# Virtual power plant

A virtual power plant (VPP) is a system that integrates multiple, possibly heterogeneous, power resources to provide grid power. A VPP typically sells its output to an electric utility. VPPs allow energy resources that are individually too small to be of interest to a utility to aggregate and market their power. As of 2024, VPPs operated in the United States, Europe, Asia and Australia.
One study reported that VPPs during peak demand periods are up to 60% more cost effective than peaker plants.

## Distributed energy resources

VPPs typically aggregate large numbers of distributed energy resources (DER). Resources can be dispatchable or non-dispatchable, controllable or flexible load (CL or FL). Resources can include microCHPs, natural gas-fired reciprocating engines, small-scale wind power plants (WPP), photovoltaics (PV), run-of-river hydroelectricity plants, small hydro, biomass, backup generators, and energy storage systems such as home or vehicle batteries (ESS), and devices whose consumption is adjustable (such as water heaters, and appliances). The numbers and heterogeneity mean that system output is not dependent on any single resource, offering the potential for stable output even if the output of any single resource is not predictable.
Vehicle to Grid technology allows electric vehicles that are connected to the grid to participate in VPPs. The VPP then controls the rate at which each vehicle charges/discharges (accepts/delivers power). The VPP can slow or reverse the rate at which vehicles charge. Conversely, when the grid has surplus power, vehicles can charge freely.
The same principle applies to other systems, such as heat pumps or air conditioners that can lower their power demands to reduce demand.
VPPs based on storage can ramp at higher rates than thermal generators (such as fossil fuel plants), which is especially valuable in grids that experience a duck curve and must satisfy high ramping requirements in the morning and evening.
Forbes' senior contributor Ken Silverstein wrote a story about virtual power plants in December 2024, referencing studies by the Brattle Group and Guidehouse Insights. Brattle said VPPs are just as dependable as conventional powers but they cost 40-60 percent less. Guidehouse estimated that decentalized generation will make up 500,000 megawatts of capacity compared to centalized generation of 280,000 megawatts. The story is titled "Electricity Users May Warm to the Next Trend: Virutal Power Plants."

## Operation

Power delivery is controlled by a management system. The distributed nature of VPPs requires software to respond appropriately and securely to power requests, utility billing, payments to resource owners, etc.

## Services

Typically, the VPP provides power (only) when requested by the utility.

### Peak shaving

With the appropriate resources, a VPP can deliver incremental power on short notice, allowing it to help utilities manage peak loads that would otherwise require purchasing expensive power from a peaker plant (typically operating a simple cycle or combined cycle natural gas turbine).

### Load following

Given sufficient scale, a VPP can operate as a load-following generator, supplying output dynamically as demand changes throughout the day/night cycle.

### Ancillary services

Virtual power plants can provide ancillary services that help maintain grid stability such as frequency regulation and providing operating reserve. These services are primarily used to maintain the instantaneous balance of electrical supply and demand. These services must respond to signals to increase or decrease load on the order of seconds to minutes.

## Energy trading

A VPP generates revenue that is distributed among the resources that supply the power, encouraging resource owners to join the enterprise.
Energy markets are wholesale commodity markets that deal specifically with electrical energy. Market prices fluctuate with demand and when other resources fail (e.g., when the wind does not blow). The VPP behaves as a conventional dispatchable power plant from the point of view of other market participants. A VPP acts as an arbitrageur between diverse energy trading floors (i.e., bilateral and PPA contracts, forward and futures markets, and the pool).
Five risk-hedging strategies have been applied to VPP decision-making problems to measure the level of conservatism of VPPs' decisions in energy trading floors (e.g., day-ahead electricity market, derivatives exchange market, and bilateral contracts):
* IGDT: Information Gap Decision Theory
* RO: Robust optimization
* CVaR: Conditional value at risk
* FSD: First-order Stochastic Dominance
* SSD: Second-order Stochastic Dominance

## Markets
### United States

In the United States, virtual power plants deal with the supply side and help manage demand, and ensure reliability of grid functions through demand response (DR) and other load-shifting approaches, in real time. In 2023 the Department of Energy estimated VPP capacity at around 30 to 60 GW, some 4% to 8% of peak electricity demand.
Texas has two Tesla-operated VPPs. Eligible Tesla Electric members automatically join the Virtual Power Plant, made up of Tesla Powerwall batteries. As such the VPP takes power when the grid needs support. Tesla pays the owner a monthly fee in addition to payment per unit of energy delivered.
California has two electric markets: private retail and wholesale. As of 2022 PG&E paid VPP providers $2/kWh during peak demand. As of August/September 2022, SunRun VPP often delivered 80 MW at peak times, and Tesla VPP supplied 68 MW.
Vermont’s Green Mountain Power, works with Tesla to offer a Powerwall to participating customers at a discounted rate.
Three Massachusetts utilities, National Grid, Eversource, and Cape Light Compact implemented a VPP.

### Europe

The Institute for Solar Energy Supply Technology of Germany's University of Kassel pilot-tested a VPP that linked solar, wind, biogas, and pumped-storage hydroelectricity to provide load-following power from renewable sources. VPPs are commonly referred to as aggregators.
One VPP operated on the Scottish Inner Hebrides island of Eigg.
Next Kraftwerke from Cologne, Germany operates a VPP in seven European countries providing peak-load resources, power trading and grid balancing services. The company aggregates energy from biogas, solar and wind as well as large-scale power consumers.
Distribution network operator, UK Power Networks, and Powervault, a battery manufacturer and power aggregator, created London's first VPP in 2018, installing a fleet of battery systems at 40+ homes across the London Borough of Barnet, offering capacity of 0.32 MWh. This scheme was expanded through a second contract in St Helier, London in 2020.
In September 2019, SMS plc entered the VPP sector in the United Kingdom following the acquisition of Irish energy tech start-up, Solo Energy.
In October 2020, Tesla launched its Tesla Energy Plan in the UK in partnership with Octopus Energy, allowing households to join its VPP. Participant homes are powered with renewable energy either from solar panels or from Octopus Energy.
In June 2024, German companies Enpal and Entrix announced plans to create Europe's largest Virtual Power Plant (VPP). The VPP will integrate a large number of decentralized energy resources including solar panels, batteries, and electric vehicles. Enpal, already a leading solar installer with more than 70,000 installed systems, plans to connect thousands of households with solar power and storage units to the VPP, offering greater energy independence and grid stability.

### Australia

In August 2020, Tesla began installing a 5 kW rooftop solar system and 13.5 kWh Powerwall battery at each Housing SA premises, at no cost to the tenant. As South Australia's largest virtual power plant, the battery and solar systems were centrally managed, collectively delivering 20 MW of generation capacity and 54 MWh of energy storage.
In August 2016, AGL Energy announced a 5 MW virtual-power-plant scheme for Adelaide, Australia. The company planned to supply battery and photovoltaic systems from Sunverge Energy, of San Francisco, to 1000 households and businesses. The systems cost consumers AUD $3500 and was expected to recoup the expense in 7 years under current distribution network tariffs. The scheme is worth AUD $20 million and is billed as the largest in the world.