The Virtual Power Plant: Invisible but Growing

Oct. 14, 2014
Virtual power plant capacity is likely to quintuple worldwide in nine years, says Navigant Research, with revenue growing to $5.3 billion.

Virtual power plants may be invisible, but we are going to increasingly feel their influence worldwide within the decade, according to findings by Navigant Research.

A recent report by the research firm says that virtual power plant (VPP) capacity will quintuple, producing 28,000 MW by 2023, up from from 4,800 MW this year.  This means growth in vendor revenue from today’s $1.1 billion to $5.3 billion in nine years, under a base scenario.

Exactly what constitutes a VPP depends on whose definition you use. We often talk about VPPs as aggregated energy efficiency measures or demand response that reduces the need to build generation and transmission. Navigant defines them more specifically as “software and IT innovations to achieve the optimum usage of grid assets while maintaining the proper balance of the electricity grid.”

Why the growth in VPPs? As Navigant points out, several trends contribute, among them:

  • Increased use of smart meters and other smart grid technologies that better enable VPPS
  • Additions of intermittent renewable generation to the grid (VPPs can add stability)
  • Emerging markets for ancillary services

As  distributed energy becomes a larger part of the grid, VPPs can help create an “energy cloud” business model. This allows anyone, anywhere to buy and sell energy services on an open market, Navigant says.

“Combining a rich diversity of independent resources into a network via sophisticated planning, scheduling, and bidding of distributed generation-based services, virtual power plants have the potential to harness and distribute electricity in ways hardly envisioned just a few years ago,” says Peter Asmus, principal research analyst with Navigant Research.  “In order to make these markets work, though, rules need to be established to allow these transactions to flow back and forth across a common carrier grid.”

Demand response is the most well-known part of the VPP world today, Navigant says.  The  US grid is the dominant market for demand response, but it is gaining some traction in Europe and Asia Pacific too,

The market end goal, Navigant says, is creation of  “the mixed asset VPP,” which bring together distributed generation and demand response “to provide a synergistic sharing of grid resources.”

About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is an award-winning writer and editor who specializes in the energy industry. She is chief editor and co-founder of Microgrid Knowledge and serves as co-host of the publication’s popular conference series. She also co-founded RealEnergyWriters.com, where she continues to lead a team of energy writers who produce content for energy companies and advocacy organizations.

She has been writing about energy for more than two decades and is published widely. Her work can be found in prominent energy business journals as well as mainstream publications. She has been quoted by NPR, the Wall Street Journal and other notable media outlets.

“For an especially readable voice in the industry, the most consistent interpreter across these years has been the energy journalist Elisa Wood, whose Microgrid Knowledge (and conference) has aggregated more stories better than any other feed of its time,” wrote Malcolm McCullough, in the book, Downtime on the Microgrid, published by MIT Press in 2020.

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