Virtual Power Plants (VPP) is Revolutionizing Energy Supply

In recent years, with the continuous rise in energy prices, energy crises have become a frequently discussed topic. In 2021, Texas, USA, experienced a grid failure during extremely cold weather. In 2022, China faced regional electricity shortages due to extremely hot weather in summer, and in the same year, energy prices surged in Europe. Additionally, the rapid development of electric vehicles has posed significant challenges to the power supply. However, various diverse solutions have emerged, and one of them is the concept of a “virtual power plant.”

1. What is a Virtual Power Plant (VPP)?

A virtual power plant is a system that aggregates and optimizes distributed energy resources (DERs), including distributed generators (DGs), energy storage systems, controllable loads, electric vehicles, and other distributed energy resources, using advanced information and communication technologies and software systems. It functions as a specialized power plant participating in electricity markets and grid operations for power coordination and management.


The core of the virtual power plant concept can be summarized as “communication” and “aggregation.” Critical technologies for virtual power plants include coordination control, intelligent metering, and information communication technologies. The most attractive feature of virtual power plants is their ability to aggregate DERs for participation in electricity and ancillary services markets, providing grid management and support for both distribution and transmission grids.

For example, in large commercial complexes, there are typically numerous air conditioning units that consume a significant amount of electricity for cooling and heating. During peak demand periods in the summer, installing electronic devices for minute-level remote flexible load adjustment can raise the central air conditioning temperature by 2 to 3 degrees Celsius, reducing daily electricity consumption by nearly 20%. This not only eases the burden on the grid but also ensures that all users remain comfortable. By managing more buildings and factories in a similar manner, it is possible to better harness the potential of existing power without the need for new power plants, ensuring grid reliability.

2. The Virtual Power Plant Industry Chain

Virtual power plants involve nearly the entire energy industry chain, from power generation to electricity sales and distribution. Let’s take a look at each segment of the industry chain:

Upstream Basic Resources:

  • Controllable Loads: Including electricity consumption from industrial, commercial, public buildings, and residential users. These controllable loads can be managed through intelligent control and adjustment to respond to grid demands.
  • Distributed Power Sources: Refers to small-scale distributed energy generation units, such as distributed solar, wind, thermal, and hydroelectric power. They can provide electricity in various scenarios.
  • Energy Storage Devices: Include various types of energy storage technologies, such as mechanical and chemical storage, used for storing electricity for backup or release when needed.

Midstream Virtual Power Plant Operators:

  • Resource Aggregators: These companies rely on technologies like the Internet of Things (IoT) and big data to integrate data from various power resources and achieve coordinated control for virtual power plants. They play a crucial role in the virtual power plant industry chain.
  • Technology Service Providers: These companies focus on the construction and maintenance of virtual power plant software platforms, providing technical support and services to resource aggregators to ensure the smooth operation of virtual power plants.

Downstream Electricity Demand Sectors:

  • Public Utilities (Grid Companies): Responsible for managing electricity transmission and distribution as public utilities. They collaborate with virtual power plants to ensure the reliability and stability of power supply.
  • Energy Retailers (Electricity Retail Companies): Responsible for providing electricity services to end-users. They can participate in electricity markets through virtual power plants to access electricity resources.
  • Large Users: This category includes large industrial enterprises and other large-scale energy users who can participate in market-based electricity trading and utilize virtual power plants to respond to electricity demand, reducing energy costs and increasing efficiency.

This industry chain’s collaborative efforts help make power systems more intelligent and more optimized, enhance the integration of renewable energy, reduce energy costs, and improve the stability of power systems. Virtual power plants aggregate various power resources and use advanced technology to efficiently distribute and manage electricity.

3. What Are the Benefits of Virtual Power Plants?

Virtual power plants offer several benefits:

  • Eases Grid Burden: Virtual power plants reduce grid load fluctuations by coordinating and optimizing distributed resources. This helps reduce the need for backup power sources and frequency adjustments, enhancing grid stability.
  • Improves Energy Utilization Efficiency: Virtual power plants intelligently allocate electricity resources based on demand and market conditions. This means more efficient utilization of renewable energy to meet electricity demands, reducing energy waste.
  • Lowers Economic Barriers to Distributed Resources: Virtual power plants make it easier for distributed energy projects to participate in electricity markets, improving their economic viability. This attracts more investment and promotes the deployment of renewable energy.
  • Provides Market Opportunities: Virtual power plants can participate in electricity markets to optimize the distribution of electricity resources based on market prices and demand. This offers commercial opportunities for virtual power plant operators, helping them achieve economic gains.
  • Shortens Energy Payback Period: By efficiently managing and utilizing distributed energy, virtual power plants can help reduce energy costs and shorten the payback period for energy projects. This attracts more investors and drives the development of distributed energy.

Generally, virtual power plants serve as intelligent tools for managing power systems, playing a crucial role in enhancing power system stability, improving energy utilization efficiency, reducing costs, attracting investment, and promoting the development of renewable energy. With the growth of distributed energy, virtual power plants will continue to play a key role in advancing the power industry and sustainable development.

Solar and wind

The mentioned benefits above are on a macro level, but what roles can virtual power plants play in specific industries?

