that asset there. And so VPP has been kind of the icing on the cake, if you will, of the value stack for somebody getting solar and storage. And so primarily people are generally using their batteries to either save money on their bills and or provide resiliency and reliability. In the case of a grid outage, we think about it not necessarily like we're deploying massive amounts of extra capacity at somebody's home, but that we're co optimizing between those two use cases. And batteries will typically have kind of a daily dispatch profile that they're doing. But then when these VPP events or price signals kind of come in on top of that daily dispatch, the algorithm can decide, which one of those things am I going to do today?
- [09:56]
Ed Crookes
And I think it's interesting to hear you using then quite a broad, comprehensive definition of VPPs. I know some people, I think perhaps would say that only assets that are actually dispatchable, in other words, can be controlled by the grid operator, can properly be counted as a vpp. But you're saying that even something as sort of soft, if you like, as just people getting a text saying, hey, can you turn the air conditioning down, please? That could still count under that broad umbrella heading of this is all a vpp.
- [10:29]
Colby Hastings
I think under the broad umbrella heading, yes. But I do think it's really important that we differentiate between the different assets that can be in a VPP and even something like smart thermostat control. That's, that's a very different. Despite being very intelligent and somewhat forecastable, it's still a very different type of response than what you're going to get with storage. And storage is totally dispatchable. You can operate storage in a VPP program with little to no impact to the end customer or owner. It's not demand response. There's no change in the customer's demand. It's also an exporting asset, which makes it again, really different from other types of assets that might collectively get lumped into a vpp. And it's predictable and reliable and fast in its response time. So it is in many senses kind of a category of its own when you think about demand sighted virtual power plants.
- [11:26]
Ed Crookes
Right. That's really interesting. And I want to get into that whole question of what the customer sees and the relationship between the customer and the grid before we do though. I think the other thing, it's just important just to go around a little bit with VPPs is what, why are they such a hot topic at the moment? People are talking about them all the time. We're talking about them all the time. It feels like they are something that the industry is very both excited about, but also often nervous of in a lot of cases, as I say, it's a very controversial subject. What is driving all that interest, do you think?
- [12:01]
Colby Hastings
I think it comes down to the need for additional capacity on the grid and to find creative solutions to deliver additional capacity on the grid quickly. It's just greater than it ever has been. And that moment is coming at the same time where we have now significant scale in behind the meter resources. And we've now seen and demonstrated the performance of these VPPs being quite robust and proven in their cost effectiveness in addressing these challenges. Just to unpack that a little bit, I'm not the first guest that will come on the podcast and talk about how electricity demand is rising significantly. So we don't need to spend too much time on that. But electricity demand is growing faster than it has in decades and it's happening at the same time. While weather is getting more extreme, our infrastructure is aging, the grid is getting increasingly less reliable, and we're having a hard time as a country building out enough large scale generation, transmission, distribution to solve this problem fast enough and affordably enough. And, and I think affordability has become the single biggest energy issue in the country right now. And so we have to figure out how to use the infrastructure that we have more efficiently to avoid massive spending on capital Infrastructure. And it's a pretty, pretty simple and timeless business concept. If you have an asset and you utilize it more efficiently, its cost on a per use basis goes down. And this is exactly the way we should think about our grid. And VPPs have a significant role to play here if we can tap into the power of what is already out there.
- [13:42]
Amy Myers Jaffe
Just to weigh in on that, because I had a group of students make a giant map for me about where is the highest concentration of VPPs. And then I had them make a comparison map of where we having the most customer outages in the United States. And it's not a one for one equivalency state by state, but there's a giant amount of VPPs in Florida, that's the highest volume state and of course they have a giant amount of outages. And same with Texas would probably, you know, also ranked very, very high on this map. And then in California a little bit Arizona. So that's, you know, kind of interesting. But then you have this outlier which is Vermont, which made a commitment to using VPP and batteries to meet their load growth instead of putting in a centralized asset. So a little bit of a contrast there, but sort of setting that as sort of a context for your comment on that question.
- [14:41]
Colby Hastings
It's a great point, Amy. And I think you're seeing real scale get built in VPPs in places where there was a significant driver for people to put storage at their homes before there was ever a big VPP program. And so in California where the bill savings use case is very strong with NBT and the transition away from net energy metering and you have these wildfire outages in many parts of the state there's been a strong driver for storage to get deployed. And then once you have this massive fleet of residential batteries out there, it really makes sense to use them in a VPP in a way that can support the grid because you have an asset that's at meaningful scale and can contribute. I think Texas was pretty similar when we established the ADR program and the VPP programs that we run in Texas, we'd already built up a reasonable sized fleet there. Vermont is a bit of the opposite. Where the battery deployments in Vermont and how much deployment they've gotten on a per capita basis is because that utility took a creative approach right from the very beginning. And they said we have all of these system peak charges that we're paying and we think that actually subsidizing to put batteries at customers homes and using them to shave system peak is going to be more cost effective for us than paying these system peak charges. And so the battery deployments in Vermont, kind of right from the beginning were very much driven by this utility VPP program, as opposed to some other markets which had other factors that drove the storage growth. And then the VPP program really comes in at the moment where there's enough scale that it can be meaningful.
