Clarum Advisors
As a Director with Clarum Advisors, Molly Podolefsky leverages her experience in economics, decarbonization, corporate sustainability, corporate finance, and the power and utilities sector to help innovative, clean tech companies.
Peter Asmus is President of Pathfinder Communications and has been informing and shaping energy markets for almost forty years. A journalist, analyst, book author and consultant, he specializes in tracking global trends in virtual power plants, microgrids and data centers. He is also a Senior Advisor with Clarum Advisors.
Imagine being tasked with identifying and categorizing all the software solutions and tools used to manage behind-the-meter (BTM) and front-of-the-meter (FTM) distributed energy resources (DERs) today versus a decade ago.
Your modern-day self — at least without the help of AI — would face a more challenging assignment given the proliferation of load management solutions since 2015. However, the sheer volume of software solutions available would pose less of a challenge than classifying them by type.
Grid distributed energy resource management systems (DERMS), grid-edge DERMS and virtual power plants (VPPs) would emerge as broad categories, but the boundaries between them are increasingly blurred, reflecting the overlapping functionality these solutions share today.
This has not always been the case. While VPPs, utility DERMS, and grid-edge DER orchestration platforms arose as related but distinct, they are converging. This article explores how and why the lines separating these solutions are disappearing, what a future steady state might look like, and what this means for utility investments in load flexibility.
A recent article by Clarum Advisors in Public Utilities Fortnightly explains the importance of watchtowering — monitoring trends in real time to derisk investments under uncertainty. Each of these three domains — VPPs, grid and grid-edge DERMS — is nascent and rapidly evolving, creating investment uncertainty. Hence, the importance of watchtowering; through awareness of trends in this market, utilities can invest with greater confidence against the backdrop of rapid change.
Defining Domains
Molly Podolefsky: Leading utilities soon discovered the potential for DERMS to moderate voltage effects and worked with Smart Electric Power Alliance to codify a set of system requirements de-risking investment and advancing systems interoperability.
Given how recently these markets developed, the language around load flexibility solutions has not yet been standardized. Before exploring the overlap between them, it will be useful to define the three main load flexibility solution domains separately.
Virtual Power Plant — A VPP is a network of DERs aggregated, orchestrated, and optimally dispatched using a dynamic control system that supplies energy, capacity, and ancillary grid support services to electric utilities, grid operators, and wholesale power markets.
VPPs range from single technology (such as smart thermostats) to technology agnostic, residential to commercial, and may include FTM and BTM assets varying in size from individual residential batteries to medium-scale hydropower plants. VPP software platforms enable implementers to aggregate, orchestrate, optimize, and dispatch energy from DER networks to offtakers by interfacing with utility and grid operator systems.
Grid DERMS — Alternately referred to as utility DERMs or grid-scale DERMS, are centralized software systems enabling utilities to monitor and manage FTM and BTM assets on the grid, providing situational awareness, and enabling load balancing, voltage management, and other critical power quality and system reliability functions. These systems allow utilities and grid operators to manage issues around DER grid integration such as reverse power flow, voltage and frequency fluctuations, and system protection challenges.
Peter Asmus: While the potential upside to implementing DERMS and VPPs through an integrated provider is clear, potential pitfalls exist as well, and in a young market with limited history, it is too early to tell which implementation path is optimal.
Grid-edge DERMS — Alternately referred to as edge DERMS, BTM DERMS, customer DERMS or grid-edge DER orchestration platforms, grid-edge DERMS are decentralized systems used to aggregate, orchestrate, and optimize large numbers of smaller, customer-sited DER assets such as smart thermostats, residential heat pumps, and C&I customer battery energy storage systems (BESS). Grid-edge DERMS optimize individual DERs to meet local demand and conditions and serve as points of contact to integrate larger groups of aggregated DER resources into VPPs or grid DERMS.
These three domains work together to safely and efficiently aggregate, orchestrate, optimize, and integrate individual DERs and microgrids into larger DER groups, VPPs, and distribution networks.
Load Flexibility Market Evolution
Around 2012, single-technology demand response (DR) programs gave rise across North America to VPPs enabled by real-time, dynamic software controls. VPPs gradually evolved to include multiple technologies and BESS, increasing scale and improving dispatchability.
As customer-sited DER assets proliferated, grid-edge DERMS systems developed to facilitate participation in VPPs. Utilities found VPP programs useful in addressing frequency issues introduced by high DER penetration, but less effective in mitigating voltage modulation challenges that arose in tandem.
