Virtual Power Plants (VPPs): A Comprehensive Guide

Unlocking the Potential of Virtual Power Plants (VPPs) for Green Living and Sustainability

By Ana Yong

Virtual Power Plants (VPPs) stand at the forefront of revolutionizing our energy landscape, diverging significantly from Traditional Power Plants (TPPs) as they showcase unparalleled versatility in power management.

The connection of VPPs to sustainable living is evident through their contribution to reliability, affordability, decarbonization, electrification, health, equity, and consumer empowerment.

What are Virtual Power Plants (VPPs)

An article entitled “Virtual Power Plant (VPP): What are they and their benefits?” by Solar Choice (29 July 2021) defined a VPP as “an interconnected and distributed network of a wide array of energy sources, predominantly solar and battery systems (This can include other energy sources such as gas generators and electric hot water systems among others)”.

Solar Power World (25 September 2017) also stated that VPPs are “cloud-based data control centers that aggregate production data from various distributed energy resources (DERs)”. Examples of DERs consist of solar PV (photovoltaic) plants, battery storage provisions or residential structures linked to the grid (for example, a smart building).

VPPs utilize different transmission capabilities as well as internet of things (IoT) devices to collect information to enable an operator to assess and manage power production of each plant. By incorporating various power sources like solar, wind, water (hydro) and batteries, VPPs ensure a constant energy supply by enabling utility suppliers to produce power via renewable energy sources and save it in battery banks before delivering it to users.

Virtual Power Plants (VPPs): Electricity transmission poles at twilight
Photo by Satya Nemala (Pexels)

Differences between Traditional Power Plants (TPPs) and VPPs

TPPs are individual entities which operate in a physical location, for example, a solar energy farm. VPPs, on the other hand, can operate in the cloud and do not require a fixed physical site.

Infographic showing traditional power plants and virutal power plants, comparing the grid and market share
This infographic by Western Power shows that a VPP manages a portfolio of DERs. And because it is a virtual entity, it offers real time response across the whole network to balance electricity demand, supply and storage.

Components of a VPP

According to Electronics 360, three components make up a VPP:

a. Energy Storage System

This allows the VPP to stockpile energy during off-peak hours and then re-supply it during peak periods. It can also manipulate the output power of wind turbines and solar panels efficiently.

b. Distributed Energy Resources (DERs)

These include “controllable loads or distributed generators integrated with the main power grid”. DER providers may choose to be integrated with VPPs depending on the scale of operation. Usually, small-scale providers are connected with VPPs.

c. Information and Communication Technology (ICT).

This technology controls the Energy Management System which collects data on the condition of each component within the VPP, manage the movement of power between the VPP constituents, activate load forecasting, regulate the function of storage facilities, amongst other roles.

Connection of VPPs to Sustainable Living

The Rocky Mountain Institute (RMI), a non-profit organization founded in 1982 to advance America’s energy usage, produced a report in 2023 entitled “Virtual Power Plants, Real Benefits”. The report pointed out the following benefits of VPPs:

a. Reliability

VPPs are expected to reduce demand in the U.S. by 60 GigaWatts (GW) by 2030 and the figure is expected to grow to more than 200 GW by 2050.

b. Affordability

As VPPs can cut yearly power industry outlays by $17 billion in 2030, they are recognized as a money saving resource.

c. Decarbonization

VPPs reduce the use of physical power plants while fast-tracking *electrification. Hence, it enhances decarbonization. *According to the Cambridge Dictionary, electrification is “the process of making a machine or system operate using electricity when it did not before”.

d. Electrification

VPPs utilize multiple sources to spur electrification and circumvent grid holdups.

e. Health and Equity

VPPs reduce dependence on “natural gas” power plants which produce high greenhouse emissions that excessively affect the wellbeing of certain disadvantaged communities.

f. Consumer Empowerment

VPPs allow consumers to take a more participatory role in influencing how energy is used.