- [16:22]
Ed Crookes
That's really interesting. So that answers, in part, the question that I was about to put to Amy, which was, how do you interpret that apparent correlation, then, between outages and adoption of VPPs? Want me to read that data? Clearly, is to say that's not a great thing for VPP advocacy, because it seems to show that you can still have a lot of outages, even where VPPs are more developed.
- [16:47]
Amy Myers Jaffe
But, no, I think, just to be clear on the data, the data is showing you, like since 2017 or something like that, where all the outages are. And then you can see the VPP deployment really took off in the last two years. So the data, the outage data is only to 2023. So the jury's still out on how much the VPP's remedied it, but I would say certainly in the limited number of flex alerts they've had in California and the fact that we're still going strong in Texas, and there hasn't really been a major blackout since URI, kind of proves the case. And Vermont, same thing. They say they've eliminated the duck curve, which I keep saying on the show. I think the interesting question is, you know, having looked at the outage data, there's a lot of outages in pjm and, And PJM is a place where they have not embraced this paradigm and where they're fighting about how to allocate costs and how to loosen the interconnection queue and all kinds of things. And there doesn't seem to be a hefty debate. Colby, correct me if I'm wrong about how to get VPPs in there. I don't really see that. So be interesting because Tesla's active all around the country and you're active globally. Like, is it a regulatory problem? Is it attitudinal problem? Why do we see a place like. Well, you're saying, like, in Texas and Florida, people embraced it because they wanted to have storage anyway. They wanted to have some kind of backup. Anything else that you can shed light into why in particular places that isn't happening?
- [18:27]
Colby Hastings
It's a big question, you know, I think, and it's the right question, which is why aren't VPPs happening everywhere if they are a powerful tool to address some of the challenges that we're having today?
- [18:39]
Amy Myers Jaffe
Love that reframing.
- [18:41]
Colby Hastings
Firstly, over 60% of our Powerwall fleet does actually have access to a VPP program of some kind. And that number has been growing over time. So it's much higher than it would have been a couple of years ago. But it's definitely still not universal. We have a lot of work left to do. And even where we do have VPP programs, sometimes they're not utilizing the assets in the most sophisticated way that they could. And so there's a lot of opportunity in places where we don't have VPP access today. And to improve the VPPs that we do have. I think to answer the question, it's helpful to talk about the two main market pathways to creating a vpp. And you can either have a utility created program or something that's more wholesale market integrated. And so utility created program. I think we talked about the Green Mountain Power Vermont example. That's a pretty classic example of a way that one of these programs would get created. The utility assesses there's some value that they think they could access more cost effectively with a VPP program. They put together a design, they get it approved by their regulator, you're off and running. There's a good argument for utilities being the key driver of VPP programs. They have access to all of the different value streams that you could think about with the vpp. So they're the ones that are going to have access to value. What is local resiliency and reliability worth, what is local distribution cost avoidance worth, as well as more of these bulk system services. But when VPPs are reliant on utility programs, you're relying on how much does that utility and their regulator want a VPP in their region. And then when you do create one, you're limited just to that utility jurisdiction. You can't really scale beyond that utility jurisdiction. So it's much more scalable when we can have VPPs that simply function within regular markets like any other type of asset.
- [20:44]
Ed Crookes
Yeah, so that's really interesting. Just as a footnote, I was just looking back at the numbers. I mean, so you're talking about the barriers, as you say. Amy, Actually, sorry, Colby, it was. You said this. Why doesn't it happen everywhere? There has been pretty rapid growth. Right. It's an industry we follow quite closely. At Wood MacKenzie, I think we tracked something like 1500 or so individual deployments in 2024 by 2025. That was up to nearly 2000. I think the total capacity covered by some kind of VPP again by the middle of last year was about 37.5 gigawatts. So it's a fair amount. I mean, what is that in a. What's the total generation capacity of the United States? About 1400 gigawatts, I think. So two and a half percent or thereabouts. I don't know. Is that a lot or little? I mean, you know, like a lot of these things. It may not sound like a lot, but at the margin it can be very significant. You know, certain types of peak that
- [21:43]
Amy Myers Jaffe
could be like extremely significant.
