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Business Report

Real Electricity Flows from Virtual Power Plants

To reach a goal of getting 80 percent of its power from renewable sources by 2050, Germany plows subsidies into the smart grid.

From a computer screen in an office block in Dortmund, Germany, a power plant operator for utility giant RWE AG orchestrates the output of wind turbines, rooftop solar panels, and other renewable-energy devices scattered across the surrounding Rhine-Ruhr region, one of Germany’s most densely populated. Using wireless links on the power equipment, and an energy management system designed with German engineering giant Siemens, RWE has found a way to weave together dozens of small green-energy sources into a steady flow of electricity and government subsidies.

Serious plans: German chancellor Angela Merkel visits the European Energy Exchange in Leipzig. Germany plans to phase out nuclear power and shift to green energy.

RWE began operating the first commercial-scale “virtual power plant” this February. The system lets RWE digitally monitor renewable power sources and package them into a large supply of electricity it can sell on computerized exchanges. At full capacity, RWE says, its virtual power plant is now generating about 80 megawatts, which the company is offering to bidders on the European Energy Exchange in Leipzig, the continent’s largest market for trading energy.

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Selling power into the exchange is routine for RWE, Germany’s second-largest generator of electricity. But for the owners of the renewable technologies it is a first, enabling them to compete head to head for power contracts with natural gas, coal, and nuclear-fired generating stations.

The ability to deliver utility-scale power from renewable sources may also prove critical to Germany’s green-energy plans, which are the most ambitious among all the industrialized nations. Following a decision last year to move away from nuclear power, Germany now plans to get a third of its power from renewable sources by 2020 and has committed to reaching 80 percent by 2050.

To meet those goals, Germany will probably need technology to store massive amounts of power, since neither solar arrays and wind farms produce power evenly. However, market-based mechanisms like virtual power plants are also expected to help by providing detailed information about what power supplies are available, predicting them in advance, and helping utilities manage energy transmission across power lines.

RWE isn’t the only company trying to develop such power supplies. In March, Berlin utility Vattenfall Europe announced plans to launch its own virtual power plants, and the trend is spreading beyond utilities: phone company Deutsche Telekom last week began selling small gas-fired boiler-generators to residential customers. They’ll be connected to the Internet via DSL or wireless, allowing them to heat homes or be added together as a virtual power station utilities can call on.

Virtual power plants are part of the “smart grid,” the plan to connect all users and generators of electricity via information networks. Many countries, including the United States, Italy, and the United Kingdom, have begun installing smart electrical meters on residences, a step that could allow consumers to participate by getting discounts for saving energy—say, by shutting off air conditioners or heaters—when the power grid needs it most.

In Germany, it’s not only managing demand that’s the challenge. The government’s heavy subsidies for renewable power—about $18 billion this year—have caused a rush to construct solar arrays and wind farms. The explosion in such far-flung and intermittent power sources has quickly raced ahead of anyone’s ability to coordinate them, causing wayward electrical flows on Germany’s grids and extra volatility in its energy market.

Germany has led efforts to develop more sophisticated controls. In 2007, Kassel University and several energy companies, including wind turbine maker Enercon and photovoltaics producer SolarWorld, launched a pilot project to test the concept of a virtual power plant. In one of the biggest demonstrations of its kind, Kassel linked 28 wind turbines, solar systems, biogas-fired generating stations, and hydropower plants from across Germany. 

The demonstration was a technical success with “enormous implications” for German power policy, according to Peter Asmus, a distributed-energy analyst with Pike Research. The Kassel team showed that although wind turbines and solar farms might produce power irregularly, the overall power supply could be evened out by bringing in power from dams or biogas plants running on waste. That result, says Asmus, suggested that “Germany could be completely powered with a diverse blend of complementary renewable energy resources.”

Confidence in a larger role for renewable power underpinned Germany’s decision last year to shut down all 17 of its nuclear reactors within a decade. About one-third of Germany’s electricity comes from nuclear plants; under current plans, renewable power will replace all of it. “We want to end the use of nuclear energy and reach the age of renewable energy as fast as possible,” said Chancellor Angela Merkel in announcing the new policy in May.

For Siemens and RWE, growth has been rapid since the launch of their virtual power plant on Leipzig’s energy exchange. What began as a 20-megawatt offering two months ago has quadrupled in size as more RWE customers have signed up to sell power they generate at their homes and businesses. The program appears destined to easily achieve its goal of 200 megawatts—perhaps even by the end of this year, three years ahead of schedule.

That scale would put the virtual power plant on equal footing with some natural-gas-fired power plants. And the system could grow even bigger. “From the technical side, there’s no limitation,” says Martin Kramer, the virtual-plant project manager for RWE’s technology development unit.

So far, the business case for RWE’s virtual power supply still depends heavily on government largesse. An amendment to Germany’s renewable-energy law that took effect this year guarantees extra payment for any renewable power sold on an energy market. Land-based wind turbines, for example, can earn an extra $16 (12 euros) on top of the government-mandated rate for wind power of $116 (89 euros) per megawatt-hour. Kramer says that is why producers have been quick to join. “You get the value of the energy and the marketing premium on top,” he says.

Germany’s belief is that an efficient marketplace  in which small producers bid alongside large power plants will encourage distributed green powers. Subsidies might also become irrelevant if power prices rise, as they are expected to. “The idea is to change from a regulated system to a more or less market-driven energy system,” says Kramer.

Utilities in the United States and Canada are now experimenting with virtual plants in smart-grid demonstration projects. But virtual power generation will not become an enticing opportunity without subsidies such as Germany’s, says analyst Asmus. Of the 1.5 gigawatts that Asmus expects will flow through virtual power plants in 2017—a threefold increase over this year—he predicts that 75 percent will be generated in Europe.

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The price of energy is rising. Carbon dioxide emissions are rising. But there’s one thing that’s falling: the price of computing. In this issue, Business Impact profiles the emerging business strategy that says information technology could be the cheapest way to save or create more energy. Follow us this month into the smart electrical grid, save gas in a driverless car, and learn how some nations are exporting renewable power in the form of e-mails and Facebook photos.

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