The utilities of yesteryear had an obvious solution whenever they needed more power: simply build a new coal- or gas-fired plant. But with carbon emissions out of fashion and growing levels of demand response and distributed renewables on the grid, virtual power plants are stepping in to replace those central generators.Â
In July, for example, the Taiwan Power Company hired Enel X, the advanced energy services business unit within Italian energy giant Enel, to shore up the Taiwanese grid with aÂ virtual power plantÂ (VPP) made up of assets provided by commercial and industrial clients.
The clients, which include cold storage, food processing, manufacturing and industrial facility operators, are part of an Enel X demand response program that offers payouts for modulating energy consumption in response to grid requirements.Â One company, Delta Electronics, said it could run its operations off battery power in order to ease the strain on the grid.Â
Enel X CEO Francesco Venturini said in a statement: â€śVirtual power plants and energy storage systems will be key to Taiwanâ€™s long-term transition to renewable power.â€ťÂ Â
Worldwide, the market for VPPs is still minuscule compared to the number of thermal power plants in operation. Areas with growing electricity demand may require new power plants, even if some of it can be supplanted by distributed generation.
But research indicates that demand for VPPs could growÂ at more than six times the rate of thermal demand.
According to Global Industry Analysts, the thermal power industry is expected to see a compound annual growth rateÂ ofÂ 3 percentÂ in terms of production capacity between 2020 and 2027. Meanwhile,Â MarkNtel Advisors puts the VPP marketâ€™s CAGR atÂ 20.2 percentÂ up to 2025.Â
Jeff Renaud, Enel Xâ€™s head of the Asia-Pacific and Oceania regions, told GTM in a written response that in Taiwan the company seesÂ “an opportunity to continue building a significant VPP in the coming years as more competitive opportunities are introduced into Taiwan’s electricity system.â€ť
In addition, â€śsimilar projects are being implemented in Japan, South Korea and Australia,â€ť said Daniele Andreoli, head of demand response at Enel X.Â
One attraction of the VPP concept is that it costs a fraction of what a traditional power plant does.
â€śThe capital investment required for setting up VPPs varies with the primary use of assets that provide flexible capacity,â€ť Andreoli explained.Â
While adding solar panels, batteries, combined-heat-and-power units and other distributed generation assets can boost costs,Â â€śsome demand response capacity can even have a capital investment requirement close to zero when the capacity is provided through load reduction,” Andreoli said.
Another benefit is that VPPs can be scaled up and down quickly to meet grid requirements, avoiding the big capital outlays needed for traditional thermal plants. ThatÂ provides utilities and planners more flexibility in meeting uncertain demand growth, ensuringÂ that the failure of one asset in the aggregation wonâ€™t bring down the entirety of its output.
â€śOverall, the cost of setting up VPPs, especially considering the changing market and grid dynamics due to the energy transition, is extremely low compared to traditional power plants,â€ť said Andreoli.Â
To be sure, thorny regulatory issues can stymieÂ peer-to-peer energy tradingÂ or other methods used to aggregate distributed energy resourcesÂ outside of utility constructs. But VPPs organized by utilities as replacements for power plants are not subject to the same kind of barriers in most jurisdictions.Â
However, while setting up a VPP is simple and economically compelling, â€śthe technology, commercial ability and energy market knowledge needed to develop them is massive,â€ť Andreoli said. Coordinating hundreds of distributed generators or flexible loads to match the characteristics of a dispatchable power plant is a complex task, as is navigating the regulations on how participating customers and VPP operators are paid for the services they provide.
It is also worth noting that VPPs are also predominantly provided by companies that have developed complex software platforms to handle distributed energy and storage assets.Â
German battery maker sonnen operates VPPs in Germany andÂ California. Colorado-basedÂ software developer Enbala Power Networks runs VPPs in North America andÂ Australia. Solar installerÂ SunrunÂ is pitting a VPP against traditional power plants in New England.
What’s more, many of these firms are being snapped up by larger, more diversified energy companies in the same way that Enel acquired Demand Energy and EnerNOC. Sonnen is nowÂ owned by Shell, for instance, and Generac Power SystemsÂ bought EnbalaÂ this month.Â Â
While it is perhaps too early to talk of direct competition between these companies and traditional power-plant providers, it is clear that thermal generation asset vendors are aware of the threat.Â
Two years ago, Steven Martin, GE Powerâ€™s chief digital officer,Â told GTMÂ the business was investigating blockchain-enabled VPPs because â€śthe types of plants that are of interest in different parts of the world seem to be changing.â€ť
Omid Mousavi, research and development director at the grid digitalization firm Depsys, said the trend towardÂ VPPs is gathering pace as more and more grid-connected assets, from battery systems to home thermostats, are being equipped with smart technologies.Â Â
â€śIf you look at it globally, the quickest thing to install for a huge amount of power is a gas plant,â€ť he said in an interview. â€śThat is something that will continue. But in certain places, there will be [fewer]Â approvals [of thermal plants], to the point that we need to utilize more of these virtual resources.â€ťÂ