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November 3, 2022

Say goodbye to the old power plant

Microgrids and virtual power plants are finally gaining momentum as more flexible and resilient energy systems.

In the news

Interest is growing in a couple of flexible and resilient energy alternatives to today’s massive, monolithic power plants. Virtual power plants (VPP) aggregate distributed energy resources to not only enhance power generation but also trade power on the electricity market. Benefits include flexibility and the ability to deliver peak capacity on short notice.

Microgrids, for their part, are self-sufficient energy systems serving a sole geographic location (hospitals and college campuses are examples). While they are typically linked to the broader energy grid, they also feature distributed energy sources and storage that allow them to decouple from that grid.

Neither the microgrid nor the VPP is a brand-new idea, but both are garnering widespread attention as flexible and resilient energy alternatives. VPPs, as this piece notes, have the potential to address not only the burgeoning field of electric vehicle (EV) charging but also equity issues for low- and middle-income households. And the microgrid market is expected to hit $40.3 billion by 2026, as remote business locations and small communities seek to minimize their reliance on the grid in a world beset by unpredictable climate and political conditions.

The Cognizant take

The technical underpinnings of both microgrids and VPPs have been around for at least 15 years, notes Somjyoti Mukherjee, a Director in Cognizant's Energy & Utilities practice. So why the sudden interest?

In addition to EVs and equity issues, he points to “politics and new thinking about the ecosystem of energy.” Russia’s invasion of Ukraine and its impact on Europe’s natural gas supply illustrates the former; some fear that this winter, governments may need to intervene to reduce demand.

Mukherjee believes it’s incumbent on governments to use their power in a different way. Currently, the 160 microgrids in the US are concentrated in just seven states: Alaska, California, Georgia, New York, Oklahoma, Texas and Maryland. That’s because “utilities in these states are very progressive,” Mukherjee says, “with strong customer acquisition programs and a convincing value proposition” regarding VPPs and microgrids. He points to California’s Emergency Load Reduction Program, which pays participants an impressive $2 for each kilowatt-hour of consumption they eliminate during grid emergencies.

This is an example of the “clear legal framework” required to scale up the use of VPPs and microgrids, Mukherjee says. “After all, you and I can start a microgrid tomorrow—but the incentive needs to be there.” And in a world saddled with unpredictable political and climate futures, he adds, “this has to happen.”

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