What are Virtual Power Plants?: The ultimate win-win-win

By Don McPhail on

Network industrial effect

Virtual power plants, also known as VPPs, are becoming an increasingly popular solution for enabling demand flexibility as electric grids in the United States and globally become more dynamic with the uptake of clean energy. These innovative systems utilize aggregation software to coordinate the output of multiple distributed energy resources (DERs) such as smart thermostats, water heaters, electric vehicles (EVs), and battery energy storage systems, in order to provide a more reliable and resilient power supply.

One of the main benefits of virtual power plants is their ability to increase energy security by enabling a more diversified energy mix and mitigating the risk of power outages caused by disruptions to a single energy source. For example, if a traditional power plant – such as a coal power station or natural gas generator – experiences a breakdown, a VPP can immediately redirect energy from other sources or reduce demand to mitigate blackouts or curve wholesale price spikes, minimizing the impact on all customers.

In addition to increasing energy security, virtual power plants can also improve grid flexibility by allowing utilities to better manage the integration of renewable energy sources. As the use of renewable energy sources continues to grow as we move to a net zero electric grid, VPPs can help utilities and Independent System Operators (ISOs) to balance the variable output of sources, particularly where traditional grid infrastructure may not be able to accommodate the fluctuations. 

VPPs can also help to improve the efficiency of the grid by reducing the need for peaker plants and other forms of reserve capacity. These peaker plants are typically only used during periods of high demand and can be very expensive to maintain and operate. By using advanced forecasting and optimization algorithms, VPPs can respond rapidly to changes in energy demand and adjust the output of DERs accordingly.

VPPs can be cost-effective for utilities and customers alike. The DOE recently released a report titled, “Pathways to Commercial Liftoff: Virtual Power Plants.” It estimated that the U.S. could meet 10-20% of growing peak demand in 2030 and enable utilities to retire inefficient peaker plants–saving $10 billion, with savings passed along to the customer. 

Despite the many benefits of virtual power plants, some challenges need to be addressed. For VPPs to be effective, they must be able to integrate with existing grid electric and market systems seamlessly. This requires significant investments in advanced communication and control technologies, as well as the development of new regulations and standards. Fortunately, after more than a decade of progress, VPPs are now moving from isolated small-scale pilots to becoming large-scale deployments in all North American electric regions, ranging from 10s to 100s of MWs in size. The proliferation of VPPs is also accelerating through the development and adoption of standards such as OpenADR and IEEE2030.5, as well as the introduction of regulations such as FERC2222. By 2030, Rocky Mountain Institute forecasts there could be as much as 60GW of capacity deployed via VPPs across the US, helping to reduce annual power sector expenditures by $17 billion.

Finally, as VPPs enable and rely upon the orchestration of DERs typically installed within a customer’s home or business, utilities and ISOs have to ensure these programs effectively engage customers to enroll and remain in load flexibility programs. To achieve this customers need to feel comfortable, fairly incentivized, and a part of a social good. By combining the aggregation of DERs, the sophistication to coordinate them with the wider grid, and empowering customers to save money by participating, VPPs can be a true win-win-win for utilities, customers, and society as a whole.

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