Leading utilities soon discovered the potential for DERMS to moderate voltage effects and worked with Smart Electric Power Alliance (SEPA) to codify a set of system requirements de-risking investment and advancing systems interoperability. Between 2019 and 2020, many utilities began implementing DERMS systems to better manage DER integration on the grid.
At the close of 2023, SEPA found that three-quarters of North American utilities had either implemented or were in the process of implementing DERMS systems. According to the Department of Energy, thirty gigawatts of DER capacity are enrolled in VPPs today, though deployment varies significantly across utilities due to differences in renewable generation potential, DER penetration, and regulation.
The load flexibility market is crowded, with over forty leading vendors comprising the VPP, grid and grid-edge DERMS market in North America. However, this market is consolidating rapidly through mergers and acquisitions.
Over fifty percent of the forty leading vendors in this market either acquired, or were acquired by, competitors or adjacent firms over the past five years — often, multiple times. Kraken, one of the largest load flexibility software providers in Europe, and expanding its footprint in North America, completed thirteen acquisitions within the last ten years. Leading providers are consolidating the market through partnerships, as well.
Solution Convergence
One of the most interesting trends emerging in the load flexibility market is the convergence of VPPs, grid-edge DERMS, and grid DERMS solutions. Most leading firms entered the load flexibility market through one of three distinct channels: VPP aggregation, grid-edge software development or utility and grid operator systems implementation.
Many providers have formed strategic partnerships across two or more of these domains, while a few have merged to form companies spanning all three. This trend follows a clear logic; as utility customers seek to simplify and streamline implementation, vendors providing more pieces of the load flexibility puzzle may have an advantage in the market over peers with narrower solution sets.
As a result, we are witnessing the convergence of VPPs, grid-edge DERMS, and grid DERMS systems into grid-to-grid-edge DERMS platforms with integrated VPP capabilities.
Six grid DERMS providers form the base of the emerging grid-to-grid-edge DERMS + VPP market in North America: AspenTech, which partners with Virtual Peaker; GE Vernova, which has formal integrations with Energy Hub and Itron; OATI, which partners with Landis+Gyr; Oracle Utilities, a single company implementing across all three domains; Schneider Electric, which has partnerships with Itron and Uplight; and Siemens, whose grid-edge DERMS and VPP implementation partner is EnergyHub.
Each of these consortiums offers a full suite of additional critical utility IT software systems, allowing utilities to opt for implementation of the majority of their systems through a single provider.
Utility Considerations
These one-stop-shop load flexibility vendors emphasize convenience, a smoother implementation process, and fuller integration with their own ADMS, CIS, OMS, SCADA, AMI, and BI platforms.
By contracting with a single provider, utilities are then able to connect and communicate directly with customer-sited DERs all the way up through VPPs while working within a single, unified load management software ecosystem. Combined grid-to-grid edge providers suggest a unified, integrated implementation approach will unlock the full value of their grid-edge investments, maximizing ROI.
While the potential upside to implementing DERMS and VPPs through an integrated provider is clear, potential pitfalls exist as well, and in a young market with limited history, it is too early to tell which implementation path is optimal.
Newcomers and startups may present innovative technologies that fundamentally disrupt the industry, leap-frogging ahead of tried-and-true utility software solution providers. Anchoring to a traditional grid DERMS provider or consortium, utilities may fail to benefit from these technological leaps forward.
Alternately, utilities may find the value of implementation through separate, outstanding VPP, grid and grid-edge DERMS software providers exceed the benefits of working with a single implementer whose products, individually, might be middle of the pack.
Stand-alone aggregators with technology-agnostic VPP platforms, for example, may be better suited to integrate legacy FTM and customer-sited DER assets already deployed within utility service territories.
A significant volume of DERs will come online over the next five years, accelerated by increased demand for capacity driven by industrial onshoring, data centers and hyperscalers, and ongoing building and transportation electrification. As a result, the need for more sophisticated grid-to-grid-edge platforms will grow.
We expect to see further consolidation of solution providers, similar to what we have seen in other utility solution areas such as Enterprise Resource Planning (ERP), Customer Information Solutions (CIS), and distribution management (DM) systems.
Utilities and grid operators should continue to watchtower advances in the VPP and DERMS market to ensure foundational investments they make today in software platforms support future use cases, are resilient to market changes, and maximize their return on investment. A thoughtful and data-driven approach to load flexibility platform adoption today will help stabilize energy costs for utilities and ratepayers for decades to come.
