Virtual Power Plant

Global energy markets are experiencing a fundamental change: the rapid rise of renewable power generation. This is accompanied by two important developments: Centralized electricity generation in large-scale power plants is replaced by decentralized energy production in small-scale facilities. Furthermore, the electricity grid has to deal with fluctuations in the feed-in, because sources like solar and wind are intermittent in nature. As a result, traditional approaches no longer work and business models have to be reinvented. That’s exactly where a Virtual Power Plant (VPP) comes in.

The concept of a Virtual Power Plant is based on the idea to link and bundle medium- and small-scale power producing and power consuming units such as biomass plants, Combined Heat and Power (CHP) units, wind farms and solar parks as well as flexible power consumers. The objective is to smartly distribute supply and demand and to profitably trade the generated and consumed power. Generally speaking, individual small plants cannot offer their flexibility on the power exchanges or at the reserve markets. This is because their production or consumption profiles vary strongly. They have insufficient availability due to unforeseen outages or they simply do not meet the minimum bid size of the markets. In addition, there are strict requirements regarding the availability and reliability of the flexibility offered in the market. The Virtual Power Plant is a solution to overcome these challenges. By combining several types of flexible production and consumption units, controlled by a central intelligent system, a VPP can deliver the same service and trade on the same markets as large-scale central power plants or industrial consumers.

To use the flexible demand and generation ideally, smart algorithms and forecasting methods have to be developed. Weather forecasts are used to predict thermal and electric demand on the one hand, and power production by renewable sources such as wind or sun on the other hand. The algorithms decide, which units to switch, schould changing its power production.

Flexibility can be offered in different markets. These include the long-term and short-term energy OTC and auction markets as well as the reserve and imbalance markets. The ideal VPP gives every single unit access to all relevant market in the energy system to get the best return.

Advantages of a virtual power plant

The aggregation of distributed units by a central control system offers plenty of advantages. The following table summarizes the most important ones:

System benefits Benefits for the asset owners of the units
Opening the path for a large share of renewable energy generation in our electricity system. Access to new markets that are not accessible for single installations. New revenue streams for the owner of the installation, without major changes to the unit.
More offers on the reserve and short term power markets reducing the overall price level on both. Unit availability does not rely on the availability of single large units. Economies of scale: administration and hardware costs to offer flexibility in the market are high for a single unit.
Increased efficiency of grid operation by TSOs and DSOs, possibly longer lifetime of the assets.