Virtual Power Plants - the future of energy ?

The European Union has set very clear goals: at least a 32% share for renewable energy in 2030 and an economy with net-zero greenhouse gas emissions by 2050. The US has also pledged to achieve carbon neutrality by 2050. China, the world's largest emitter of greenhouse gases, aims for carbon neutrality by 2060.

For that to happen, our current electricity supply system has to change. Coal still is our number one electricity energy source. The energy sector was responsible, in 2019, for 31% of total emissions in the US, 30% in China and about 40% in Germany.

The good news is that solar and wind are growing quickly across the world and, according to the International Renewable Energy Agency (IRENA), renewable energy and energy efficiency measures can potentially achieve 90% of the required carbon reductions. Moreover, the International Energy Agency's (IEA) says that solar and wind are the least expensive energy sources with costs of 0,003 USD per watt in 2019 in the US (compared to 30 USD/watt in 1980).

Furthermore, one thing to be aware of is that extreme weather events in combination with our old electrical grids are the perfect combination for disaster. A paradigm shift is needed!

It is in this context that new concepts and solutions based on smart technology emerge to help us through the energy transition.

Virtual power plants

A virtual power plant (VPP) combines different power producers (e.g. wind, biogas, solar, hydro power plants), power storage units and power consumers into a single network.

The idea behind a VPP is to link together a large number of distributed resources in such a way that these can be scheduled or dispatched from a central control room in the same way as a traditional large power plant.

The VPP operator uses a software-based technology that relies on the smart grid to charge or discharge energy from the batteries and trade it on the National Energy Market.

While researching about this technology and why it could be the future, I stumbled across some pretty interesting advantages compared to our current system:

- VPPs make grids more resilient to climate disasters like hurricanes and wildfires. Unlike traditional power plants and even large solar farms, virtual power plants distribute energy generation over a wider area, so VPPs are not as vulnerable to a localized calamity;

- VPPs can aggregate flexible capacity to address peaks in electricity demand. In this respect, they can replace natural-gas-fired peakers and help address distribution network bottlenecks;

- VPPs allow energy production at a lower cost given the efficiency and proximity to the source of energy;

- Electricity costs will assume competitive prices and go down for the consumer. The consumer will have the flexibility to either choose between VPPs or between a VPP and a traditional electricity supplier;

- They are more sustainable and efficient - since consumers are closer to where energy is generated, VPPs will result in less energy loss during energy transmission.

But what about their limitations?

Firstly, for this technology to truly compete with fossil fuels we need to discover new ways to store energy. One of the key challenges is intermittency because the wind isn't always blowing and the sun isn't always shining. How can we have a non stop energy supply? For that to happen, better storage systems have to be developed. Until now the best storage system we seem to have is Lithium-ion batteries.

Although these battery systems have smaller storage capacity in comparison to other storage systems (e.g. pumped hydroelectric storage,zinc and nickel batteries; amolten-salt thermal storage), they are growing in popularity because they can be installed nearly anywhere and have a small footprint. The problem is that their full power deplete in less than four hours. Batteries can technically go for longer, but they generally cost more than what they are worth in today’s market dynamics. But this is a whole other topic that I will leave for another time.

Secondly, operating a VPP might require acess to some private information about consumers energy behaviour, so investments concerning security and data privacy are needed. Moreover, several studies have concluded that consumer privacy must be protected for a smart grid to achieve social acceptance.

Lastly, it is associated to high costs- on the infrastructure side that requires advanced communication systems, and also on the digital side that requires artificial intelligence enabled tools which call for highly-skilled workforce.

What does the future look like?

Storage systems

Over the years, as solar energy becomes cheaper and more widely used, the market potential for energy-storage devices grows. The challenge is to make storage affordable with cheaper batteries, while improving management and integration techniques. For instance, the price of lithium-ion batteries has fallen by over 30% in the past five years. This has made it an affordable alternative to large capital investments in transmission and distribution network infrastructure. Furthermore, the total installed cost of a lithium-ion battery could fall by an additional 54-61% by 2030 in stationary applications.

Market predictions

· According to Fortune Business Insights the VPPs global market size was 0,87 billion USD in 2019 and is projected to reach 2.85 billion by 2027.

· In Australia it is predicted to have 28.000 home energy storages systems installed and at least more than 45% will have rooftop solar by 2025.

· Tesla announced the launch of the third phase of its huge VPP project in South Australia. The VPP will connect around 4,000 homes with powerwalls, with solar connected to the system.

· In the US many utilities are beginning to see the advantages of VPPs and have begun testing pilot programs, including the Los Angeles Department of Water and Power. Also, Sunrun (an American provider of residential solar panels and home batteries) secured a massive VPP deal to provide residential solar battery systems to hawaii Electric at grid scale. The company will be installing 1,000 of its Brightbox solar batteries on Oahu Island by 2024.

· Japan is taking a leap ahead of the rest of the world, with the help of California company Autogrid, in developing what’s described as the largest behind-the-meter (BTM) virtual power plant. The project will aggregate 10,000 distributed energy assets which, as one resource, will sell power into the nation’s wholesale energy market.

Who are the biggest players on the market? GE, agi, cisco, Blue Pilar, IBM, ABB, Schneider, Hitachi, AutoGrid, Bosch, enel, next, comverge, enbala, ENEROC, Siemens.

After everything I have read so far I can tell that VPPs future looks very promising. It is clear that they are becoming a driving force in the power sector but battery storage is a crucial piece in the puzzle. Also, favorable government acts, investment and policies will play an important role in the adoption process of VPPs.