What to Know About Operating Virtual Power Plants

Virtual Power Plants (VPPs) are emerging as a promising solution to optimize energy generation, storage, and distribution in North America . By harnessing the power of advanced technologies and interconnected systems, VPPs offer numerous benefits, including increased grid reliability, enhanced renewable energy integration, and improved energy management.

However, as the deployment of VPPs accelerates, it is crucial to address potential pitfalls and forthcoming challenges that may arise during their operation. In this blog, we explore the current state of VPPs in North America and shed light on the potential hurdles that stakeholders need to consider.

What is a Virtual Power Plant (VPP)?

Before delving into the challenges, let’s first define what Virtual Power Plants are. A Virtual Power Plant is a network of distributed energy resources (DERs) that are intelligently interconnected and centrally controlled to function as a unified power generation and distribution system.

These DERs can include solar panels, wind turbines, battery storage systems, electric vehicles, and even demand response systems. The VPP can also control the pricing of energy, enabling it to sell power to third-party suppliers or directly to customers.

Virtual Power Plants


How Do Virtual Power Plants Work ?

At the heart of Virtual Power Plants is a sophisticated central control system. This software-based system uses forecasting and real-time data analytics to predict and adjust energy output according to current demands and grid conditions.

For example, when demand for electricity is high, the VPP can draw power from all of its connected units to meet this demand. Conversely, when demand is low, it can store surplus energy in its energy storage units.

VPPs also contribute significantly to the stability of the grid. By responding dynamically to changes in power supply and demand, they can help prevent power outages and fluctuations, while also enabling the integration of more renewable energy sources. The VPP can also sell excess power back to the grid, creating an additional revenue stream.

Virtual Power Plant Business Model

The Virtual Power Plant Business Model

The Virtual Power Plant business model revolves around aggregating and optimizing distributed energy resources (DERs) like solar panels, wind turbines, and energy storage units. The key revenue streams for a VPP operator primarily come from two areas:

  • First, by selling the aggregated energy to the grid. Using sophisticated software, the VPP can respond to real-time energy prices, dispatching power when prices are high.
  • Second, VPPs can generate revenue from grid services. This includes services like demand response, where the VPP reduces energy use at times of peak demand, and frequency response, where the VPP quickly reacts to changes in grid frequency, thereby contributing to grid stability.

The Current State of VPPs in North America and Europe

North America has witnessed significant progress in the development and deployment of Virtual Power Plants in recent years. Several utilities, technology providers, and energy companies have initiated projects to leverage the potential of VPPs.

For instance, in California, the world’s largest VPP project was launched, aiming to aggregate and optimize the energy generated by thousands of residential solar installations and battery storage systems.They enable the integration of intermittent renewable energy sources into the grid, helping reduce reliance on fossil fuels and mitigate greenhouse gas emissions.

By aggregating and optimizing DERs, VPPs enhance grid flexibility, stability, and resilience. Additionally, VPPs allow for better energy management, enabling cost savings for consumers and providing ancillary services to the grid.

Europe, the birthplace of Virtual Power Plants , is at the forefront of advancing the VPP concept. By adapting platforms, Europe is revolutionizing the capabilities of VPPs to optimize flexibility and real-time energy trading.

The European VPP market is still in its early stages but is gaining recognition as a solution to address various energy challenges, including transmission congestion, peak demand, fluctuations, and peak-hour energy prices. Utilities are increasingly adopting VPPs as a means of significantly improving grid reliability and resiliency.

Experts predict that investments in Virtual Power Plant solutions will rise in line with the expansion of Distributed Energy Resources (DERs) in developed economies. In response, companies must develop innovative and viable VPP solutions to meet these new energy challenges. Among the companies leading the way in this effort are EDF and Siemens.

Germany is at the forefront of exploring how the VPP concept can facilitate the integration of large volumes of renewable energy.

A notable example is Next Kraftwerke, a German VPP specialist that operates 36 wind, solar, biogas, CHP, and hydropower generators as a unified power plant, supplying power to the equivalent of 12,000 households around the clock.

With a growing network capacity of 9.8 MW and numerous DER assets, Next Kraftwerke is one of Europe’s largest energy traders. Their VPP-as-a-service has also facilitated valuable collaborations, including a $1.7 million joint venture with electronic giant Toshiba last year.