Refer to RMI’s diagram below to gain an overview of the network of devices managed by VPPs.

Flow chart: power sources to users and businesses
Source: RMI

In spite of the advantages of VPPs, how exactly do they work? An article by Enode entitled “A complete guide to Virtual Power Plants and their role in a sustainable future” (1 February 2022) states that VPPs are designed to control and manage DERs when there is a peak in energy usage by reducing the energy supply to the grid and/or telling DERs to consume less energy. The example given in the article is to stop electric vehicles (EVs) from charging. On the other end of the spectrum, VPPs may increase the energy delivered to the grid by securing energy from, for example, EVs or solar panels in private homes that are tapped into the grid for additional energy.

VPPs also promote the use of renewable energy by increasing “the development, adoption, and use of renewable energy resources such as wind and solar because of their unique ability to balance the grid”.

Usage of VPPs by Region

From the beginning when the notion of VPPs was pioneered by Dr Shimon Awerbuch in 1997 till now, this technology has indeed come a long way. A report produced by Inkwood Research entitled “GLOBAL VIRTUAL POWER PLANT MARKET FORECAST 2019-2028” expects that the Global Virtual Power Plant market will attain $ 7,941.96 million by 2028. For an overview, refer to the diagram below:

Global Virtual Power Plant Market 2019-2028
Source: www.inkwoodresearch.com

And a 2019 graphic by Statista.com called “Market share of virtual power plants worldwide in 2019, by region” states that North America has the largest share of VPPs with 37.57% followed by Europe (33.1%) and Asia Pacific (21.58%).

How some countries utilize VPPs

Australia

According to an article by ptr.inc called “Exploring the Opportunities and Challenges in Australia’s Virtual Power Plant Market” (5 June 2023), it was announced that the Australian Energy Market Operator (AEMO) was working towards allowing VPPs to play a major role in the Australian energy market and initiated the VPP Demonstration Project in 2021 to install 700 Megawatts (MW) of VPP capacity by 2022. Currently, the majority of the installations have been focused on South Australia which supplies 28 MW of VPP capacity. Collaborating with Tesla, the Australian government aims to create Australia’s largest VPP under the Tesla Energy Plan.

The same article also displays the Electricity Network Transformation Roadmap as shown below, with South Australia targeted to attain 4 Gigawatts (GW) of rooftop solar by 2030 and 4 Gigawatt Hours (GWh) of residential storage capacity by 2030. Note:Gigawatts/Gigawatt Hours: A measure of electricity equal to 1 billion watts. A gigawatt hour is a measure of electricity generation of 1 GW produced over one hour”.

Map of Australia showing solar stats
Current and future landscape of solar PV and residential battery storage in Australia. Source: ptr.inc

Learn more about South Australia’s VPP. This material is made available by the Government of South Australia, Energy and Mining sector.

China

According to CGTN, China’s first VPP management centre opened in Shenzhen on 26 August 2022 while various projects have been implemented to build VPPs in Shanghai, Hebei, Shanxi and Shandong so as to supply energy more evenly throughout China. The Shenzhen VPP management centre can pool together 870,000 kilowatts (same capacity as a large-size coal plant). This volume is set to increase to 1 million kilowatts by 2025.

An article titled “Malaysia, China exploring the development of virtual power plants” by the Malaysian Investment Development Authority (MIDA) dated 30 December 2022 states that the collaboration was initiated via the China-Malaysia Virtual Power Plant Project Achievements Conference and China-Malaysia Virtual Power Plant Development Cloud Forum. Attendees at both events exchanged information “on the development status and trend of new energy and energy storage in Malaysia, and the development potential, technical research, construction and operation and business model of the virtual power plant”.