- [21:45]
Ed Crookes
Exactly. Can make all the difference between the lights staying on and the lights going out. But to your point then, Colby, about market design and market structure, what are you saying? That it's kind of the competitive market model like say would have in Texas or pjm, few other places where you have different generators and suppliers bidding into a market that is, what more conducive to deployment of VPPs than the kind of structure you have, as you say, which is sort of utility based. We'd have like a vertically integrated utility which would have generation and grid assets and then be serving to customers directly as well.
- [22:28]
Colby Hastings
Yeah, I think there's not really an ideal perfect market design for this. It comes down to whatever is going to work and be relevant for that market in question in terms of the value that VPPs can generate there and in terms of the political will to get something done. And so certainly when we have deregulated open access wholesale markets, it's easier for us to enter and access value quickly and build scale. And I think in these markets we do tend to get more sophisticated utilization of our VPP assets. And so in Australia we're doing primary frequency response, in Texas we're doing reserve services with these assets. There's also a lot of benefits in these markets where we can serve as the retailer and have the flexibility to design our own incentives and structures that will work for different types of customers and not be locked into one program structure. But as I mentioned earlier, under the vertically integrated model, it's often easier to unlock value tied to these distribution level, cost avoidance value streams and local resiliency. I mean distribution costs are the biggest component of rates right now. It's 30 to 40% and rising as well going on. Only local resources can really defer those local costs and I think it's easier to surface those sometimes under these vertically integrated VPPs. And last point on this is they don't necessarily have to be an either or proposition. We can have participation in wholesale markets in parallel to agreements with distribution utilities. And batteries are so flexible, we can stack these different types of value streams. And so international markets, I think are making some strides towards this. In the uk, for example, we have a flexibility marketplace where distribution utilities actually publish their needs and auctions are run to secure local capacity. And Germany's doing something not so dissimilar with their distribution system operators now having dynamic time of use pricing. So there are examples where you can have kind of wholesale market access of VPPs alongside distribution value and working directly with distribution utilities. But in the US it's a little bit more bifurcated than that.
- [24:48]
Amy Myers Jaffe
And as part of the process here, speaking as someone who spent four years, the last four years, just learning, learning, learning, learning and still learning the different electricity rules in different parts of the country as part of this problem. Like, how do I explain it to customers? I mean, are, you know, to get, I mean, I gather to get a really good VPP going, you know, you have to have a bunch of customers that are going to be separate entities that agree to work and be connected to this software and be able to be aggregated. And, you know, how does, how is that working out? Like, are we aggregating people in groupings? Like you aggregate only residential users together and only corporate industrial users together. Are we having a new plan for BPP aggregation for data centers? I mean, does your, your category matter or not going forward?
- [25:44]
Ed Crookes
Yeah, I think that's a super important question and I really want to get into all those questions around sort of the relationships with customers and how those play out. Just before we get into that, I wonder if you could put a pin in that, as they say. And actually it might be a good way into that discussion because I wanted you, Colby, if you could just to talk a little bit about exactly how Tesla's business works. You know what happens? You are, you're selling these battery systems to people. What is your relationship to the customer and how does that turn into a vpp?
- [26:16]
Colby Hastings
Yeah, so we have lots of different routes to market. We have our own direct installation channel. We have a huge network of certified installers in the US and globally. And so that's the way that most people get access to a powerwall. Then it's actually an interesting and maybe changing part of the landscape right now in the US at least, where a lot of assets are third party owned and financed. And so you have an asset owner that's not the customer and they're in a lease arrangement with the customer. And what we're seeing more in those instances is that these assets are automatically enrolled into VPP programs. If it's a customer owned asset, then the customer really has those rights and those choices around do I want to use my asset in a VPP program or not? And I think we, we think that customer choice is very important and so we always allow people to opt in and then opt out. And people can opt out of even specific VPP events if they don't want to participate on that given day in the program.
- [27:20]
Ed Crookes
So in terms of your business model at Tesla, the revenue streams that you're getting, so you're selling the hardware, physical equipment, then you're also either signing people up to a system that could be a vpp, which is kind of like your vpp, or, or as you say, the assets are going to third party ownership and they're going to be part of somebody else's vpp. Is that right?
- [27:43]
Colby Hastings
Yes. And we're very flexible and we have both our own VPP programs that we run on behalf of customers and we support a lot of our partners in their programs and supporting them in dispatching these assets inside their programs as well. So we do use both models.
- [27:59]
Amy Myers Jaffe
And do you make money, do you make money from bidding into ancillary services or bidding into the energy markets? And that's the income stream. Is the income stream that you're taking a commission on what the customer is getting paid or is it all of the above?
