On a June afternoon when an early heat wave baked parts of Eastern Canada, Paul Richardson was surprised to notice the smart thermostat in his Ottawa home, usually set to 23 C, was reading 25 C.
Then he remembered he’d given his hydro company permission to remotely adjust it in exchange for a $75 gift card.
During heat waves like the one currently blasting southern Manitoba, power-hungry air conditioners strain the electrical grid. Now, instead of pushing power plants to generate extra power by burning fossil fuels, some utilities are paying customers like Richardson to become part of what’s known as a virtual power plant.
This is a network of devices that generate, use and store energy. It could include smart thermostats, water heaters, electric car batteries and solar panels with battery storage. The key is finding a way to connect and control them all together so that energy saved, stored or released by the small devices on the network eventually adds up to the scale of a physical power plant.
That’s where people like Richardson come in. He’s one of more than 100,000 Ontario residents enrolled in the province’s Independent Electricity System Operator (IESO) program called Save on Energy Peak Perks.
They give their utility permission to adjust their thermostat up to two degrees Celsius during periods of peak electricity demand between June 1 and Sept. 30 on weekday afternoons and early evenings, up to 10 times a year.
Doing this reduces energy use, which allows the utility to balance supply and demand of electricity and relieves strain on the grid — something a traditional power plant does by generating extra electricity.
Richardson thinks it’s a good deal for him.
“It’s not a whole lot of effort on my part,” he said. “It helps the grid and hey, you get 70 bucks for it — why not?”
Reducing demand and improving efficiency
Reducing demand for electricity is the strategy used by many virtual power plants like Peak Perks. The program can free up 90 megawatts each time it’s activated — that’s like taking a city the size of Kingston, Ont., (population 130,000) off the grid, IESO said.
Brendan Haley, director of policy at the Ottawa-based think-tank Efficiency Canada, says unlike traditional power plants, virtual power plants can do more than just generate power — if they include devices like batteries from electric cars, they can also soak up and store excess energy.
And while big power plants tend to be far away from the customers that use them, virtual power plants exchange power locally, which is more efficient.
According to Haley, all of this is what makes virtual power plants better than traditional generation-only power plants.
Plus, he said, they benefit consumers financially: “You’re paying a customer instead of paying a power plant operator.”
Working with renewable energy sources
Francis Bradley, president of Electricity Canada, thinks virtual power plants are going to be “absolutely essential to the future.”
He noted that electricity demand is expected to double or triple by 2050, and that will require more wind and solar generation to be added to the grid. But these renewable energy sources only generate power when the wind blows or when the sun shines. They also switch on and off suddenly, resulting in uneven supply.
Bradley suggests that using virtual power plants and batteries in conjunction with wind and solar power will help smooth out and balance supply and demand.
Cost savings — and earnings for customers
Virtual power plants are also less expensive to operate and easier to set up than real ones, which have to be constructed.
Ontario’s Peak Perks launched in May 2023, and by February 2024 it had enrolled more than 100,000 people. Participants get a $75 gift card for signing up, and a $20 gift card for every year they stay in the program.
Robby Sohi, IESO’s chief operating officer says that most of the time, electricity use is far below the grid’s maximum generation capacity. What poses a challenge is when demand peaks during weather events like heat waves and cold snaps. Virtual power plants can help flatten those peaks because Sohi says they offer “absolutely … the cheapest megawatt that you can get.”
A U.S. Department of Energy study last year found virtual power plants are 40 to 60 per cent cheaper than alternatives when it comes to managing peak demand. It estimated the U.S. could save $10 billion in annual grid costs by deploying 80 to 160 gigawatts from virtual power plants by 2030.
Sohi noted that the Peak Perks program has lots of room to grow, and could potentially generate hundreds of megawatts more than it has. So far, only a fraction of the 600,000 Ontario households with a smart thermostat have signed up.
According to Haley, smart thermostats are just the beginning. Electric hot water tanks are the natural next step — he says they could be heated when there’s excess wind or solar energy and then effectively act as energy storage.
Sohi thinks consumers will benefit by being able to make or save money by selling or conserving power when the price is high.
“We’ve never had this opportunity before,” he said.
Turning consumers into ‘prosumers’
Calling on customers to cut power usage when generation can’t keep up isn’t new. Utilities have traditionally asked big industrial customers such as steel plants to cut power usage during large peaks.
Last winter, Alberta’s Electric System Operator sent out an emergency alert in January asking people to cut their power to “essential needs only” or risk rotating blackouts. That successfully led to a 200 megawatt drop in power usage — though none of the customers got paid for it.
Extreme cold pushed Alberta’s electrical grid to the limit this weekend, triggering an emergency alert to prevent rolling blackouts. The close call was used by some politicians to criticize the federal government’s plan to have an emissions-free electricity grid by 2035.
BC Hydro runs an invite-only program where participants can earn bill credits by cutting electricity use during power-hungry events, like heat waves. It plans to make the program available to all its customers in October.
New technology means this process can be automated, allowing customers to earn money as an integral part of electricity markets — turning them into what those in the industry call prosumers.
So far, Ontario’s Peak Perks is the biggest program of its kind in Canada.
A Google-backed virtual power plant called Renew Home launched in the U.S. earlier this year, noting it could already provide three gigawatts of power (about 30 times the size of Peak Perks). It plans to expand to 50 gigawatts by 2050. For comparison, Ontario’s Pickering Nuclear Generating Station, which bills itself as one of the largest nuclear stations in the world, produces a maximum amount of about three gigawatts.
Solar potential
Solartility, a Calgary-based startup, aims to create virtual power plants with residential solar panels and batteries.
The company has developed software to network individual residential solar panel arrays with rented batteries to maximize earnings for homeowners as the price of power varies.
“It’s like the stock market,” said Shayne Butcher, the company’s general manager. “We’re buying low and selling high.”
Solartility hopes to start marketing to the 20,000 homes in Alberta that already have solar panels this year.
Though there have been many small virtual power plant pilots across the country, Haley says the next step is to see how large the projects can become and make them an integral part of the electrical grid.
“To me, it doesn’t make sense to over build the electricity system for a few hours or days of the year when there might be peak demands,” he said, noting that using virtual power plants instead could save taxpayers and consumers millions by preventing the unnecessary construction of traditional power plants as governments push toward a net-zero future.
“It’s really this combination of energy efficiency and demand flexibility that can reduce those peaks, save money for everyone, directly pay customers and actually be deployed a lot quicker than these more centralized energy solutions.”