A virtual power plant is a technology platform that connects flexible demand assets to opportunities to offer ‘demand response’ to the wholesale power market. This demand response provides an important new source of support to the power grid during critical times.
The energy transition
As we build more wind and solar power each year, the retirement of many of our largest coal-fired power stations is on the horizon. To make this transition work, we need to build new forms of power capacity that ensure the reliability of the power grid while balancing the natural variability of renewables.
With a cluster of five announced coal-fired generator retirements within the next decade… the investment need is pressing and widespread… to support the energy transition underway.
Australian Energy Market Operator
Flexible demand can take many forms, some of which are complex. However, the general principle is simple: It involves making temporary adjustments to a facility’s power consumption based on conditions on the power grid or opportunities in the wholesale power market.
Manufacturing + industrial process equipment
Commercial HVAC + refrigeration systems
Backup power assets
Battery energy storage
Electric vehicle charging infrastructure
Businesses that offer demand response through a VPP earn a new source of revenue for the support that their flexible demand provides to the power grid. This revenue typically includes both a standby payment for being available to respond and a utilisation payment that is earned each time the market calls upon the demand response. Businesses can tailor their VPP participation based on their operational capabilities and priorities. Further, VPP revenue can be earned independently from the retail power supply contract, meaning businesses retain the freedom to buy power from whichever retailer offers the best commodity price.
The growing need
The market opportunities for demand response have expanded dramatically in recent years as regulators and market operators urgently seek new ways to balance the renewable energy transition. New programs continue to be introduced, and the market value of these programs continues to increase as the renewable transition results in larger intra-day price spreads and a greater concentration of high pricing in fewer hours. Because it primarily comes from existing assets, demand response is possibly the most cost-effective option for balancing renewable energy. This means that VPP participation offers businesses a unique opportunity to improve their bottom line while also supporting the community.