  • Electric Vehicles and Charging Stations: The proliferation of electric vehicles has led to the growth of charging infrastructure, posing new challenges to the power system and distribution networks. The widespread deployment of charging stations, especially fast-charging DC stations with higher power ratings, can strain the power grid. This necessitates better planning and management of charging infrastructure within the power system to ensure supply stability.
  • Virtual Power Plants and Electric Mobility: Virtual power plants can assist in mitigating the impact of electric mobility on the power grid. Through virtual power plants, the charging of electric vehicles can become more intelligent and coordinated, balancing supply and demand while adjusting according to market prices. This helps alleviate the burden on the power grid and establishes a complementary relationship between electric mobility and virtual power plants.
  • Distributed Energy Resources: Distributed energy resources, particularly renewable energy sources like distributed photovoltaics, often have concentrated output times. Virtual power plants can aid in managing the variability of these resources and efficiently integrate them into the power system. This helps reduce the destabilizing impact of distributed energy on the grid and enhances its economic viability.
  • Energy Storage Technologies: Energy storage technologies play a crucial role in virtual power plants. Energy storage can effectively smooth out demand peaks and provide high-responsive and reliable regulation resources. Chemical energy storage, particularly lithium-ion battery storage, has become a mainstream choice due to its high performance and controllability. Energy storage systems can release stored energy during high-demand periods and charge during times of lower electricity prices, thereby enhancing efficiency in the electricity market.

In summary, the development of virtual power plants is closely tied to various fields such as new energy sources, electric vehicles, and energy storage technologies. They can efficiently coordinate and optimize the utilization of these resources to enhance the reliability, economics, and sustainability of the power system. The introduction of virtual power plants contributes to addressing challenges faced by the power system and promotes the development of clean energy and electric mobility.

4. Technologies Required for Virtual Power Plants

Virtual power plants rely on advanced information and communication technologies and software systems to aggregate and coordinate distributed energy resources. The core technologies include:

  • Communication Technology: Virtual power plants depend on advanced communication technologies like 5G for real-time data transmission and coordination control. This communication enables different distributed resources to communicate with each other and work in coordination with central control systems.
  • Coordination Control Technology: Virtual power plants require robust coordination control technology to monitor, analyze, and optimize the operation of various distributed resources in real time to ensure power system stability and efficiency. This includes adjusting power generation, energy storage, and loads to meet grid demands while considering the intermittency of renewable energy.
  • Intelligent Metering Technology: Accurate metering technology is fundamental to virtual power plants. It monitors and records the consumption of various energy resources such as electricity, heat, gas, and water from distributed resources, enabling the balancing and optimization of energy supply and demand.
  • Information Communication Technology: Information communication technology plays a vital role in virtual power plants, allowing control centers to receive various data, including the status of distributed resources, electricity market information, and user demands, to support decision-making, scheduling, and optimization.
  • Resource Aggregation: One of the critical features of virtual power plants is the ability to aggregate various types of distributed resources, including different renewable energy sources, energy storage systems, load management, and electric vehicle charging facilities. This aggregation enhances resource utilization and complementarity, making the electricity market more flexible.
  • Addressing Renewable Energy Challenges: Virtual power plants effectively address the intermittency and variability of renewable energy by coordinating and managing different distributed resources to provide reliable power supply and ancillary services, helping balance the power system.

The development of virtual power plants facilitates the higher integration of sustainable energy into power systems, improving their flexibility, reliability, and economic sustainability. Continuous innovation and technological advancements in this field will further drive the development of virtual power plants in the future.

5. Pricing Mechanisms and Market Models

The pricing mechanisms and market models of virtual power plants are primarily influenced by several factors:

  • Energy Market Prices: Virtual power plants can participate in energy markets, buying and selling electricity based on market prices. The fluctuations in market prices significantly impact the profitability of virtual power plants.
  • Government Policies and Incentives: Government policies and incentive programs can directly affect the economic benefits of virtual power plants. For example, governments may provide subsidies or reward programs to encourage the development of renewable energy and virtual power plants.
  • Market Competition: The virtual power plant market often experiences fierce competition, with various virtual power plant operators competing for resources from controllable loads, distributed power sources, and energy storage devices. Competitive conditions influence virtual power plant pricing strategies and market positions.
  • Electricity Demand and Supply: The state of electricity demand and supply in the market directly affects market prices. Virtual power plants need to adjust their supply strategies based on real-world conditions to maximize profits.
  • Technology and Equipment Costs: The construction and operation of virtual power plants require substantial investments in technology and equipment. Managing and controlling costs are crucial for the profitability of virtual power plants.

supply and demand

Virtual power plants typically employ market-based pricing mechanisms, determining electricity purchasing and selling prices based on market prices and demand. Additionally, virtual power plants can generate additional revenue by participating in ancillary service markets, among other methods. Market models and pricing mechanisms may vary in different countries and regions, depending on local policies and market conditions.

6. Global Leading Companies

Several global companies have emerged as leaders in the virtual power plant industry, playing significant roles in its development. Here are some important companies in the global virtual power plant sector:

  • Siemens: Siemens is a global leader in industrial manufacturing, offering virtual power plant solutions. The company’s virtual power plant technology includes energy management systems and intelligent grid solutions for coordinating and optimizing energy resources.
  • ABB: ABB is a Swiss multinational company specializing in electrical equipment and automation technology. They provide power automation solutions for virtual power plants, covering energy management, grid dispatch, and participation in electricity markets.
  • Schneider Electric: Schneider Electric is a global energy management and automation solutions provider, offering energy management and participation solutions for virtual power plants.
  • Enbala: Enbala is a Canadian virtual power plant technology company focusing on load balancing and distributed energy resource management.
  • Next Kraftwerke: Next Kraftwerke is a German virtual power plant operator dedicated to aggregating distributed energy resources into virtual power plants for market participation and ancillary services.

These companies possess extensive experience and technological capabilities in the virtual power plant field, contributing significantly to the development and application of virtual power plants in the global energy landscape.

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