The Virtual Power Plant - The Answer to Renewable Integration Business Models

The Virtual Power Plant is fast becoming a business model for utilities worldwide as they aim to keep prosumers as their customers.
Published: Mon 27 Jan 2014

An increasing number of consumers and organizations are beginning to see the value in generating their own power from renewable sources primarily for local consumption. However, as our reliance on wind and solar grows, so do the issues surrounding intermittency of supply and energy storage capacity to ensure a balanced and stable grid.

Grid fluctuations will probably result in price uncertainty and the increase in prosumers will lead to a more fragmented market with less economy of scale and less sensitivity to demand.

Enter the virtual power plant

In response to these concerns and uncertainties, utilities have developed the concept of a Virtual Power Plant. It gives the utility or energy aggregator 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 reason why Virtual Power Plants are growing in popularity is that flexibility and demand response are becoming increasingly crucial. Both supply and demand flexibility will be increasingly necessary to accommodate fast ramping periods and address corresponding supply forecast errors. Plus, the utility gets to keep his customer.

Recent figures show that the virtual power plant market is expected to grow from less than US $1 billion per year in 2013 to $3.6 billion per year by 2020.

Benefits of Virtual Power Plants

  • Helps to ensure a smoother transition to renewable energy

  • Use it to develop data networks to optimize energy flows on the grid

  • Helps asset operators (like electric vehicle owners) or prosumers to optimise their performance and manage their assets more effectively.

  • Helps reduce power fluctuations and asset owners’ operating expenses

  • Saves the prosumer or asset owner long-term capital replacement costs

  • Maximise asset owners' profits

  • Matches load fluctuations through forecasting, advance metering and computerized control

  • Performs real-time optimization of energy resources

  • Delivers required energy during peak times-this is crucial for the prosumer as it may be difficult to produce the right amount of power at the right time

  • Stores surplus power-this also gives the energy aggregator more options

  • Improves power network efficiency and security, cost and risk savings in transmission systems

  • Increases value from existing infrastructure assets

  • Reduces emissions from peaking power plants

  • Enables more efficient integration of renewable energy sources in to the grid by balancing variability

  • Combines variable renewable power sources with stable, controllable sources such as biomass plants

Future flexibility will become a commodity, according to Jon-Erik Mantz, commercial director of RWE Energy Services in Germany. Virtual power plants generate additional value from the flexibility they can offer the grid. He explains, “This is why we concentrate on building VPPs. As large utilities' market share falls in response to growing self-consumption, utilities can still be part of a Virtual Power Plant and profit."

But, what happens once affordable energy storage solutions flood the prosumer market? Perhaps it would be in utilities’ best interest to invest more urgently in energy storage solutions. Already, there are plans by Ford and Sunpower to manufacture electric vehicles that will power themselves using solar power.

One wonders how quickly the grid will be made irrelevant once the tipping point has been reached.