This mini-series examines if the decentralization trend in energy networks makes crypto and DePin good for these markets.
The grid is becoming more decentralized. Households and companies can generate and store energy with inexpensive investments, sometimes below the 5-figure mark.
This is good; it increases the renewable energy share in the overall mix and adds independent resources to adjust grid capacity. When most homes have batteries, it smoothens consumption and reduces peak loads.
The assumption is that grid operators are able to tap into this unused and flexible capacity. They need to 1) know available capacity and 2) control the energy resource.
The difficulty is that individual participants own different hardware, are spread geographically, and have varying grid connections.
The most elegant mechanism to address the issue is Virtual Power Plants (VPPs). They aggregate distributed energy resources like rooftop solar panels, home batteries, and electric vehicles into a single, controllable entity.
They offer 1) products for better usage control and 2) financial incentives, like reduced rates, cash payments for energy contributions, or credits towards future energy bills.
In practice, this is an offer available to users who own DERs. The typical contract includes financial rewards over time for giving control of resources during periods of instability, like summer afternoons from 4pm to 9pm.
For grid operators, these platforms provide real-time monitoring of capacity and availability, as well as the ability to dispatch energy resources as needed to balance grid load.
VPPs make money by selling energy and capacity.
VPPs sell aggregate resources to the wholesale or consumer energy market. They capitalize on their lower cost structure (no large-scale CAPEX required) and competitive prices. By orchestrating resources, they can store energy when prices are low and sell when they increase and arbitrage energy markets.
VPPs also sell capacity, i.e. the ability to provide power when needed by grid operators. These contracts involve giving access to pre-agreed amounts of resources on demand. The pricing structure is different because the contracts are paid upfront, and providers are compensated even if their services are unused.
In the next post, we’ll address the question of whether DePin can serve as the foundation for a more competitive VPP operator.