- [28:16]
Colby Hastings
We have a very clear perspective on this at Tesla and I do think it is different than what many other people are doing. And from our perspective we are trying to lower the cost and improve the value for a homeowner to actually have solar and storage at their house. And so we don't see VPPs as Tesla as a major revenue and profit generating center. For us, we are focused on taking as much value as we can and passing it back to the customer to lower the total cost of ownership and improve the ease of access to this technology for as many people as we can.
- [28:53]
Ed Crookes
Right, got it. So to go back to Amy's question that about relationships with customers and how those work, it is something I hear quite a bit as a criticism of VPPs that basically customers can't be relied on. These assets are not always available when grid operators need them and therefore their value to the grid is limited. I suppose going back to that point about VPP is not a real power plant. Classic example might be that some kind of crisis, winter, storm, whatever the grid is under strain, would benefit from being able to control customers storage assets, but actually customers need those assets as well at the same time. And so you get those kind of tensions emerge. How does it work for you and maybe also how does it work for the industry? I don't know if Tesla is sort of typical of the way the industry works or different, but when you face those kind of tensions, how do you manage them?
- [29:50]
Colby Hastings
I think historically some of these demand response programs were certainly not as reliable and consistent and forecastable as what we have today with with battery storage and the programs that we have today. We have very precise forecast accuracy with these programs. Our California program, which we had almost a 500 megawatt test event with just power alone last summer, this is operating at real scale. We have forecast accuracy of 0.5%. And so we're able to look at on all the different sites in the fleet what is happening with load, what, what is weather, what is solar going to be, what are the site constraints that we have. And then we can consistently update that forecast of what's going to be available for the VPP event and give visibility to the grid operators so they know exactly what they're going to get, just as you would with any large scale power plant.
- [30:42]
Amy Myers Jaffe
And just to be specific, because some of the things we hear from people is this whole thing, well, it might be reliable but we don't have visibility. But what you're saying is really not the case. The system operator knows exactly what's there, you're telling them what's available and you're able to forecast on a timing basis what's available at different times.
- [31:04]
Colby Hastings
Yes, exactly. We can forecast with a high degree of accuracy at this point what we're going to get out of programs. And to your question on opt outs, I think that you raised earlier, we do allow customers to opt out of these events, but we see that on a fleet basis. Again using California as an example, the per event opt out rates are one, maybe two and a half percent. And so that's not enough to really impact the overall fleet performance. And that's something that we can forecast and understand once we really have these resources at scale. And I think key to that has been good customer engagement and transparency. So the customers understand what's going on, understand what their assets are doing and can link that to what they're getting paid and compensated for for participating in these VPP events. And all of that allows, I think, a really high degree of participation in these events.
- [31:57]
Ed Crookes
Because to your point then about storage being different from demand response type VPP assets. Do you try and make these VPP operations invisible to the customer as much as you can and is that the secret to success, do you think?
- [32:16]
Colby Hastings
I think when you're talking about experience in the home, like is the customer going to notice that on the hottest day of the year they had to turn down the air conditioning? No. From that perspective, there's no customer impact to the home environment. The battery can operate autonomously, just like it is doing every single day anyway. But I don't think that we want to make these programs invisible to customers. In fact, I think transparency and education and helping customers understand what is going on with their battery and again, how that is linked to what they're getting compensated is really important for good engagement. It's really important to keep people enrolled in these programs and to keep people enrolled in these events. So we have an app experience that's been built around these VPP events that tells people exactly what's going on. And I think that that has been a very important tool for us to really keep people engaged in these programs. So we don't want to make them entirely invisible.
- [33:17]
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- [33:39]
Colby Hastings
even a little fun.
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- [33:48]
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- [34:43]
Ed Crookes
presumably, one of the reasons that people invest in storage assets is because they're worried about grid reliability and they want to know that if the grid fails, they can keep the lights on, keep the freezer running and so on. So how do you manage that tension? Because that also feels like another potentially significant issue for people that you can imagine. There's some event, maybe there's a storm and the grid's kind of under strain, but it's holding up. And so you say, well, we call on these VPP resources and we can discharge these batteries to the grid and keep the grid on. But people then are seeing the levels on their batteries running down, thinking, well, hang on, if this carries on and the grid then does finally break, then I'm going to be left with less storage capacity, that I will want to actually keep the power on in my home. And so there's a. You see what I'm saying? There is a tension there. Right? And how do you manage that tension?
- [35:38]
Colby Hastings
I think one of the important ways that we do manage that tension is we allow people to customize and set the backup reserve that they have for their product. And so if you want to say I'm comfortable participating in a VPP, but you can only touch 30% of my battery because I want 70% of it to sit there all the time ready for me if I have an outage, you can do that and you can customize that level of participation. And then we also do allow that opt out function on a per event basis. So if someone is particularly nervous about having an outage on a given day, they can opt out of an event. We have Stormwatch that is automatically sort of solving for this in the background as well. And so we can still have a lot of reliability and performance out of these VPP events while preserving that customer backup experience, which, as you said, Ed, is really the primary reason that a lot of people are buying a battery in the first place and they don't want to impact that.
