Virtual Power Plants: Coming Soon to a Grid Near You

June 11, 2018
Virtual power plants can be cloud-based, central or distributed platforms that aggregate, optimize and control varied and heterogeneous DERs to behave as conventional dispatchable power plants. They deliver power without the physical plant, and they are helping shape the grid of the future.

Virtual power plants (VPPs) are growing in popularity and helping shape the grid of the future, as explained in the second installment of a new Microgrid Knowledge Special Report series about VPPs and distributed energy management systems (DERMS).

Download the full report.

Before the 2016 elections in the Philippines, officials worried about the potential for blackouts due to problems integrating solar energy into the grid. Oversupply had been triggering outages, and the system needed ancillary services — especially frequency regulation — to keep electricity flowing, according to local press reports.

The Philippines is not alone in facing challenges due to renewable energy oversupply on the grid. In the U.S., Hawaii, Arizona, the Pacific Northwest, Texas and California have experienced challenges; so have Australia, Germany, Chile, the UK and other countries. For example, Arizona Public Service plans a “reverse demand response” program to avoid the curtailment of too much renewable energy, and some wind-rich Texas utilities offer free electricity during off-peak hours.

An effort from London-based Carbon Trust plans to bring together a group of energy companies to investigate using energy storage to reduce the costs associated with integrating wind energy into the UK power grid.

The good news: Wind power turbines, solar photovoltaic panels and other renewable energy sources are producing clean kilowatts across the globe. But utilities and system operators are facing challenges grappling with clean-energy oversupplies.

Until recently, utilities and grid operators dealt with this renewable energy variability, along with other modern-day grid balancing challenges, by switching in fast-ramping conventional fossil-fuel based reserves. But as the volume of renewables and other forms of distributed energy on the grid grows, more efficient and carbon-neutral ways of supply-demand balancing are needed.

This is where virtual power plants enter the equation.

The U.S. Energy Information Administration notes that the cost of building a new coal-fired power plant is roughly $3 million/MW. And while natural gas-fired plant construction costs are less, at about $900/kW, both options carry considerable environmental and stranded investment risks, along with substantial waste associated with ancillary services such as spinning reserves. Virtual power plants, on the other hand, offer a very different future, providing financial and environmental benefits for DER owners while also maintaining a reliable supply and demand balance on the electric grid. The costs are much lower — about $80/kW.

VPPs can replace conventional power plants while also providing higher efficiency, greater flexibility and increased grid reliability.

Providing power — without the plant

Navigant Research defines a virtual power plant as “a system that relies upon software and a smart grid to remotely and automatically dispatch and optimize DERs via an aggregation and optimization platform linking retail to wholesale markets.”

Virtual power plants can be cloud-based, central or distributed platforms that aggregate, optimize and control varied and heterogeneous DERs to behave as conventional dispatchable power plants. They deliver power without the physical plant. As such, virtual power plants can replace conventional power plants while also providing higher efficiency, greater flexibility and increased grid reliability. In orchestrating distributed generation, PV, microgrids, storage systems, controllable and flexible loads, along with other DERs, VPPs provide critical and fast-ramping ancillary services.

Designed to provide flexible grid services that are not highly dependent on the specific locations of the DER assets, VPPs are ideal for applications such as frequency regulation — what was needed in the Philippines example — along with advanced demand response, peak demand management and operational reserves (secondary and tertiary reserves in Europe). They also enable energy trading in wholesale markets on behalf of DER owners who would otherwise not be able to participate on their own. VPPs can act as arbitrageur between DERs and diverse energy trading floors.

This contrasts with DERMS, which enables location specific (e.g., tied to locations of specific assets such as feeders), primarily distribution focused grid services.

Frequency regulation/secondary reserves: Addressing the renewable energy integration problem

Since renewable power sources such as wind and solar are notoriously variable and therefore difficult to predict, new scheduling, control and management systems are needed to ensure a continuously balanced supply/ demand mix on a second-to-second basis. This removes the uncertainty that renewables introduce to the energy balancing equation.

