What is a Virtual Power Plant?

According to Next Kraftwerke1, a Virtual Power Plant is a network of decentralized, medium-scale power generating units such as wind farms, solar parks, and Combined Heat and Power (CHP) units, as well as flexible power consumers and storage systems. The interconnected units are dispatched through the central control room of the Virtual Power Plant but nonetheless remain independent in their operation and ownership. The objective of a Virtual Power Plant is to relieve the load on the grid by smartly distributing the power generated by the individual units during periods of peak load. Additionally, the combined power generation and power consumption of the networked units in the Virtual Power Plant is traded on the energy exchange. See the photo above for reference.

The concept of virtual power plants turns on its head the more traditional idea of relying on centralized power plants for predictable power. Generally, the US has depended on controllable power from big, centralized plants, often coal or natural gas plants. Power flow has been in one direction; from the utility to the business or consumer. But in recent years, small and large independent power producers have entered the scene, generating solar, wind, and other renewable resources from all corners of the US. Suddenly, power flow has become bi-directional. This clean power has disrupted the energy grid and created a need for new models.2

How does it work?

We’ve taken the following example from this source3, of how virtual power plants can work:

For businesses:

Think of it as having a remote energy manager whose sole mission is to improve your business energy usage. You may not see any changes to your usage at all – but you’ll still benefit from lower energy bills and a revenue share. The process is simple. A wireless box is attached to your meters, then a central control system sends commands and scheduling signals to the boxes – increasing or reducing energy when it might benefit the grid and you.

For energy generators:

It’s the same principle: simply reducing your generation at certain periods when the grid is full, or increase your generation if the grid’s low. You’ll still get a generation payment, plus the added benefit of revenue share payments for being part of the VPP.

For energy storage systems:

Your battery will be remotely charged or discharged at optimal moments to maximise the battery’s revenue generation – and, importantly, maximise its life. And of course, you’ll get revenue share payments too.

Advantages of VPPs

According to this source4, virtual power plants have many advantages over the conventional power plant, including the following:

  1. Flexible Configuration. A virtual power plant can be expanded by adding new distributed energy resources to the virtual platform. Conventional power plants do not offer this flexibility, since equipment is normally rated in megawatts.
  2. Power Grid Load Reduction. When conventional power plants are used, their full output must be carried by power lines, to then be distributed by substations and smaller distribution lines. With a VPP, energy flows are also distributed, which reduces the load on individual power lines.
  3. Higher Reliability. A conventional power plant can be brought offline if a key component suffers a fault, but a VPP does not have this weakness. If a fault affects one of the generation systems connected to the VPP, there is only a very small loss of capacity.

Further advantages are described according to this source5:

  1. Virtual power plants create added value without investment in new generation plants.
  2. VPPs create added value from coordinating previously uncoordinated traditional and non-traditional generation sources.
  3. They create access to new markets without owning large plants.
  4. They improve system reliability and cost efficiencies through a balanced mix of renewable and non-renewable sources.

Future of Virtual Power Plants

Market revenue from VPPs has been increasing over the past two years, and research estimates show that by 2028, VPPs could produce upwards of $6000 million in total market revenue around the globe6. Furthermore, according to BIS Research, the VPP market could be worth $4.5 billion in five years time7.

Image: Navigant Research.


1Next Kraftwerke. (2019). Virtual Power Plant: How to network distributed energy resources. Retrieved from next-kraftwerke.com: https://www.next-kraftwerke.com/vpp/virtual-power-plant

2Cohn, Lisa. (September 4, 2018). What is a Virtual Power Plant? Retrieved from microgridknowledge.com: https://microgridknowledge.com/virtual-power-plant-defined/

3Ecotricity. (2019). The Virtual Power Plant. Retrieved from ecotricity.co.uk: https://www.ecotricity.co.uk/business-energy/virtual-power-plant

4Sajib, Jahnavi. (2019). How Does a Virtual Power Plant Work? Retrieved from ny-engineers.com: https://www.ny-engineers.com/blog/virtual-power-plant

5Brough, Anthony. (2011). Virtual Power Plants Deliver Operational Benefits. Retrieved from power-grid.com: https://www.power-grid.com/2011/11/01/virtual-power-plants-deliver-operational-benefits/#gref

6Colthorpe, Andy. (August 2019). Almost 4GW of virtual power plants are in operation worldwide, Navigant says. Retrieved from energy-storage.news: https://www.energy-storage.news/news/almost-4gw-of-virtual-power-plants-are-in-operation-worldwide-navigant-says

7Donnelly, Matt. (August 20, 2019). Virtual power plant market to be worth $4.5 billion in five years. Retrieved from fircroft.com: https://www.fircroft.com/blogs/virtual-power-plant-market-to-be-worth-45-billion-in-five-years-92322011522