Thailand

The Electricity Generating Authority of Thailand (EGAT) has signed a VPP Feasibility Study agreement with Mitsubishi Motors (Thailand) Co., Ltd that “utilizes the Mitsubishi Outlander PHEV to feed electricity back to the grid (Vehicle-to-Grid, or V2G)” in October 2022. For this collaboration, Mitsubishi Motors Thailand has converted the Mitsubishi Motors Education Academy into a VPP presentation laboratory. It is here that researchers would be testing the “world’s first home-use intelligent bi-directional charger, Wallbox Quasar”.

To strengthen Mitsubishi’s support for renewable power, the company has installed two solar power systems. The first one is at its Laem Chabang facility with a 2 MW capacity with the objective of reducing more than 6,100 tons of CO2 emissions yearly. The second one is at the Mitsubishi Motors Education Academy which can generate up to 30 kW (kilowatts).

USA

Wood Mackenzie, a research and consultancy firm which provides data and analytics for the natural resources industry, released an article dated 29 March 2023 stating that California accommodates 24% of all VPP projects in the U.S.. This makes Stem Inc. (the company which administers these VPP projects) the largest storage VPP operator in North America.

The VPP market is divided into the following subdivisions: (1) technology, (2) end user, (3) source, (4) component, (5) company, and (6) region. These subdivisions would be further segmented accordingly.

Real-World VPPs map of the US
U.S. VPP Initiatives (Brattle Group)

Barriers to VPPs

Energy Matters’ article entitled “Challenges of Virtual Power Plants” (undated) lists the following barriers to VPPs in Australia:

a. Regulatory Matters

As the current governmental policies support traditional power plants, VPPs find it a challenge to enter the energy market. As there is no clear direction for VPPs, it is hard to obtain financing from investors.

b. Market Competition

As the energy industry is competitive, it is not easy for new players and/or small companies providing VPP services to battle against established companies. In addition, the existing market structure does not offer sufficient inducements for VPPs to enter the business.

c. Technology and Framework

As the existing technology and infrastructure are still in the developmental stage, a great deal of financial input is required to raise the developmental stage to the commercial level at which established companies are battling.

d. Consumer Awareness

As not many consumers are aware of the benefits of VPPs in reducing greenhouse emissions, they may not be inclined to support this new practice. Therefore, informing consumers via a massive education program may change people’s mindset about VPPs.

Future Direction of VPPs

The future direction of Virtual Power Plants (VPPs) is poised for significant growth and transformation. Here are insights into the anticipated future direction of VPPs:

a. Market Expansion

According to an article by Business Wire called “Global Virtual Power Plants Strategic Business Report 2023: Market to Reach $3.7 Billion by 2030 – Growing Digitalization of Energy to Further Spur the Rise of VPPs – ResearchAndMarkets.com” dated 19 October 2023, it is expected that the global VPP market would reach $3.7 billion by 2030 which reflects a significant market expansion spurred on by the increasing digitalization of energy and the rise of VPPs.

b. Decentralized Network

Medium’s article “Virtual Power Plant Market Growth and Future Business Opportunities 2023–2033” dated 7 December 2023 mentions that as the world transitions to more renewable and decentralized energy sources, VPPs are expected to play a pivotal role in optimizing and managing these resources.

c. Advancing Technology

Prospero’s article entitled “Virtual Power Plants: The Future of Renewable Power” (26 January 2021) declares that as with ongoing technological advancements, including smart grid implementation and enhanced communication systems, the capabilities and efficiency of VPPs would likely improve.

d. Investment Impact

An article by Yahoo! Finance called “Global Virtual Power Plant Market Analysis 2023-2033 – Reshaping the Future of Power Generation and Distribution” dated 18 December 2023 predicts that since the VPP market is expected to grow to $12 billion in 2033 (refer to the diagram below), investments in this sector would intensify.

Virtual Power Plant Market
Source: Yahoo! Finance

Last Word

As we navigate towards a sustainable future, VPPs emerge as a beacon of innovation and a crucial force driving the transition to cleaner, more efficient energy systems.

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