- [36:35]
Amy Myers Jaffe
So that's kind of an interesting thing. I mean, the app thing really brings me to two points. I'm going to break them up into two parts. So point one is, am I getting paid enough or do I care whether I'm getting paid enough? Would I know if I'm getting paid enough? And then point two, which is different, which is like again, going back around, back around to put my pin back in it. Why is that not working in pjm?
- [37:04]
Colby Hastings
So maybe take the first part of the question, which is, what am I getting paid and am I Getting paid enough. I think this is where again, establishing that link between what is actually going on with the asset and payment is important. And it's important from the perspective of us as an oem, an aggregator, designing that app experience. And it's important from a program design perspective. We really don't want subsidies or incentives here. It's important that programs have a pay for performance aspect and that the dispatch of the battery can be very much understood by the customer and linked in their mind related to that pay for performance. And that is what keeps people engaged, that is what keeps people understanding. And so programs that don't have a pay for performance element designed, it can be confusing for customers when two years later their battery is doing something on Tuesday afternoon and they don't remember that they even signed up for this VPP program. So it's really important from that customer experience and then that program design perspective that they can understand what's going on. Not necessarily that the specific dollar amount is the critical component, although we do see elasticity of enrollment and sales related to the value that is being passed to the customer with these programs, but just that transparency around what is happening and understanding how that is linked to financial compensation. And then you asked about pjm, so maybe we'll go back there for a minute. So we talked about earlier the two main types of VPP programs or market access that you can have vertically integrated and then wholesale market. And on the wholesale market side, most markets do technically have a pathway for aggregations of behind the meter resources to participate under some kind of a demand response framework. I mean, this was the whole FERC order 2222. And the mandate that this imposed was we need to figure out how to have pathways for these resources to participate. The problem is that for practical purposes, many of these pathways are not actually viable because they impose certain restrictions or requirements on these resources. And we haven't always had enough focus on making sure that the pathways that we have are actually usable. And so some of the key reasons why you wouldn't be able to use the demand response frameworks that exist, one, most of them are just that, most of them are demand response frameworks and they were designed for things that can reduce load at the home and not export. And so in most of these structures you don't actually get any compensation for exports back to the grid. And when you have an 11 kilowatt inverter sitting at someone's home where the average load is maybe 1 to 2 kilowatts, you can pretty easily see that 80% of the value for behind the meter storage is going to be in your exports back to the grid. And so Kaiso, good example of this, we have a framework, it's called PDR or proxy demand response, but there's no credit for any exports back to the grid. And so it's really not very valuable for batteries to participate in that framework. That's probably one of the biggest issues. The other is that most residential storage is installed with solar. And a lot of markets block resources where the site is on a net energy metering structure, which almost all solar is. A lot of markets block those homes and the assets at those homes from participating in these markets. And so pgm, for example, which we well know is having an ongoing capacity crisis, we can't bid into the capacity auctions. I would love to be able to bid into the capacity auction with our resources in pjm, but to be considered accredited capacity in that market, you need to be able to participate in the energy market. And you can't participate in the energy market if that resource is on a net energy metering tariff.
- [41:14]
Ed Crookes
Hang on, why not? That seems crazy. Why would they not allow that?
- [41:18]
Colby Hastings
Yeah, so it comes down to the concern being one of double compensation, which is an important concern to address. And so the thinking is that if that asset is already getting compensated on some kind of net energy metering scheme, you don't want to compensate that asset again in participating in the energy market. But there's a lot of ways to solve that problem that would still allow us to bid and to net out what those assets are already receiving for net energy metering. And I think regardless of that underlying rate structure, we need to have room for market signals that are separate from that to drive specific time bound dispatch. Or you'll just have these assets dump energy onto the grid in the middle of the day and not do that intelligently at times when the grid actually needs it.
- [42:05]
Ed Crookes
Right. So is that an argument for getting rid of net metering more comprehensively? Obviously some states have been moving away from it, California most notably. Would you be advocating for states in general abandoning net metering?
- [42:21]
Colby Hastings
Well, I think whether I advocate for it or not, you're seeing that you're seeing that states are transitioning away from net energy metering to new and different rate structures. But I don't think that that is necessarily solving this fundamental problem. And we need to figure out how to better separate what the rate is at the home and whatever compensation you're getting for exports on a normal daily basis and then what you would get for market participation in response to specific signals alongside of that rate. And so I think rate reform and then VPP market reform can proceed fairly independently. And it's just a matter of doing the math. Right. To make sure that we're not double compensating these resources and setting up the markets in the right way and setting up the baselines in the right way to make sure that you're measuring what is truly incremental performance of these assets.
