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What is a Virtual Power Plant (VPP)?

What is a Virtual Power Plant (VPP)?

A VPP is a portfolio of distributed energy resources (DER), including electricity consumers, small-scale renewable energy power plants, storage batteries, onsite battery storage, and fuel cells, which are controlled in an integrated manner to function as if they were a single real power plant. It is also called a virtual power plant.

For practical purposes, VPPs act like and have the same effect as a traditional, centralized large power plant. Their ultimate goals are the same – ensuring that energy demand on the grid is met by the available energy supply and that the grid remains stable.

explanation of how virtual power plant works

Traditional power plants operate out of one physical location and work only on the supply side of the grid equation – as demand increases, the centralized physical power plants ramp up to supply more energy.


A virtual power plant, by contrast, uses its many decentralized assets in different ways with IoT to help supply meet demand. Decreasing demand has the same effect as a traditional power plant increasing supply — ensuring that supply and demand stay balanced.


But this is not all that VPPs can do. Some of the DERs in a VPP can also supply energy to the grid (e.g., on-site generators, storage technologies), a trend that we see increasing in the future.


Adoption of DERs is growing, as they enable organizations to be more flexible in how they consume energy, advance their sustainability goals, and boost resilience across their operations.

Variety of assets to help supply meet demand

A wide variety of different energy assets can be aggregated into a VPP. Some examples of assets in VPPs include:

1. Flexible load1): Flexible load refers to the management of electricity demand (consumption) to match the supply of electricity. The most common demand-side flexibility is demand curtailment, which can be incentivized through utility or market operator Demand Response programs. Under these programs, large electricity consumers are rewarded for curtailing demand during system peak hours.

Case Study about Echuca Regional Health in Australia is an example of this.

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Demand Response

2. Battery StorageBattery storage systems can enable organizations to allow consumers to use energy stored during periods of low electricity prices or energy stored by renewable energy sources. Batteries can contribute stored energy directly to the grid as part of a VPP.

3. On-site solarOn-site solar can help reduce the volume of electricity purchased from the grid. Depending on the contract program, excess solar can be exported back to the grid.

4. Electric Vehicles: Much like a battery, smart EV charging can respond to grid signals and allow EV owners to shift their charging time from high electricity prices periods to low electricity prices. A Case study with Gogoro and Enel X Taiwan is an example of this.


Benefit of a VPP

By optimizing usage of DERs, VPPs offer many benefits over the traditional centralized power plant model. This is because alternative thermal power plants are often expensive to operate. In addition, grid operators spend a lot of money maintaining these plants so they can be ready to start up at times of peak demand quickly.


DERs in a VPP, by contrast, have much lower marginal costs and are typically using much cleaner energy – like on-site solar, storage, or controllable flexibility.

Gogoro and Enel X Taiwan Partnership

The evolution of the VPP

The energy industry is rapidly evolving. What was once considered a moonshot has become commonplace — renewable resources becoming cost-competitive with fossil-based dispatchable generation, while smart appliances and vehicles can quickly respond to price signals.  


However, these changes have made maintaining a balance between supply and demand more complex. For example, wind and solar power are intermittent resources (meaning there is no power if there is no sun or wind), and their increasing prevalence highlights the flexibility challenges and capacity needed to bridge times of high and low intermittent generation.


For example, what is seen in the California Duck Curve is that as the introduction of renewable energy expands, the way electricity is used by the hour changes. And at the neck of the duck (evening time zone), demand is sharply higher and the balance between supply and demand can easily become unbalanced. This phenomenon is not only seen in California, but is also starting to occur in various areas in Japan. So, areas like Kyusyu, solar power generation volume is high compared to the other countries, need to think about countermeasures.

The Leaders' Declaration adopted at the G20 Summit, which closed on September 10, 2023, announced an agreement to ”pursue and encourage efforts to triple renewable energy capacity globally” 2) by 2030. So it is necessary to think about effective countermeasures soon.


This is where demand-side energy resources such as flexibility and storage batteries come into play.

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Balancing the supply and demand of electricity through the optimal use of VPPs is a trend that is likely to increase in the future.

DR/VPP Operations Engineer

Hiromasa Kondo

Participating in VPP has many advantages for companies.


Enel X has extensive experience integrating DER, various demand response programs, solar PV, and storage batteries into VPPs, creating a valuable revenue stream.


Please also read "How to participate in Demand Response?"


1) Flexibility in the power industry refers to the ability to adjust and adapt generation, consumption, and grid operations in response to changing supply and demand conditions. This includes not only coping with fluctuations in electricity demand, but also managing the variability and uncertainty associated with the integration of renewable energy sources.


2) Ministry of Foreign Affairs of Japan
G20 New Delhi Leaders' Declaration




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