Trends on the energy market
The adoption of renewable energy sources like solar panels and wind turbines, as well as the explosion of electric cars (EVs) hitting the roads, have brought the power market into the public eye greatly in recent years. However, without the digitalization of the grid and the adoption of Internet of Things (IoT) technologies, the application of these technologies would not have been conceivable (Stagnaro & Benedettini, 2020). In addition, the adoption of small-scale electricity generators (such solar panels on homes) on its edge caused disturbance in opposite energy flows, which put the grid, which for decades operated downstream – imagine from a major power plant to the households – in significant risk. As a result, the current electric energy market faces challenges in balancing the system, both on the demand and supply side.
The Virtual Power Plant
These developments provided a solid foundation for the Virtual Power Plant (VPP), a novel form of business model (Lehmbruck et al., 2020). As the name suggests, the VPP operator connects distributed energy sources rather than producing energy from its own sources. Instead, they function as an aggregator. Small-scale PV systems, battery storage systems, small-scale hydro, biogas, or wind plants, as well as backup diesel generators, can all be considered among these. Basically, any device that has the ability to generate electricity and connect to a smart meter qualifies to be a component of the VPP.
How does it work?
The VPP operator aggregates these technologies and offers their pooled capacity on the energy market. Most common application is in frequency balancing where in case of a lack of capacity in the grid, the Grid operator will request the activation of the additional capacity via the VPP. The VPP operator dispatches the required capacity using its platform which is powered by an algorithm which is able to forecast the possibility of activation. Dispatching the requested energy therefore balances the system and both the VPP operator and the prosumers within the VPP are financially rewarded for offering the flexibility (Lehmbruck et al., 2020).
Are VPP’s the future?
VPP operators have taken off in multiple European markets with the largest one, Next Kraftwerke, passing 10,000 megawatt (MW) of aggregated generation capacity (Next Kraftwerke, 2022).For context, this capacity currently surpasses some of the world’s largest nuclear power plants(Power Technology, 2019), while being distributed and connected to renewable energy sources. Will the flexibility of a Virtual Power Plant be able to surpass traditional energy market models? Most likely, the two will become complementary to one another with fixed demand being offered by traditional operators, and flexibility being offered by the Virtual Power Plant operators. However, only time will tell.
Lehmbruck, L., Kretz, J., Aengenvoort, J., & Sioshansi, F. (2020). Aggregation of front- and behind-the-meter: the evolving VPP business model. In Behind and Beyond the Meter (pp. 211–232). Elsevier. https://doi.org/10.1016/B978-0-12-819951-0.00010-4
Next Kraftwerke. (2022, April 21). Next Kraftwerke reaches 10,000 MW of aggregated capacity. https://www.next-kraftwerke.com/news/10000-megawatt-of-aggregated-capacity
Power Technology. (2019, June 26). Largest nuclear power plants: Ranking the top ten by capacity. https://www.power-technology.com/analysis/feature-largest-nuclear-power-plants-world/
Stagnaro, C., & Benedettini, S. (2020). Smart meters: the gate to behind-the-meter? In Behind and Beyond the Meter (pp. 251–265). Elsevier. https://doi.org/10.1016/B978-0-12-819951-0.00012-8