- [43:11]
Amy Myers Jaffe
Yeah, I mean, I mean again, you could not net meter on days when the asset is called upon for capacity. That seems like really pretty simple to do.
- [43:24]
Colby Hastings
No, that's right. You could not net meter on that day. You could back out whatever net metering value is from the wholesale market value that you get for export and just do the subtraction. You could say that you get $0 for any additional energy market participation. But I'm going to call that resource anytime the energy price spikes above X dollars a megawatt hour, and then I'm still going to get the capacity credit because I'm dispatching at the right time to do that. So tons of different ways to do the math. I think it's just important that we find a way to do it. And I think in PJM they cleared their last capacity auction at the cap. They still didn't procure enough resources. I think they were short by about 7 gigawatts. We've seen tremendous political pressure on connecting large scale generation to the grid there more quickly, which is all great and
- [44:20]
Amy Myers Jaffe
important, but not half. But not happening. But not, let's say you can say it, but doesn't make it magically happen.
- [44:27]
Colby Hastings
Right. We haven't seen as much momentum around pushing to reform these markets so that behind the meter resources can also have access to this value. And I think that's a really important piece of the puzzle.
- [44:38]
Amy Myers Jaffe
Well, and the thing that's really crazy about that is then you have this, you know, bring your own power thing where we're saying that a data cent should put a behind the meter asset and we'll count that. But if any regular person wanted to reduce their bill by doing that, we're not going to allow that. We're just going to, you know, rake you over the coals, quote, unquote, you know, with your bill. Because we're not going to let you, a regular average American, benefit from the technology. We're only going to let the wealthy technology companies benefit from the technology. I mean, if you think about it in that way, I mean, I'm saying it in this very, you know, inflammatory way. But in effect, that's what you're saying, which is we can't change the rules for homeowners that have a battery, but we could change the rules for a data center that has a battery.
- [45:27]
Colby Hastings
I think it all just comes back to this question of affordability. And I think that is the key political issue in energy right now and the thing that we have to solve. And so the question I think that's relevant here is if you have capacity that needs to be provided, would you rather build a new gas plant or would you rather pay a little bit of money to some resources that already exist out there on the grid to behave slightly differently? And which one of those is going to be more affordable and a more cost effective solution to the problem? And I think there's a lot of good arguments that say it's probably the latter that's going to end up being more affordable for the grid and faster. And faster. That's right. We haven't even talked about speed to power from a VPP perspective, but because of the interconnection queues that we have and the procurement times for new gas turbines, you're talking years to get access to that kind of scaled capacity. And we can build new distributed energy resources very quickly. And we have a lot out there that are sitting there untapped today, effectively wasted megawatts on the grid. But the California VPP program that we talked about earlier, that is at 500 megawatt level scale, most of that was enrolled in only the last two years. And so VPPs can be pretty unmatched from a speed to power perspective.
- [46:46]
Ed Crookes
And what you're saying is then you mean you can create more space on the grid, which could be used for a new data center, a new factory, whatever it might be, adding new loads in other areas made possible by introducing the vpp.
- [47:02]
Colby Hastings
That's right.
- [47:02]
Ed Crookes
Okay, so we've talked about all the advantages of VPPs, and we've talked about how they have been growing rapidly recently. And we go to this 37 gigawatts number or thereabouts. What does the industry now need to accelerate deployment? What's it all about? Is it about tackling some of these regulatory issues that you've been talking about, Colby? Is it about getting more customers to buy in? Is it about the economics of it, the cost of the batteries, how much that costs, the benefits that consumers get out of them?
- [47:37]
Amy Myers Jaffe
Or.
- [47:37]
Ed Crookes
I mean, I'm sure all of the above would be the answer. But what are going to have to be the Priorities. If we're really going to see VPPs develop to their full potential.
- [47:49]
Colby Hastings
I think the number one priority is what we've been talking about, which is just enabling access and enabling a true viable, practical pathway for these resources, which again are largely solar and storage and potentially EV resources at customers homes. Actually making sure that there's a viable market pathway for these resources to participate and get fair compensation for that value. I think that will be the key. The key unlock.
- [48:17]
Ed Crookes
Right. And so enabling access, you mean through regulation, having the right frameworks in place to make it possible for customers to use these systems?
