Virtual Insanity - As Power Needs Soar, 'Virtual' Power Plants Proliferate, But What Are They?

The U.S. power sector is undergoing a major expansion to keep pace with the rising demand for electricity from data centers and other consumers, and trying to do a lot at once. Keep a lid on greenhouse gas (GHG) emissions by adding wind, solar and other renewables. Maintain grid reliability by supplementing variable renewable energy with more around-the-clock sources like natural gas-fired power plants. Oh, and keep power costs down, too. That’s a big collective ask, and to help make it possible, power grids are turning to so-called “virtual power plants” (aka VPPs) that, with an assist from computers and software, aggregate smaller power sources, batteries and flexible demand to provide power to the grid much like a traditional combined-cycle plant would. In today’s RBN blog, we’ll introduce VPPs and explain why they’re worth learning about. 

Everyone knows the generation sources contributing to the U.S. power grid come in a wide variety of forms — everything from nuclear, coal-fired and gas-fired plants to wind and solar farms. VPPs are a different animal altogether, consisting not of a single, relatively large stand-alone power source but a decentralized network of smaller, distributed energy resources (DERs) — “behind-the-meter” generators (including rooftop solar) and storage batteries, plus flexible load like electric vehicle (EV) charging devices, electric water heaters and smart thermostats that can ramp down when needed. These disparate sources operate in concert, managed by computers and advanced software.

VPPs aren’t just different, they’ve been flying largely under the radar but are more common than you may think. The Department of Energy (DOE) estimates the U.S. has 30 to 60 GW of VPP capacity today, equal to about 4% to 8% of peak electricity demand nationwide. The DOE predicts that VPP capacity in the U.S. could grow to 80 to 160 GW in just six years as grid operators around the country seek to quickly expand the availability of a reliable power source while holding down costs and minimizing GHG emissions.

We’ll begin by discussing in more detail how VPPs work. VPPs are “virtual” because the sources of supply and flexible demand are sprinkled throughout different areas (see Figure 1 below), and there is no central physical facility such as a traditional coal or gas plant. Instead, the operation of these small energy sources is connected via computers and software and, with an essential assist from batteries, work together to optimize their joint operation and help balance electricity supply and demand in the larger grid. VPPs enroll DER owners, including residential, commercial and industrial electricity consumers, in participation programs that offer rewards for contributing to grid operations.

What a Virtual Power Plant Consists of and How It Works