Virtual Power Plants and the Future of Energy

Virtual power plants (VPPs) play a central role in the transition toward a renewable-driven energy future. But what exactly are their role and functions, and how can utilities and energy companies best leverage them?

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Virtual power plants, distributed energy resources (DERs), DERMS, and EVs are among the technologies defining the future of energy. Each is set for explosive growth, which presents challenges and opportunities for utilities and energy companies.

The 2024 market forecast for virtual power plants (VPPs) is US$2.1 billion. The next ten years will see a sevenfold market size increase to US$18.8 billion.

Virtual power plants’ ability to tie decentralised energy resources together lies at the heart of market development. They present part of the answer for energy companies and utilities looking to make solar panels, wind farms, electric vehicles (EVs), and battery storage systems act as cohesive units.

What is a virtual power plant?

A virtual power plant is a distributed energy resource (DER) network in which resources are pooled together as one “power plant unit.”

In this way, VPPs enable flexible control with DERs, which helps balance energy supply and demand on a large scale.

DERs can include various assets, including solar panels, battery storage, electric vehicles and their chargers, and smart thermostats.

A VPP can adjust different parts of the collection of DERs under its control to increase energy and grid flexibility by adjusting energy production or use. In this way, VPPs can help utilities reduce dependence on fossil fuel-based plants.

Unlike traditional power plants that operate out of a single physical location, VPPs’ assets are spread across different locations. They are integrated through advanced software and communication technologies to function as one unit.

How VPPs work

At its core, a VPP uses IoT (Internet of Things) technology to monitor, control, and optimise the performance and use of DERs. It uses real-time signals and historical data from individual DER parts to create a clear image of the current and coming energy production and use.

By pooling and controlling DER resources, the virtual power plants help the broader energy grid and utilities manage energy supply and demand more effectively.

For example, a VPP can draw energy from battery energy storage units when electricity demand surges instead of firing up a fossil-fuelled backup “peaker plant.” The latter option is both more expensive and polluting.

This type of two-way communication is a central feature of VPPs. Through secure, encrypted data exchanges, VPPs monitor the performance of connected assets and send control commands based on utility and user needs. This includes adjusting the output of solar panels, managing the charging and discharging of batteries, and even ramping up or down the consumption of power-hungry appliances like HVAC systems.

The result is a dynamic, real-time balancing of supply and demand that helps mitigate grid risks and improve overall energy system efficiency.

Key VPP components

A VPP is composed of various DERs that, when aggregated, form a virtual power generation system. The most common components include:

Storage systems: Batteries and other systems can store excess energy during periods of low demand or high production and discharge during peak hours. This helps balance the grid and ensures a steady energy supply.
Renewables: Solar panels and wind turbines generate clean energy and reduce the amount of electricity drawn from the grid. Excess energy generated by these assets can be stored in batteries or fed back into the grid.
Electric Vehicles (EVs): For VPPs, EVs are like mobile batteries that can store energy and discharge it back to the grid when needed. Advanced smart charging systems support load balancing and flexibility by adjusting charging based on energy demands and needs.
Intelligent devices and systems: Appliances and devices that can be controlled to reduce or shift energy consumption. The list includes HVAC systems, water heaters, and other energy-intensive devices.
Software and IoT systems: The VPP control hub is a set of software systems that monitor and control energy production and use. The systems are often reliant on data and information from IoT sensors to function optimally.

Virtual power plant challenges and opportunities

While virtual power plants offer many advantages for utilities, there are several challenges to their deployment and integration, including:

Complexity and lack of standardisation: VPPs rely on advanced software and real-time communication systems, which can be difficult to scale due to varying regulations and implementation methods across regions.
Consumer engagement: Although VPPs can provide financial incentives and lower energy prices for utilities and their customers, enrolment processes can be complex, and customer buy-in can be challenging.
Cybersecurity: VPPs depend on internet-connected devices, so they are susceptible to cyberattacks, necessitating robust security measures to protect the grid.
Integration: Connecting VPPs with existing infrastructure poses difficulties, as traditional grids are not designed for decentralised energy systems.

Utilities and energy companies that find ways of using VPPs stand to gain a multitude of benefits that extend to their consumers. Key advantages include:

Grid resilience: Distributing energy generation and consumption reduces strain on energy grids. This decentralised approach makes the grid more flexible and resilient to risks like blackouts and disruptions.
Cost-efficiency: Leveraging distributed renewable energy and storage systems located close to where energy is used helps VPPs lower operational costs than traditional power plants.
Environment: By aggregating renewable energy resources like solar and wind, VPPs help reduce greenhouse gas emissions.
Income: Offering ancillary services such as demand response can open new revenue streams for energy companies.

Virtual power plant utility use cases

Several real-world projects showcase the vast potential that VPPs have to transform the energy landscape:

A Sunrun VPP in New England reportedly reduced energy demand over the summer period by more than 1.8 gigawatt hours.
Green Mountain Power in Vermont has built a VPP around a network of home batteries. The VPP has saved customers up to US$ 3 million annually while increasing grid stability.
In Australia, several trials have shown VPPs to be effective tools for managing the intermittency of renewable energy sources like solar and wind and ensuring a stable energy supply.
A study of VPPs in Finland showed that they could reduce the greenhouse gas emissions from grid balancing by up to 98%.

Current and future trends

As the energy industry evolves, so too does the role of VPPs. Several trends are shaping the future of virtual power plants:

AI: Advanced algorithms and artificial intelligence can optimise the performance of VPPs.
Electric vehicles: The rapid adoption of electric vehicles creates new opportunities for VPPs. On the horizon, vehicle-to-grid (V2G) technology will increase EVs’ ability to act as mobile power sources.
Energy market changes: The traditional centralised power generation model is being replaced by a more decentralised approach, changing how different parts of the energy market act and function.
Policy and regulation: Governments and regulators are increasingly recognising the potential of VPPs to support the clean energy transition.