- [48:27]
Colby Hastings
Yes, through the right market design and the right and. Or the right vertically integrated utility program structures that can support this. I think there's plenty of opportunity to also improve and speed up the deployment of these assets. Particularly if we're thinking about the U.S. you know, solar and storage is much more expensive to install here than it is in many other parts of the world. And it takes a lot longer to get through the processes that we put in place and so permit reform, interconnection reform, all of these things could significantly reduce the cost of deployment. And that along with actually having a pathway to access vpp. Deploying these assets more quickly would also further kind of the flywheel of scale that we're building here.
- [49:15]
Ed Crookes
Yeah, it's amazing those numbers on just how expensive it is to install solar in in the US even significantly more expensive I think than in Europe, which generally for these kind of things comes out as the highest cost location for a lot of types of investment. Even Europe is lower cost. The United States, as you say, that definitely does look like something that needs fixing.
- [49:38]
Colby Hastings
That's right. Not to mention Australia, which I think is often held up as the example of just how cost effective it can be to install these things at people's homes if you really have a streamlined permitting and interconnection process and a focus on that.
- [49:53]
Ed Crookes
Right, and you mentioned something else I wanted to touch on before we go, which is vehicles and using EVs then as assets. Where are you on that? Are you yet at the point where people can use their EVs as storage as part of a VPP?
- [50:09]
Colby Hastings
We actually just announced that we are going to be opening up Vehicle to Grid for our Cybertruck customers. Cybertruck is our first bidirectional capable vehicle. We have thousands of customers out there already who are providing backup to their homes with their trucks alongside our power share infrastructure, which is what we call our Vehicle to Home and now Vehicle to Grid product platform. So we have Thousands of customers that are already out there doing vehicle to home and we're going to be extending that same platform and enabling those customers to offer vehicle to grid services. So we'll be starting in Texas and following that with California and be participating in both of the those states this summer in virtual power plant programs.
- [50:51]
Ed Crookes
One of the things I hear people say about those kind of programs is, oh, people aren't going to want that because you don't want to drain your vehicle because the grid needs it and then find you can't drive anywhere. So it's one of the things you're going to be doing with those programs, kind of learning about what consumers will and won't be prepared to do in terms of vehicle to grid connections.
- [51:12]
Colby Hastings
So I think we're definitely going to be learning a lot. I think the vehicles actually have really significant sized batteries. So Cybertruck, for example, is about 100 kilowatt hour battery. So when you think about the types of events that we might participate in, we're not going to be draining somebody's entire battery. Participating in a VPP event that's designed to serve kind of a two hour evening peak, there's actually really good alignment between when people are home and plugged in and when the grid is most likely to need to call on something like this, which is in that evening peak window when people get home from work. And that's usually not when people are getting ready to go out and drive on a long road trip. So I think we do think that there is very real significant capacity that we can tap here without impacting customer experience significantly. But I think even much more so than with stationary batteries, it's very important that we protect for that customer experience when it comes to the vehicle. Because this is somebody's car, this is what they need to rely on to get around. And so making sure that we have really good education, really good in app experience and really good controls around the programs that these vehicles are actually participating in is going to be critical.
- [52:33]
Ed Crookes
Right? Yeah. And so the vehicle, for instance, kind of discharging to the grid at kind of 8, 9, 10pm and then can charge up fully overnight after that, so it's fully charged in the morning, for instance. That would be a typical model.
- [52:47]
Colby Hastings
Exactly. I think that will be a pretty typical dispatch profile for something like this. And there's significant capacity in vehicles that we can tap for this.
- [52:57]
Amy Myers Jaffe
So Kobi, let me ask you some question that I'm sure like people like run through their mind. Just the average listener to this podcast, suppose I'm doing that, I suppose. I have a cybertruck. I'm doing this program, super happy with it. And now there's a Flex Alert event. I don't have electricity and we have a family emergency. I need to use the car to go to the hospital or address some other kind of issue which could happen in an emergency situation. What happens? I can still unplug my car. Do I get a penalty? Like, how would that work in a situation like that? Because I think there's not. There's a lot of disinformation about what would actually happen in that actual situation.
- [53:45]
Colby Hastings
Yeah. I think this is why it's really important that we still allow for customer control and for customers to opt out. And especially important when it comes to these vehicle programs. And we'll always want to give people the tools to say, I can't participate today. I actually need my car to do whatever it is I need to do. And so I'm going to opt out of the program today. And I think once we have assets operating on a fleet basis, just as we've seen with powerwall, we should be able to forecast with a high degree of accuracy what kind of capacity we're going to get so that we can still provide reliable VPP services while balancing for customer control and the primary use case for this, which is their car.
- [54:24]
Ed Crookes
Right. So I just wanted to raise the subject, very fresh in my mind because of Bad Bunny's super bowl halftime show is the question of Puerto Rico and distributed energy there. And I guess the role of VPPs in strengthening the grid, which has had all kinds of problems down the years and as Bad Bunny was alluding to in his show, still has very significant problems. You're operating there.