“Utilities have to re-think how to manage power grids because DERs will continue to grow significantly over the next decade. Knowing about DER contributions to our power grids is very important to shift loads to periods when there is less stress on the grid. — Sabine Erlinghagen, CEO Grid Software


Potential Pitfalls and Forthcomings of Virtual Power Plants

While VPPs hold immense potential, their operation is not without challenges. Stakeholders must be aware of these potential pitfalls to ensure a smooth and successful transition to VPP-based energy systems:

1. Technical Complexity: Integrating diverse DERs from various vendors into a unified VPP platform requires seamless interoperability and standardized communication protocols. Ensuring compatibility among different technologies and managing complex grid interactions poses technical challenges that need to be addressed.

2. Data Security and Privacy: VPPs heavily rely on data collection and analysis to optimize energy generation and consumption. Protecting sensitive data from cyber threats and ensuring privacy rights of consumers are critical concerns that require robust security measures and adherence to data regulations.

3. Regulatory Framework: The existing regulatory frameworks in North America might not adequately address the unique operational characteristics of VPPs. To foster their widespread adoption, regulators need to create supportive policies that incentivize VPP deployment, enable fair compensation mechanisms, and ensure grid integration standards.

4. Scalability and Flexibility: As VPPs expand, scalability becomes a crucial factor. The ability to seamlessly add or remove DERs, accommodate varying energy demands, and adapt to changing market conditions is vital for the long-term viability and success of VPPs .

What is a Virtual Power Plant


What Are the Benefits of Virtual Power Plants?

The benefits of VPPs are numerous. They provide reliable and affordable energy, reduce carbon emissions by maximizing the use of renewable energy sources, and decrease the dependence on traditional power plants. In addition, VPPs can be used to help manage grid stability during periods of high demand or unexpected fluctuations in supply.

VPPs can also be used to create new revenue streams for DER owners. By participating in a VPP, owners can sell excess power to the grid or third-party suppliers. They can also earn money by providing services such as demand response.

Demand response is the ability to reduce power demand during peak periods, which can help avoid blackouts and reduce the need for additional power generation.

“We can use our existing assets more efficiently as opposed to raising rates for all electricity users by doing things less efficiently,” Jigar Shah, director of the Loan Programs Office at the U.S. Department of Energy, said in an interview. “Virtual power plants are at the center of that.”

In this next section, we will discuss the operational models for Virtual Power Plants in North America, including utility-run, third-party, and Original Equipment Manufacturer (OEM) models.

Virtual Power Plants


Operational Models for Virtual Power Plants

Virtual Power Plants in North America operate under different models, each with its own implications and considerations. Let’s explore the three main operational models:

1. Utility-Run Virtual Power Plants: In this model, traditional utilities take the lead in establishing and operating Virtual Power Plants . These utilities leverage their existing infrastructure, customer base, and regulatory relationships to aggregate and optimize DERs.

Utility-run VPPs provide an opportunity for utilities to integrate renewable energy sources and enhance grid management capabilities. However, challenges may arise in terms of agility and innovation, as the utilities may have to navigate complex internal processes and regulatory frameworks to adapt to evolving energy landscapes.

2. Third-Party Virtual Power Plants: In the third-party model, independent energy service providers or aggregators act as intermediaries between DER owners and grid operators. They aggregate the energy generated by various DERs, optimize their dispatch, and provide services to grid operators.

Third-party VPPs offer flexibility and agility, allowing for faster adaptation to market dynamics and technology advancements. They also encourage competition and innovation in the energy sector. However, coordination among multiple stakeholders and ensuring fair compensation for DER owners can present challenges that need to be carefully addressed.

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3. OEM Virtual Power Plants: In this model, equipment manufacturers, such as solar panel or battery manufacturers, establish VPPs that primarily utilize their own products. OEMs leverage their expertise and technological capabilities to optimize the performance of their DERs within the VPP ecosystem.

OEM VPPs offer seamless integration, enhanced product performance, and potential cost advantages. However, limited flexibility in incorporating third-party DERs and potential vendor lock-in are important considerations.

