Virtual Power Plants: Maximizing Your Assets

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What is a Virtual Power Plant (=VPP)?

Simply put, a VPP or a Virtual Power Plant is a collection of generally smaller, decentralized energy sources and sinks, combined together for economic and technical reason, emulating the behavior of a large, central power station. The power plant is considered ‘virtual’ not because it does not produce power, rather due to its geographical diversity.

Other terms used in different literatures refer this technology as ‘combined power plant’, ‘swarm power plant’, and ‘cluster of distributed generation’. VPPs may include energy generation units such as solar PV, wind, biomass, backup generators, hydro etc. Additionally, energy storage units and controllable loads can also be connected under a VPP, for example, Li-ion batteries, pumped hydro, EV chargers, Vehicle-to-Grid (V2G) or even Hydrogen-electrolysers.

The video below visualizes how a Virtual Power Plant works:

Who can use Virtual Power Plants?

Owners of small powerplants generally don’t have the means to optimize their revenues based on constantly evolving market trends. Therefore, adding the small units together can lead to economies of scale. Not only that, but some markets also can’t even be accessed by smaller units. A VPP enables aggregation of these systems, until they meet some technical thresholds and can freely participate in these markets.
The Virtual Power Plant is controlled through a software and IT backbone, which connects and monitors all the units continuously. The software can be easily customized to the specific technical requirements of the technology and the individual needs of the customers. Based on the market data, weather forecasts, demand, and load characteristics – control signals are sent to individual units to obtain the desired characteristics – as close to the real-time as possible. Furthermore, the primary strategy of clustering the generation assets and controllable load is referred to as Aggregation. The ability to control the generation as well as load, provides an additional degree of freedom and differentiates a virtual power plant from a physical one.

How does a VPP work?

The Virtual Power Plant is controlled through a software and IT backbone, which connects and monitors all the units continuously. The software can be easily customized to the specific technical requirements of the technology and the individual needs of the customers. Based on the market data, weather forecasts, demand, and load characteristics – control signals are sent to individual units to obtain the desired characteristics – as close to the real-time as possible. Furthermore, the primary strategy of clustering the generation assets and controllable load is referred to as Aggregation. The ability to control the generation as well as load, provides an additional degree of freedom and differentiates a virtual power plant from a physical one.

How important will Virtual Power Plants become in the future?

Two agents are forcing the adoption of VPPs – Economics and Technology. Following the trend towards decentral, renewable generation, more and more smaller units will be operational in the coming years. However, the energy markets are not designed to handle such a high influx of smaller players, nor it favors them economically, thereby aggregation of these sources into a ‘virtual’ portfolio enables better integration opportunities. Moreover, as the renewable snatch more and more share of the energy mix, the demand for highly flexible and responsive technologies is bound to rise – VPPs serves as the enabling technology for such dynamics.

Why is it important?

In pursuit of the commitment envisaged under the Paris Agreement and the Sustainable Development Goals SDG7 and SDG13, the European Nations are actively pursuing new and innovative strategies to counter the impact of global Greenhouse Gas (GHG) emissions. One of the primary areas of focus is the energy industry. Virtual Power Plants serves as the bridge, which promises to address the woes of the integration of the decentral generation on one hand, and on the other, enables new revenue opportunities for power plant operators.

What is the status of VPPs?

VPPs are operational in all mature electricity markets globally – in applications ranging from small residential VPPs to large industrial consumers, from energy trading to energy management, from implicit to explicit demand response, from aggregating assets within a company to independent aggregators.