- [54:51]
Wood Mackenzie Announcer
Right.
- [54:51]
Ed Crookes
What are you doing in Puerto Rico?
- [54:53]
Colby Hastings
Absolutely. I'm really glad that you asked about that, Ed. And it wouldn't be a complete podcast about VPPs without talking about Puerto Rico. And so Puerto Rico is facing a critical generation shortfall. And last summer they were going to have to have tons of blackouts on the grid. But we have over 100,000 Powerwalls on the island of Puerto Rico. And just to put that into context, that's 10% of all homes having a Powerwall on site, and a lot of them are enrolled in the VPP program there. And we were dispatched many, many times last summer as actually the marginal resource on the grid. And that's the difference between the grid having reserves and having negative reserves. That's the difference between blackouts and not having blackouts. And so the VPP has been a critical tool that the island has been relying on to keep the grid running more reliably than it would otherwise be.
- [55:54]
Ed Crookes
Right, that's really interesting because again going to that the topic of controversy, I know there's been a lot of disagreement over exactly what Puerto Rico needs in terms of investment in energy infrastructure. And Trump administration has put a big focus on rebuilding grid infrastructure or building out more grid infrastructure and more centralized generation. But your suggesting what the VPP is an alternative to that is a complement to that, is going to achieve better results if that develops as well.
- [56:24]
Colby Hastings
Yeah, I think, I think what we've been proving there is that VPPs can be relied on as critical grid infrastructure and that can be done on a cost effective basis. And so I think it is a very important tool in the toolkit for the island to continue to move towards a more resilient grid.
- [56:42]
Ed Crookes
Oh, right. That is very cool. That makes a lot of sense. Thanks. And Amy, I guess that goes exactly directly to your point about. It is exactly those regions and areas where people suffer more from outages that they're encouraged to invest in that infrastructure, in those storage assets which then enable the development of VPPs. There is definitely a correlation there.
- [57:07]
Amy Myers Jaffe
I mean that's what I'm seeing. I'm seeing that and talking to people on the ground, I'm seeing that and looking at places that have high outage rates and where VPP deployment has increased in the last year or two. And I just think it's just logical to think that it might take me five years to build a new power station somewhere that's on a good trajectory. But I could put a VPP in. I mean if I have access to the batteries especially, you know, I can put something in in a matter of weeks. Right. And not in a matter of years. I don't know. I mean it's still a mystery to me. I mean I, I'm glad that Colby came on and explained some of the sort of regulatory barriers. I think this question about net metering and double payment sounds like something that be super easy to fix and people are just saying hey, that's the problem. And so that's it too complicated. But you know, it's not too complicated. That's what I hear when I listen to people and I talk to utilities and I hear them explain to me why it's too complicated, you know. No, we have to cut up service to low income Americans is too complicated. No, we can't use a VPP to solve a problem in a particular distribution problem. Congestion problem? No, no, no. I always then go and ask people like a Colby or somebody who's in and, you know, knows more, and there's always some answer. I could have said that I didn't know. And that's really been my journey. And I feel like the more we can explain when is this asset a limitation and when isn't it a limitation and when is it working and when is it not working and what are people really willing to do and what are they not willing to do? Sometimes the sort of customer owned is not viable because the original installation can be expensive, but the lease paradigm, you know, can work for a lot of people. So. And we have some models where the utility itself owns the asset, owns the batteries in people's homes, or owns the batteries that are connected with a business or a large load. So there are a lot of business models. And the question is, how do we get people who are in the mindset, rightly so, that we have to provide reliable service, that we can do that by doing something that's a little bit different than what we did 10 years ago?
- [59:38]
Ed Crookes
Absolutely. Well, I don't think we've entirely solved all the questions over VPPs, entirely settled the debate, but it has been fantastic conversation, it's been great talking to you and unfortunately, we do have to leave it there. I know, Colby, we've got to let you go, but many, many thanks for coming on the show. Colby, it's been great talking to you.
- [59:58]
Colby Hastings
I'm so happy you guys asked me to come on. Thank you so much. I really appreciate it.
- [60:01]
Ed Crookes
Many thanks, Amy. Look forward to talking to you again soon.
- [60:04]
Amy Myers Jaffe
Yes, Ed. Always, always available and willing to discuss issues on the Energy Gang, even if they're not vp. Even if it's not my pet topic.
- [60:14]
Ed Crookes
Exactly, exactly. That. We may find something else to talk about next time. Thanks to our producers, Stuart Duffy, Toby Biggins, Gilchrist and Dan Cottrell. And above all, many thanks to all of you for listening. We really value your feedback. Please do keep that coming and we'll be back soon with all the latest news and views on the future of energy. Until then, goodbye.