Analysis
Grid edge

Armed with new funding, Leap targets VPP asset optimization

The startup is focused on in-house data processing capabilities, including for assessing the profitability of new markets.

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December 7, 2023
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Photo credit: Wolfram Steinberg / picture alliance via Getty Images

Despite calls by the Department of Energy to triple virtual power plant capacity in the US by 2030, the market in the United States is still relatively small, at around 60 gigawatts. It’s also highly concentrated. The four largest VPP providers boast portfolios of over four gigawatts apiece, per Wood Mackenzie.

But the market is growing, and fast. By some estimates, it is expected to surpass $12 billion by 2030, alongside growth in distributed energy resource deployment, which is expected to double in just two years. According to Latitude Intelligence analyst Daisy Dunlap, the VPP market is maturing rapidly, even in a tight funding environment. 

“Investment has recently been focusing on commercializing battery options with growing trends towards EV infrastructure,” Dunlap said. “Market trends indicate that mixed-type VPPs will become increasingly prominent as EV connection to these projects becomes more common.” 

That mixed model may be in part what has helped VPP startup Leap grow so quickly, Dunlap added.

Leap’s trajectory closely mirrors the trajectory of the market itself. Though the company has just one gigawatt of load currently under management, its growth has been relatively rapid compared to legacy players, said Dunlap.

Over the summer, the company became one of the first providers to offer storage integration solutions under California’s Demand Side Grid Support Program. It also landed a $12 million investment round. And a few weeks ago, that round was upped to $16 million, thanks to additional equity financing from Presidio Ventures.

Even for VPPs (which have gotten recent nods of approval from the DOE and from Loan Programs Office director Jigar Shah, who has a reputation for being particularly bullish on the technology), it’s a tough time to fundraise, said Trevor McManamon, Leap’s director of market development. That’s in part because of the financial climate, but also because VPPs aren’t yet a profitable model in all parts of the country.

“There are challenges with reaching revenue goals across the industry, I think,” McManamon said. “The long-term is going to eventually bear out more revenue opportunities, but at the moment it’s kind of a mixed bag of where there are actually enough dollars.”

Leap’s most recent round of funding will back efforts that prioritize revenue increases in various markets and overall profitability, McManamon said. On the market development side, that includes investing in asset optimization, and scoping new market opportunities.

Optimizing performance of Leap’s aggregated assets means “squeezing out every last bit of curtailment,” McManamon said. That doesn’t necessarily mean dispatching thermostats every day, he added, “but more so making sure that our dispatches are at the right times to get the best performance, and therefore the best revenue out of the market.”

That means both a focus on behavioral tweaks, like discussions with partners about asset performance, and tech tweaks, including collecting and analyzing immense quantities of data to build revenue-optimizing deployment schedules for different markets.

For instance, McManamon said, the company wants to better understand “if we dispatch on Saturdays and Sundays versus weekdays, is that going to affect how much curtailment we’re expecting to get credit for?” That is, in part, a manpower challenge that the new funding could help address.. 

“There’s not a specific software company that we’re looking to buy or purchase a subscription from to enable that,” he said, adding that Leap would build that capacity in-house. 

Armed with $16 million, Leap is also beginning to think about where to go next.

Choosing new markets is primarily about assessing revenue opportunity and the DER landscape, McManamon said. Leap usually considers dollar-per-kilowatt of curtailment as an annualized value across the year, he added, but another measurement framework they use is dollars-per-device, which is easier to communicate to customers.

“If there isn’t enough revenue to incentivize end customers to participate in programs, or if those devices don’t even exist to begin with, those are pretty quick deal-breakers for our ability to be successful,” McManamon said. “From there, we look at the technical requirements of participating in the market.”

For example, does the market require real-time telemetry data feeds? While Leap is capable of providing them — and indeeds expects to in certain contexts — they add additional cost and complexity to a market, which means the revenue opportunity would need to be “extra high” to make it a target.

McManamon also pointed to market enrollment requirements as an important factor. Stricter requirements make for a more challenging entry, he said: “We see reductions in the amount of participation that we’re able to get from partners and end customers.”

Despite the laser focus on profitability, McManamon said Leap will continue its slow and steady approach to expansion, a tactic he expects more market players to emulate, given the current financial climate.

“There are some companies that have jumped into opportunities that we evaluated and thought were not worth pursuing,” he said. “It could be that they were just being extra aggressive, and maybe that works for them, but I think there’s probably less of that these days than there was a year or two ago.”

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