What is a Virtual Power Plant?

Learn more about what a virtual power plant is and why we believe VPPs and grid decentralization are the key to unlocking economic development across the continent

A Virtual Power Plant (VPP) is a network of decentralized, medium-scale power generating units as well as flexible power consumers and storage systems. The network is managed via software-based control system efficiently monitors, coordinates and controls the output of each connected power generating unit.

What is the Objective of a Virtual Power Plant?

Depending on the particular market environment, VPPs can accomplish a whole range of tasks. In general, the objective is to network distributed energy resources such as wind farms, solar parks, and Combined Heat and Power (CHP) units, in order to monitor, forecast, optimize and trade their power. This way, fluctuations in the generation of renewables can be balanced by ramping up and down power generation and power consumption of controllable units.

But the VPP not only helps stabilizing the power grids. It also creates the preconditions for integrating renewable energies into the markets. Individual small plants can in general not provide balancing services or offer their flexibility on the power exchanges. This is because their generation profile varies too strongly or they simply do not meet the minimum bid size of the markets. By aggregating the power of several units, a VPP can deliver the same service and redundancy and subsequently trade on the same markets as large central power plants or industrial consumers.


In other words, a VPP is to a traditional power plant what a bunch of internet-connected desktop computers is to a mainframe computer. Both can perform complex computing tasks, but one makes use of the distributed IT infrastructure that’s already out there.

A key feature of VPPs is that they can aggregate flexible capacity to address peaks in electricity demand. In this respect, they can emulate or replace natural-gas-fired peakers and help address distribution network bottlenecks — but usually without the same capital outlay.

What’s the difference between a virtual power plant and a microgrid?

Microgrids (and minigrids) also often involve a mix of distributed renewables, storage, flexible demand and fossil-fuel plants. But there are important differences, as well:

  • VPPs are integrated into the grid. Microgrids are often off-grid, and in an on-grid setting, they are designed to be islanded so they can carry on working independently if the grid goes down.
  • VPPs can be assembled using assets connected to any part of the grid, whereas microgrids are usually restricted to a particular location, such as an island or a neighborhood.
  • The two concepts use different systems for control and operation. VPPs are managed via aggregation software, offering functions meant to mimic those of a traditional power plant control room. Microgrids rely on additional hardware-based inverters and switches for islanding, on-site power flow and power quality management.
  • Another difference concerns markets and regulation. VPPs are aimed at wholesale markets and do not usually require specific regulation. Microgrids, on the other hand, are more focused on end-user power supply.

How DER has sparked a need for the virtual power plant

In many ways, the virtual power plant is a product of the fact that more and more DERs are making their way to the grid. The distributed energy has created challenges for grid operators. At its worst, oversupply of renewable resources can spark power outages. Abundant supplies of distributed clean energy have created challenges in Hawaii, Arizona, the Pacific Northwest, Texas and California, and other regions internationally. High volumes of distributed resources also create reverse power flows that create technical challenges and network congestion.

Often, oversupplies mean that utilities and grid operators have to deal with supply variability by turning to dirty, fossil fuel-based power plants. For example, they call on these more conventional resources to cope with sudden drops of solar supplies when the sun starts to set, creating a spike in demand.

But virtual power plant proponents argue that this supply balancing can be done with less expensive, less polluting, virtual power plants based on clean power. As “virtual” plants capable of providing power 24 hours a day, they can serve as a substitute for fossil fuel-fired plants.

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