As the electricity grid advances into the future and more sources of variable renewable energy (VRE) are added both at the distribution and transmission scale, the concept of the virtual power plant (VPP) has catapulted to prominence. On the back of policy changes in the United States, namely FERC 841 and FERC 2222 as well as an abundance of distributed energy resources being added to the grid, VPPs are growing in commercial and regulatory acceptance. This article seeks to provide a summary of VPPs through the lens of how they are a tool in the toolbox to decarbonize our energy systems. This summary will be done by aggregating the current state of knowledge on VPPs, important policy, commercial updates, and my thoughts on where the future of VPPs are headed.
At the most basic level, VPP is a term used to describe a network of decentralized assets that can number between dozens to thousands and consist of distributed energy resources (DER). DERs are small-scale energy resources that can include a variety of different assets such as rooftop solar, batteries, electric vehicles, smart appliances, and really anything that can be controlled remotely that draws electricity from the grid. While traditional power plants are large assets that produce electricity in one place and then transmit that electricity through the complex system of wires that compose the transmission and distribution (T&D) network, VPPs are quite different. As put by Greentech Media's Jason Deign:
"In other words, a VPP is to a traditional power plant what a bunch of internet-connected desktop computers is to a mainframe computer. Both can perform complex computing tasks, but one makes use of the distributed IT infrastructure that's already out there." -Jason Deign
While the term Virtual Power Plant may inspire thoughts of a highly advanced and nascent technology that represents the leading edge of grid technology, the underlying concept and methodology of VPPs have actually been around for decades. At its most basic, a VPP is a method of demand response, a way to reduce or shift electricity demand during peak usage periods. Utilities have recognized the value of demand response and controlling resources such as air conditioners and water heaters for decades now. The only difference now is that VPPs are now able to aggregate a huge number of additional types of assets and these assets are being rapidly added onto the grid.
(VPP Explained: What Is a Virtual Power Plant?, 2023)
(Real Reliability - Brattle, 2023)
Great, so VPPs are centrally dispatched aggregations of DERs that help deal with demand response, whats the big deal? A great first thought as after all, VPPs have been around for decades so why are they receiving such an uptick in interest. The simplified answer is that the electrify everything movement is creating DERs that are being connected to the grid at a scale never before seen. VPPs can provide a host of benefits including maximizing DER utilization, providing ancillary services to the grid, providing resilience to the grid, being a source of demand response, and providing peak load management among a host of other benefits. According to the Rocky Mountain Institute:
By 2030, VPPs could reduce peak demand in the United States by 60 gigawatts (GW). That number could grow to more than 200 GW by 2050. By avoiding generation buildout, decreasing wholesale energy costs, and avoiding or deferring transmission and distribution investments, VPPs can help reduce annual power sector expenditure by US$17 billion in 2030.
VPPs maximize the utilization of DERs by seamlessly integrating a diverse array of energy sources into a unified and coordinated system. Through advanced monitoring, communication, and control technologies, VPPs optimize the operation of individual DERs, such as solar panels, heat pumps, and energy storage systems, to collectively respond to grid signals and demand fluctuations. By intelligently dispatching and coordinating these resources, on the supply side, VPPs ensure that surplus energy is stored during periods of excess production and released during peak demand, enhancing overall system efficiency and flexibility. Further, on the demand side, VPPs can provide load shifting and demand response services. This approach not only maximizes the use of renewable energy sources but also contributes to grid stability, reduces energy costs, and supports the transition towards a more sustainable and resilient energy landscape.
VPPs play a crucial role in providing ancillary services to the grid by leveraging their aggregated portfolio of DERs. These DERs are orchestrated by the VPP to offer services that enhance grid stability and reliability. Through real-time monitoring and intelligent control systems, VPPs can swiftly respond to grid operator signals, providing frequency regulation by adjusting their output to match demand, managing voltage levels to ensure optimal operation of equipment, and offering fast ramping capabilities to address sudden changes in grid conditions. Additionally, VPPs can contribute reserve capacity by keeping a portion of their energy resources available for immediate dispatch in case of unforeseen demand spikes or generation shortfalls. They also help alleviate congestion on transmission and distribution networks by strategically dispatching energy resources, promoting efficient power delivery even in challenging scenarios.
Furthermore, VPPs excel in peak shaving and load balancing by shifting energy consumption or releasing stored energy during high-demand periods. This dynamic management not only reduces grid strain during critical times but also optimizes the utilization of available energy resources. By actively participating in grid support during contingencies and emergencies, such as equipment failures or blackouts, VPPs contribute to stabilizing the grid and ensuring uninterrupted power supply. Collectively, these ancillary services showcase how VPPs enhance grid resilience, mitigate operational challenges, and foster a more reliable and flexible electricity system.
(Roberts, 2020)