“If you are a wires operator and get high concentrations of PV on the grid, like in Germany or California, and you have massive changes in demand from when the sun shines to when it is not shining, the entire distribution system has to pick up spikes in load. The system wasn’t designed to do that,” explains Eric Young, vice president, industry solutions for Enbala.

The same challenges arise with wind power. Variability factors have led to significant price increases in ancillary services, such as the spinning reserves needed to stabilize the grid with traditional generation.

If one wind power source generates more energy than predicted and another generates less, a VPP will balance the two, resulting in a more accurate forecast.

Today’s VPPs offer an ideal optimization platform for providing the supply and demand flexibility needed to accommodate the fast ramping needs of renewables, to balance wind and solar intermittency and to address corresponding supply forecast errors. For example, if one wind power source generates more energy than predicted and another generates less, a VPP will balance the two, resulting in a more accurate forecast. In addition, the wind power becomes a more reliable source of capacity in the market.

Often, utilities fire up large and less efficient power plants to grapple with small gaps in demand. They may deploy a 600-MW gas plant when only 5 MW is needed. With a virtual power plant, when the operator asks for 5 MW, the virtual plant will do two things. It will look for places to reduce load, so the system may not need all of the 5 MW. It will also look for places where it can selfgenerate electricity by discharging batteries, or dispatching hydropower, wind or solar facilities.

Moving beyond traditional demand response programs

When the wind stops blowing or clouds shade sunlight destined for PV panels, system operators need flexible and reliable resources that can come on line immediately. The need to handle shifting loads and over-generation requires more than just meeting demand peaks. Traditional demand response programs — with alerts that go out a day or several hours ahead — are simply unable to support the rapid response times needed to keep today’s evolving grid stable and balanced. But VPPs can perform this critical function.

Unlike typical demand response programs, VPPs incorporate short-term load, distributed generation forecasting and aggregation capabilities. They perform near real-time shifting of commercial and residential net loads to provide the services needed by the grid. Under the control of a VPP, demand on the system can be optimized and tweaked automatically, making dayahead call-outs a thing of the past.

Furthermore, VPPs do this without triggering by the utility or grid operator. VPPs can respond automatically based on grid signals or price signals. They achieve this without impacting or even being noticed by the customers from which DERs are being aggregated.

“What we are doing with virtual power plants is not shutting a bunch of stuff off, but using flexible capacity to move demand to another time, reducing the difference between base and peak load,” says Young.

Virtual power plants have the ability to go way beyond simple load curtailment and to leverage continuous communications and bi-directional control to deliver dispatchable grid support. As a result, aggregated DERs — orchestrated by VPPs with sub-second response speeds — are becoming the new demand response.

“What we are doing with virtual power plants is not shutting a bunch of stuff off, but using flexible capacity to move demand to another time, reducing the difference between base and peak load” – Eric Young, Enbala

Just as the grid is changing because of bi-directional electricity supply, demand management must change as well. The future of VPPs is likely the end of demand response as we know it today. Utilities and grid operators will benefit more by looking at VPPs — and also DERMS — to continuously and bi-directionally manage all the DERs connected to their electricity network.

Transforming peak demand management

Peak demand, when demand is at its most extreme, occurs only a small percentage of the time, but it’s expensive to use load shedding and to build traditional generation plants that are rarely used but are available “just in case.” In Australia, it’s estimated that 10 percent of the network was constructed just for such infrequent peak demand occurrences. Not only is this hard on utility and customer pocketbooks, but also on the environment.

VPPs can coordinate and control more efficient and clean sources of distributed energy so there’s no need to over build or fire up wasteful fossil-fuel plants to balance electric demand and supply

A VPP can automatically detect that capacity is needed on the grid. Or it may be fed an automatic generation control signal that indicates the utility needs a certain amount of capacity at a certain point in time. The system can then go get that capacity within the bounds of what is currently available, at a specified confidence range, such as 2 MW with 95 percent confidence or 3 MW at 70 percent confidence.

The capacity available to the virtual power plant is based on a variety of factors such as the assets that are under the system’s control, the time of day, and the historical usage of those assets at that time of day. Advanced learning algorithms, which search for regularities in great masses of data, can create a predictive model of grid electricity usage by consumers and businesses. This allows the VPP to better allocate resources and more accurately anticipate electric demand.

