A $100 million ‘virtual power plant’ could put an end to California’s power woes

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In August, residents of California were tormented by rolling brownouts as the state’s power supply could not meet a surge in demand. The power outages were an inconvenience but also an indignity as Californians pay some of the highest rates for power in the country.

This situation has led SIP, a company whose backers include Google parent Alphabet, to invest $100 million in what SIP calls a “virtual power plant” that could soon make rolling brownouts a thing of the past.

Normally, utility companies meet surging demand by trying to add more power to the grid. The SIP “virtual” plant takes the opposite approach: It removes energy use during peak times by paying consumers to reduce their electricity consumption.

To carry this out, SIP is partnering with a company called OhmConnect to offer subsidized energy devices like smart plugs and connected thermostats. OhmConnect is already operating in California and, during the recent energy crunch, paid out $1 million to 150,000 households as a reward for turning down their power.

In practice, this means participating households receive a notification on an OhmConnect app asking if they are willing to turn down power at various sources in their home. Those who agree receive a credit on their electric bill, which will vary in part on what energy they choose to cut: Turning down power on a thermostat or an electric vehicle charging station will, obviously, earn the consumer more money than turning off a toaster. The app looks like this:

SIP is dedicating $80 million of its investment to expand the number of devices eligible for subsidies, to increase the extent of those subsidies, and also to build out the software that will help the project achieve greater scale. The company is calling this part of the project Resi-Station and says it will cover most regions of California (would-be customers enter their zip code to confirm that they are eligible). SIP is investing the remaining $20 million directly into OhmConnect in the form of a Series C funding round.

SIP stands for Sidewalk Infrastructure Partners, which is a spinoff of Alphabet’s subsidiary, Sidewalk Labs, which sought to transform cities with a series of ambitious projects but has foundered amid privacy controversies. SIP, which raised $400 million from Alphabet and Ontario Teachers’ Pension Plan, is trying a different approach. Instead of building its own projects, it is backing existing ventures—including state-of-the-art recycling plants and a driverless “road of the future” in Michigan—with money and expertise.

According to co-CEO Jonathan Winer, SIP chose to invest in OhmConnect in part because the company has excelled at “gamifying” the mundane field of minding household electrical bills. He says OhmConnect, whose executives include the former CTO of video-game maker Zynga, has made the business of conserving power easy and satisfying.

Winer acknowledges that SIP’s virtual power plant may not single-handedly end California’s energy woes. But he predicts it will have a major impact and could eventually end brownouts once and for all.

While California and its millions of green-conscious consumers lead the country in smart energy use, Winer says other states are quickly following suit. These include New York and Texas, which are exploring how to leverage devices like connected thermostats to better manage their power supply.

More broadly, Winer sees greater shifts in U.S. energy markets as more people install solar panels and as technology like Tesla’s battery plants come online. These new forms of energy, combined with management schemes like the virtual power plant, will ultimately see the country rely on cleaner and more efficient forms of power, he says.

“SIP believes that energy grids must be modernized in order to orchestrate distributed energy resources,” said Winer in a statement.

An earlier version of this story incorrectly stated Sidewalk Labs had closed.

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