Selecting the appropriate operational model for a Virtual Power Plant depends on various factors, including the goals of the project, regulatory environment, market structure, and stakeholder dynamics. Collaboration among utilities, third-party aggregators, and OEMs may also lead to hybrid models that combine the strengths of different approaches.

What Does the Future of Maintenance Look Like for Virtual Power Plants?

According to a report by Navigant Research, the global VPP capacity is expected to grow from 4.3 gigawatts (GW) in 2017 to 28.4 GW in 2026. This reflects a cumulative investment of $113.5 billion. The growth of VPPs is being driven by the increasing availability of DERs, the need to reduce carbon emissions, and the adoption of smart grid technologies.

Virtual power plants are the future of power generation. They offer a reliable and affordable source of energy, reduce carbon emissions, and create new revenue streams for DER owners.


What is a Virtual Power Plant


VPPs are secure, scalable, and offer the flexibility to manage grid stability during periods of high demand.

When uptime guarantees for Virtual Power Plants are not met due to factors beyond your control, such as limited control over behind-the-meter internet connectivity or basic maintenance needs for the fleet of Distributed Energy Resources, it is important to have a plan in place to address these situations.

The following section discusses potential strategies for dealing with uptime issues in VPPs.

Addressing Uptime Challenges in Virtual Power Plants 

Ensuring high uptime is crucial for the reliable operation of Virtual Power Plants . However, certain factors like limited control over behind-the-meter internet connectivity or basic maintenance needs for the fleet of DERs can pose challenges to meeting uptime guarantees. Here are some strategies to address these issues:

1. Redundant Connectivity and Communication: To mitigate the risks associated with internet connectivity, it is important to implement redundant systems. This can involve redundant internet service providers, multiple communication channels, or backup connectivity options like cellular networks.

By diversifying connectivity options, the impact of internet outages or disruptions can be minimized, reducing downtime and ensuring continuous VPP operation.

2. Proactive Maintenance and Monitoring: Establishing a comprehensive maintenance and monitoring program is essential to identify and address issues proactively. Regular inspections, preventive maintenance, and real-time monitoring of DERs can help detect potential problems before they escalate.

Implementing automated monitoring systems that generate alerts for abnormal conditions or performance deviations can enable prompt actions and minimize downtime.

3. Collaborative Partnerships: Engaging in collaborative partnerships with DER owners and customers can improve uptime management. By providing clear communication channels, offering support for basic maintenance needs, and educating stakeholders about the importance of their cooperation in maintaining reliable connectivity, you can enhance uptime.

Collaborative efforts can also include sharing best practices, conducting training programs, and fostering a culture of proactive engagement.

4. Performance-based Contracts: When working with DER owners or third-party aggregators, consider establishing performance-based contracts that include uptime guarantees and associated penalties or incentives. Such agreements can incentivize all parties to prioritize uptime and invest in necessary measures to maintain reliable VPP operation.

Performance monitoring and reporting mechanisms can be implemented to ensure compliance with contractual obligations.

5. Continuous Improvement and Adaptation: The dynamic nature of VPPs requires continuous improvement and adaptation to optimize uptime. Regularly evaluate system performance, collect data on downtime incidents, and analyze the root causes of disruptions.

This information can guide process enhancements, technology upgrades, and the implementation of lessons learned, leading to improved uptime in the long term.

By implementing these strategies, you can enhance the reliability and uptime of Virtual Power Plants , even in situations where limited control over behind-the-meter connectivity or basic maintenance needs pose challenges.

Take a Proactive Approach to Your Virtual Power Plant

While limited control over behind-the-meter internet connectivity and basic maintenance needs for DER fleets can impact uptime guarantees in Virtual Power Plants , proactive measures can mitigate these challenges.

Redundant connectivity, proactive maintenance, collaborative partnerships, performance-based contracts, and continuous improvement efforts are key strategies to address uptime issues. By adopting these strategies, stakeholders can work towards minimizing downtime, optimizing VPP performance, and providing reliable energy services to the grid.

With the power of CMMS software and big data analysis, we can optimize our systems in real time, allowing us to deliver clean energy exactly when and where it’s needed. By staying on top of these cutting-edge technologies, we can continue to lead the way in sustainable energy production.

Find out how 60Hertz Energy’s CMMS can help. Book a demo today.

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