Amid the cacophony of gadget-related technology news that heralds every New Year in the form of the annual CES exhibition, you might have missed the relatively quiet proclamation in early January that smart grid tech pioneer Viridity Energy is being acquired for $35 million by renewable energy developer Ormat Technologies.

That may seem a low valuation considering the $40 million in venture funding raised by the software company during its independent existence, although the price tag does include "additional contingent consideration" based on Viridity’s ability to reach certain performance milestones as part of Ormat in 2017 and 2020.

In any case, the deal underscores the important role that software applications and other information technologies — such as sensors, wireless connections, and artificial intelligence — will play in enabling the next-generation electrical grid, one that is more capable of seamlessly integrating electricity generated by solar installations, wind farms or next-generation batteries.

A practical expression of the distributed grid

Energy wonks began using the phrase "virtual power plants" (VPPs) over the past few years to describe these networks of energy resources in a way that more people could appreciate. The grand idea is to provide utilities with additional generating capacity for their customers (in some cases, from their customers) without actually requiring them to construct new generating capacity on their own.

"Virtual power plants represent an 'Internet of Energy,'" wrote Navigant Research analyst Peter Asmus in a 2011 report about the topic. "These systems tap existing grid networks to tailor electricity supply and demand services for a customer. VPPs maximize value for both the end user and the distribution utility using a sophisticated set of software-based systems. They are dynamic, deliver value in real time, and can react quickly to changing customer load conditions."

Sounds like another definition for demand response, you say? Certainly, that’s one enabling concept that make VPPs possible. But it’s just one part of the equation. All manner of technologies that utilities have been busy investing in and installing over the past decade, including advanced metering infrastructure approaches, energy storage and distributed grid management systems are imperative for making this happening.

As Navigant Research notes in an October research note:

In a time of greater reliance on distributed energy resources, VPPs represent one strategy helping to manage the increasing prevalence of two-way power flows. This technology relies on software and the smart grid, working remotely and automatically to combine a diversity of independent resources into a network via sophisticated planning, scheduling, and bidding of DER-based services.

Those networks, by the way, could include anything from dirty diesel generators to electric vehicles to thermal energy options, such as the ones that Ormat specializes in. It certainly underscores the rationale for its Viridity acquisition.

Software's the thing

Indeed, right now, utilities and other would-be players are spending millions of dollars on the management software that will help glue these resources together — communicating information such as how much power capacity is available, whether new electricity is being actively generated or how much a megawatt might be "worth" at a specific time of day.

If you have to rely on a broker, this will cost too much.

Navigant predicts that spending on this sort of software could reach more than $1.8 billion annually by 2025, which represents a large majority of the overall spending it expects in the VPP category (if you take out the cost of energy storage). Here are the 10 companies it lists as "leaders" in VPP software:

Marissa Hummon, senior energy scientist with cloud energy management company Tendril, said VPPs will require sophisticated artificial intelligence and analytics software in order to run smoothly at scale. "A virtual power plant thinks about the reduction of load all day long, not just during an event," Hummon said. "At 3 a.m., your VPP is going to make decisions about scheduling your electric vehicle charger, curtailing a dryer, putting a piece of equipment into low-power mode." As simple as that sounds, it will take many years of experimentation to figure out what will work and what won’t.

Another missing link, the software needed to verify and manage transactions securely, could be address by an emerging technology known as the blockchain, the "ledger" system that underlies the bitcoin digital currency. Technically speaking, the software is a piece of cryptography that manages the handoff of an asset, keeping a record of when something changes hands. "Blockchain is not only useful in moving money, it’s useful in moving any asset in a very transparent and reliable way," David Bartlett, chief technology officer for GE’s digital power services business Current, said during VERGE 2016.

A virtual power plant thinks about the reduction of load all day long, not just during an event.

Another reason that blockchain technology is finding supporters among those dreaming up the future of the grid: The model is inherently distributed, just like the various generating and storage assets that will make up VPPs. It also can be programmed to act independently, which is important as pilots scale into real-life applications. "If you have to rely on a broker, this will cost too much," Bartlett said.

Watch these groundbreaking projects

Technically speaking, a number of projects under way will help shape the working concept of VPPs in the months to come. Here are just several examples that deserve attention; we look forward to updating this story with more over time.

Stem’s ongoing work with commercial customers in California — The energy storage pioneer has created grid response systems for many high-profile businesses and their buildings, including the InterContinental hotel chain and Whole Foods. One of its strongest selling points is helping companies in cities such as San Francisco and Los Angeles — places where it’s not easy to construct new generating capacity because of space constraints, fossil fuels restrictions or air quality concerns — manage their power needs more effectively. "Businesses and utilities each face the burdens of high energy costs, but what they’ve lacked is a practical, mutually-beneficial solution to address these challenges," said Stem CEO John Carrington in a statement. Stem participates in the California independent system operator market (ISO) in order to make this possible.

ConEd’s residential project in Brooklyn and Queens — The $15 million experiment involves about 300 homes, making it the largest project of its sort in the United States. The program combines 1.8 megawatts in leased solar generating resources (from SunPower) with an equivalent capacity of batteries (from Sunverge). The idea is to call upon this neighborhood of resources for excess capacity during peak usage periods.