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| 4 minutes read

The business case for building a Virtual Power Plant - and 5 IT watchouts if you do…

I wrote in my previous article about the Energy Cloud and the benefits offered by Distributed Energy Resources (DERs) and Virtual Power Plants (VPPs). The rising adoption of virtual power networks across the globe is a key factor driving the Virtual Power Plant (VPP) market. According to Allied Market Research the global virtual power plant market size itself was valued at 1.3 billion in 2019, and is projected to reach $5.9 billion by 2027, growing at a CAGR of 21.3% from 2020 to 2027.  Additionally,  ResearchCMFE  expects the global Distributed Energy Generation market to grow from $263.5 billion in 2020 to $532.3 billion by 2027, at a compound annual growth rate of 10.6%. 

Utilities and power grid operators are adopting VPP because it offers smart solutions for operation management, through its ability to ease the load placed upon an electricity grid by smartly distributing the aggregated power generated by small individual units – such as small-scale wind or hydroelectricity power plants – during peak periods. This increased adoption of renewable power also contributes to responding to the environmental and social concerns that energy executives cited in the 2022 AlixPartners Disruption Index as the highest impact disruption to their industry.

VPP solutions reduce deployment costs, owing to its modular architecture and easy configurability. And big data architecture, advanced analytics, and machine learning are expected to create significant opportunities for improvement.

The criticality of technical due diligence

Most players in this space, including traditional utilities players, PE houses, and newer market entrants understand the business complexity in complying with the rules and processes established by Independent System Operators and Regional Transmission Organizations (ISO/RTOs). However, few understand or take the time to create a technology roadmap that addresses the complexity requirements.

As a result, the wrong architecture or outdated technology or company is chosen or acquired, which results in a longer time to market, unnecessary costs, reliability, and performance concerns and challenges in attracting new clients. Reputational risk to the business is also a concern.

It is vital not to underestimate the life-cycle cost of technology, although understanding this risk can be challenging. Industry investments in new technology tend to be proprietary, and while a product or service prototype may exist on paper, it is often not visible until ready for deployment.

The net result can be increased costs for integration, maintenance, and licensing, making technical due diligence critical in understanding the whole product or technology and its range of applications.

Key technology considerations


Before investing in technology solutions, industry players must answer several fundamental questions, including:

  • What type and level of support for DER and VPP technologies should we provide?
  • Are we promoting new technologies and which technologies?
  • What are the key functional areas of our technology roadmap (e.g., planning, implementation, operation, promotion, customer enrolment, end customer service)?
  • Do we need to ensure DER functions are part of a reliable electric system?
  • Does the technological need for program implementation, measurement, verification, and monitoring require customer data to be shared? Do we have access to it? Do we have the right legal and cybersecurity frameworks for this sharing to occur?
  • Which technologies and programs should we prioritize and focus on?
  • How do we develop our organization’s resources (personnel, qualifications, experience, knowledge, skills, tools, and technology)?

Green Energy players should also be wary of the signs of poor IT architecture, which include these five crucial red flags to look out for.

  • IT systems and architecture contain a collection of different integrated point solutions requiring expensive, overwhelming, and time-consuming maintenance and management. 

Point solutions are designed to address a single, specific problem and the existence of point solutions drives the need for system interfaces and the number of platforms that must be supported. As a result, point solutions can reduce scalability and flexibility and drive up costs that slow down the business. The accumulation of point solutions designed to tackle a single, specific problem is not the same as platform solutions that offer a robust foundation that can address several use cases and roll out very quickly.

  • The overall IT environment contains applications with duplicate components and functionality with complex interactions from separate sub-teams in the organization.

Redundant applications drive the need for system interfaces and the number of platforms that must be supported. This will drain IT resources away from value-creating activity and waste money on software licenses that don’t deliver new functionality to the business. Redundant applications are often the result of poor integrations from past mergers and acquisitions.

  • Data is redundant with values repeated unnecessarily in one or more fields, records, files, databases etc. and must be extracted from these different source locations for use.

Data redundancy is a condition created within a database or data storage technology in which the same data value is stored in separate locations. This implies that the same basic information is held in multiple software environments or platforms. Very often, different applications require the same information. Maintaining data synchronization and secure interfaces across multiple sources is difficult, leading to wasted reconciliation activities that can introduce “source of truth” issues depending on where the data was extracted from. More time will invariably be spent maintaining interfaces instead of building new functionality.

  • IT systems and architecture contain numerous improvised workarounds to ensure backwards compatibility to avoid fundamental changes to those systems.

The initial logic in the cost of developing, implementing, and using a workaround was justified in the assumption that the probable business impact of incidents due to the problem was lower over a reasonable time horizon. Over time, however, the collection of workarounds solves immediate problems but create fragile systems and the complexity of every subsequent project increases along with maintenance costs and downtime events.

  • Outdated and obsolete technology that can’t be upgraded or updated.

Obsolete technology leads to increased maintenance costs. End-of-life and older systems have a much higher failure rate, causing higher IT expenses for recovery and data restoration. The inability to adapt obsolete systems to new and changing business requirements can hamper competitive advantage, while obsolete technology in key systems introduces further challenges in timely maintenance and support alongside increased interface costs and deployment delays with new systems and equipment.

In Closing

Most entrepreneurs, investors and corporate owners understand the importance of creating a business plan, but few prioritize or take the time to create a technology plan. In the world of Virtual Power Plants, choosing the technology solution could come at a significant cost, financially, reputationally, and in attracting the clients, investors, and talent of the future.

 

Tags

born-digital, industrial transformation, cybersecurity, digital, operational improvement, private equity, technology

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