Virtual Power Plant (VPP) refers to a cluster of small-scale generators, such as combined heat and power (CHP) units, biogas plants, and backup generator sets, which collectively act akin to a single large power plant.

A virtual power plant does not physically exist. It is the pool of distributed energy resources that acts as a single large facility using sophisticated software to operate them as a group. Every single generator that belongs to the VPP needs a gateway to communicate with the remote control software managing the whole network.

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In the VPP model, an energy aggregator gathers a portfolio of smaller generators, and operates them as a unified and flexible resource on the energy market or sells their power as system reserve. The objective of a virtual power plant is to let go the load on the grid by smartly distributing the power generated by the individual units during periods of peak load. Additionally, the combined power generation and power consumption of the networked units in the virtual power plant is traded on the energy exchange. The power traders within a virtual power plant are able to use real time data to enhance forecasting and trading of renewable energies. As a result, virtual power plants gradually take over the role of traditional power plants – selling their output on wholesale markets and assuming responsibility for a balanced grid.

Currently, the global energy market is in the midst of a paradigm shift, from a model dominated by large centralized power plants owned by big utilities to a mixed bag of distributed energy generation facilities and smaller residential, commercial, and industrial power generation systems — many of which use renewable resources.

The Increase in smaller power plant installations, are benefitting from new technological developments and business models are declining the economies of the scale. When all power is generated by renewable energy sources, thus would need to produce the electricity demand adapt to the wind and solar power supply. In virtual power plants, clients let their unused assets such as data center or base station reserve power to be used to balance the grid while they are not needed for business use.

VPPs are designed to maximize owners’ profits, while also balancing the grid. The virtual power plant forms a reserve that can be sold to a local transmission system operator during the off-peak electricity demand when additional output is needed to ensure electricity system functionality.

The VPP market can be further classified based on technology, which includes demand response, distributed generation, and mixed asset. Based on end-use, the market can be segregated into industrial, commercial, and residential. In terms of geography, the VPP market can be divided into North America, Europe, Asia Pacific, Latina America and Middle East & Africa.

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The virtual power plant ecosystem comprises power and automation technology companies such as ABB Ltd., Siemens AG, Schneider Electric SE, and General Electric. Furthermore, major players operate as demand response aggregators such as EnerNOC, Inc., Comverge, Inc., Limejump, and Flexitricity.

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