Virtual Power Plants (VPP) are an innovative approach that integrates distributed generation units, controllable loads, and distributed energy storage facilities. By employing corresponding regulation and communication technologies, VPPs serve as a platform for the integration and regulation of various distributed energy resources. This unique operational model utilizes demand response and coordinated control to aggregate massive, decentralized, and diverse flexible loads and distributed resources, forming a large capacity for unified flexible adjustment, which is crucial for ensuring the safe and stable operation of new power systems.
VPPs can be seen as an advanced regional energy management model, enabling multi-energy complementarity on the generation side and flexible interaction on the load side. The essence of VPPs lies in “aggregation” and “communication.” VPPs can be categorized into two main types based on the resource categories they aggregate, controllability, regulation capabilities, and connection systems: “load-type” VPPs and “integrated source-network-load-storage” VPPs.
1. The Rise of Virtual Power Plants
In recent years, the research and application of VPPs have rapidly increased in China, driven by ongoing electricity market reforms and rapid advancements in digital technology. The acceleration of electricity market construction and orderly reforms on the demand side are key factors. The release of the Opinions on Further Deepening Electricity System Reform by the Central Committee of the Communist Party of China in 2015 marked the formal launch of a new round of electricity market reforms. Under the guidance of national strategic deployments and through collaborative efforts from government departments, grid enterprises, and power generation companies, China’s electricity market has made significant progress, gradually establishing a system characterized by medium- and long-term transactions as a “ballast,” auxiliary service markets as “stabilizers,” and pilot projects in spot trading as “experimental fields.”
Furthermore, the introduction of carbon peak and carbon neutrality goals has set new requirements for the green and low-carbon development of the electricity sector. In September 2020, General Secretary Xi Jinping announced at the 75th United Nations General Assembly that China aims to peak carbon emissions before 2030 and achieve carbon neutrality before 2060. This initiative necessitates the construction of a clean, low-carbon, safe, and efficient energy system, emphasizing the integration of renewable energy sources.
The rapid development of renewable and distributed energy has brought both opportunities and challenges to the new power system. Renewable energy, characterized by its intermittent and random nature, poses difficulties in accurate prediction and control, often leading to supply-demand imbalances in real-time operations. If not properly managed, this can result in wasted wind and solar energy, impacting the economic viability of resource aggregators and potentially jeopardizing the stability of the electricity system.
2. International Policies and Business Models for Virtual Power Plants
Internationally, favorable conditions for the development of VPPs have emerged from established electricity market mechanisms, scheduling rules, and regulatory frameworks. Different countries are exploring VPP business models tailored to their unique market conditions and development environments. In Japan, the focus is on user-side storage and distributed generation, with plans to exceed 25 million kilowatts by 2030. Australia emphasizes user-side storage, with Tesla constructing what is claimed to be the world’s largest battery-supported VPP in South Australia.
In Europe, many countries have widely adopted distributed energy, with VPPs now entering the commercialization phase, primarily focusing on the aggregation of generation resources. In Germany, VPP projects have largely become commercialized, with legislation mandating that all renewable energy generation projects over 100 kilowatts must participate in the electricity market. As a result, many distributed renewable energy projects prefer to operate through VPPs.
U.S. VPPs, on the other hand, focus on integrating demand-side resources. The U.S. has the largest and most diverse array of demand response programs globally, with approximately 28 GW of demand-side resources participating. For instance, the Emergency Load Reduction Program allows users with Tesla’s Powerwall to voluntarily register for participation, enabling them to provide power back to the grid during peak times and receive compensation significantly higher than average residential electricity rates.
3. Trends and Business Models for Virtual Power Plants in China
In China, VPP pilot applications are expanding amid increasingly severe supply-demand balance challenges in the electricity system. However, the commercial model for VPPs remains unclear and largely exploratory, relying on price compensation or policy guidance for market participation. Pilot projects across various regions, such as Jiangsu, Shanghai, and Hebei, are leading in different aspects like demand response, reserve provision, and peak shaving.
The value proposition of VPPs includes providing system operators with efficient and rapid flexibility, as well as creating opportunities for diverse distributed energy resources (DER) to participate in system regulation or market transactions, thereby generating revenue. The operation model of VPPs, which integrates various DERs, plays a crucial role in determining their participation in different types of electricity market transactions and the services they provide to system operators.
4. Commercial Model Design for VPPs in a Market Environment
VPPs internally integrate retail markets while participating in wholesale electricity markets externally. Their market operations are driven by electricity market rules, operational demands, and internal member interests, combining physical, informational, and value elements to achieve value enhancement. Key business activities of VPPs include demand-side response services, electricity trading agency services, auxiliary services, and facilitating renewable energy consumption.
With the ongoing improvement of a unified national electricity market system, VPPs can engage in various market participation models, including demand response, auxiliary services, curve tracking, deviation substitution, and long-term and spot market transactions.
5. Market Demand and Future Prospects for VPPs in China
As renewable energy sources continue to connect to the grid at scale, the characteristics of high peaks and high lows in the electricity grid are becoming increasingly pronounced, revealing a significant shortage in reserve capacity. By 2030, the gap in the grid’s reserve capacity is expected to reach 200 million kilowatts. The growing pressure on peak load management necessitates enhanced system adjustment capabilities to maintain supply-demand balance.
The diverse and substantial potential of user-side adjustable load resources, such as buildings, industries, and electric vehicles, is crucial. For instance, the adjustable capacity in the cement industry can reach 30%, while residential users may achieve a 50% adjustment rate. With the rapid electrification of end-users, electricity consumption and maximum load are expected to experience significant growth.
Given these projections, VPPs have a promising future as they adapt to the evolving electricity market landscape, with an expected investment scale of approximately 785 billion yuan by 2025 and 1,062 billion yuan by 2030. The potential for adjustable resources constructed by VPPs is significant and aligns with the anticipated increase in renewable energy utilization.