Mitigating the operational reserve challenges

The high reliability of the power grid is based on maintaining sufficient operational reserves. Historically, these reserves have been almost exclusively maintained in the form of traditional generation. Much like the peak demand scenario, this leads to the construction of costly, carbon-emitting plants that are rarely or perhaps never used. Virtual power plants provide a mechanism for changing this paradigm.

A VPP can quickly ramp to maintain balance and avoid more costly spinning reserves. This reduces the quantity and duration of spinning assets required. The fast-acting, non-impactful response an advanced VPP provides gives system operators the confidence they need to depend on unconventional operational reserves. VPPs can simultaneously prevent participation fatigue that is all too common with existing demand response programs. This is a key point of differentiation between VPPs and demand response. VPPs operationalize the use of DERs for direct support of the grid, as determined by the system operator. Demand response participants drop out at a fairly predictable, and quite measureable, rate as the calls become more frequent. On the other hand, a VPP uses the flexibility of the entire fleet to modulate participation in a way that does not impact process or comfort, making it “always on.”

DERs aggregated and controlled by a VPP can provide operational reserves when they are needed, while also enabling much greater customer participation in ancillary grid services markets. By linking DERs to markets, VPPs provide real-time operational reserves that can be bid into ancillary markets. This provides an economic return for the participant, along with the ability, based on situational awareness, to instantly adapt to changing grid situations.

Energy arbitrage market bidding

As alluded to in the previous section, VPPs have both operational benefits and energy market benefits. Acting as an intermediary between DERs and the market, the virtual power plant aggregates diverse and heterogeneous DERs, with the purpose of trading energy on behalf of DER owners who would otherwise not be able to participate in energy markets on their own. As a result, virtual power plants have the added value of meeting their end-customers’ demand for services that help monetize the capacity of DERs.

In other words, the VPP acts as an arbitrageur between diverse energy trading floors. The VPP can potentially remove the need for additional physical power plants by making a whole energy system more efficient, especially in competitive power markets. This creates a positive impact for every ratepayer served by the system that employs a VPP because the VPP reduces the delta between base and peak loads. The higher confidence that grid planners and operators have in shrinking this gap — and increasing the system’s capacity factor — the greater the capital efficiency that can be achieved. Rather than throwing money at the problem, virtual power plant software takes advantage of the unique characteristic of each asset to provide services that were incomprehensible just five years ago and does so in near real time.

With a virtual power plant, the customer stays in control. The flexibility and ease of program participation make most customers highly amenable and loyal to the program. More than a give-and-take exchange, the VPP is a partnership between power suppliers and the consumers they serve. “Because local demand adjustments are rarely, if ever, felt locally,” says Young, “participants commonly approach the VPP operator to inquire how they can offer even greater flexibility and contribution to the service.” The premise of being present but not felt is core to a VPP’s success, given that it may be called upon often, without notice, any time of the year.

The Microgrid Knowledge Special Report series will also cover the following topics over the coming weeks:

  • The 21st Century Power Grid: Not Your Parents’ Power Grid
  • DERMS: Next Generation Grid Management
  • How DERMS and Smart Inverters Safely Bring Distributed Resources to the Grid
  • Smoothing the Path for DER Orchestration: New Rules for a New World
  • Blazing the Path from Virtual Power Plants to Holistic Grid Control with DERMS

Download the full report, “Creating a 21st Century Utility Grid with DERMS and VPPs,” courtesy of Enbala, to learn more about how these tools and more are changing the face of the 21st century power grid. 

About the Author

Microgrid Knowledge Editors

Exploring the Potential of Community Microgrids Through Three Innovative Case Studies

April 8, 2024
Community microgrids represent a burgeoning solution to meet the energy needs of localized areas and regions. These microgrids are clusters of interconnected energy resources,...


Using AI to Shrink Crypto’s Carbon Footprint

Learn how artificial intelligence and a renewable energy powered microgrid can reduce the carbon footprint of one of the dirtiest industries – cryptocurrency.