The Virtual Power Plant

As the use of renewable energy sources grows, so does the need to share energy. The virtual power plant combines various power generation systems and electricity consumers, which are managed collectively. It aims to provide a collective supply of electricity and power from a network of these systems. This concept will play a key role in the energy transition. In this article, we’ll tell you more.

Examples of generation systems within such a network include biogas plants, wind power, solar energy, combined heat and power (CHP) plants, and hydroelectric power plants. The network also includes electricity consumers, energy storage systems, and Power-to-X plants (power-to-gas and power-to-heat).

Any player in the electricity market that generates, stores, or consumes energy can participate in such a virtual power plant. An algorithm coordinates the various installations within the network. This allows all participating systems—just like a large power plant—to respond to fluctuations in the grid and to signals from grid operators to utilize reserve capacity. A virtual power plant can also respond quickly and efficiently to price signals from the electricity markets. The virtual power plant will play a crucial role in the energy transition. Producers of renewable electricity, for example, can operate much more effectively in the electricity market if they join forces in larger functional units.

The virtual power plant will play a crucial role in the energy transition.

History of the Power Plant

Following the deregulation of the electricity market, the first ideas about virtual power plants emerged in the 1990s. At that time, neither the regulatory framework nor computer technology was ready to put such projects into practice.

That changed around 2010. Not only had computer technology advanced enough to develop a reliable, powerful, and real-time control system, but regulations also adapted. This first occurred in Germany with the “Atomausstieg” (the decision to phase out nuclear energy). The German government laid the legal and market-economic foundation with a new design for the electricity market and an amendment to the Renewable Energy Sources Act.

Collective intelligence

Virtual power plants now fulfill the same role in the market as a large power plant. And their installed capacity is comparable to that of a nuclear power plant, with one key difference. Because they consist primarily of a branched network of renewable energy generation systems, their power output is constantly subject to fluctuations. The well-known example: when the sun isn’t shining and/or there is little wind, wind turbines and solar panels supply less power to the virtual power plant. And in addition to power producers, there are also power consumers: electricity storage systems and Power-to-X solutions such as Power-to-Gas (PtG) or Power-to-Heat (PtH).

In addition to intermittent energy sources such as wind and solar power, controllable energy sources —such as biogas and hydroelectric power plants (run-of-river and pumped-storage plants)—as well as flexible electricity consumers, energy storage systems, and Power-to-X plants are indispensable in a virtual power plant. All these combined systems can compensate for fluctuations in power generation, both positive and negative.

Virtual power plants are highly flexible

This rapid and versatile balancing capacity—which we also refer to as flexibility—is the key advantage of virtual power plants. This sets them apart from large, traditional power plants. They can adapt to the amount of electricity available on the grid and, by pooling their capacity, optimally track market electricity prices, thereby delivering the generated power very efficiently. Energy prices fluctuate significantly: on the intraday market, the energy price changes 96 times a day, and price differences of two to three digits (spreads) per megawatt-hour occur regularly.

The key advantage of virtual power plants is their ability to provide rapid and versatile balancing capacity—also known as flexibility.

Large power plants are designed to provide a constant energy supply using generators with capacities of several hundred megawatts. Starting up and shutting down such plants takes time; much like a container ship, they require a long braking distance to come to a complete stop. For example, when wind speeds suddenly increase, wind turbines are often shut down to prevent the grid from becoming overloaded. A virtual power plant can simply instruct its connected biogas and hydroelectric power plants to reduce their energy production when wind speeds are high. When electricity demand rises again, the control system can ramp up power production. Virtual power plants compensate for fluctuations in real time and directly within power production, keeping the public electricity grid in balance. 

How is it controlled?

The control system of a virtual power plant issues commands to increase or decrease the energy supply using IT interfaces (APIs) and remote control units. The control commands within the highly secure, redundantly configured control system are transmitted via specially secured data connections using a technique known as “tunneling.” “Tunneling” means that connections utilize the public communications infrastructure while being protected from other data traffic by their protocols. It is a technique widely used within the “Internet of Things” and concepts such as “Industry 4.0” and “M2M.”

These data connections enable two-way communication between the individual systems and the virtual power plant. This means that not only are control commands exchanged, but the power plant also collects useful real-time data on the usage of the connected systems and their effects on the overall virtual power plant. For example, data on the wind and solar energy produced, as well as energy consumption and storage, serve as the basis for forecasts to estimate energy prices or to determine the utilization rate of the controllable power plants. The power plant can analyze and process this information independently. The software then assists in initiating and executing trading transactions on the electricity markets.

Reserve capacity

The controllable systems—also known as balancing capacity —used to generate electricity from renewable energy sources serve a unique purpose. Not only can they be shut down when there is an excess of energy— negative balancing capacity —but they can also supply additional electricity to the grid when there is a shortage— positive balancing capacity.

A power plant must be capable of generating at least one megawatt to be eligible to provide reserve capacity. To achieve this, a generation system can collaborate with other systems within the virtual power plant. This allows the network to respond to grid operators’ demand for reserve capacity. The revenue from trading that reserve capacity is then distributed among the participating systems. Electricity consumers can offer negative balancing power: for example, a factory participating in the virtual power plant can increase production to draw excess electricity from the grid and even get paid for it!

In the virtual power plant, various systems can work together to respond to grid operators’ demand for reserve capacity.

The users

Using the data collected by the virtual power plant, commercial and industrial consumers can respond to price signals from the electricity market. They can consume electricity when there is a high supply on the market and prices are low. If a manufacturing company shifts its peak consumption to these low-cost periods, it can save up to a third of its electricity costs.

A virtual power plant can perform this optimization fully automatically. To do so, the plant’s control system sends a signal—for example, to the machine management system of a connected company. Of course, this is only possible if it is feasible and necessary within the consumption process. This requires a special electricity meter capable of measuring annual consumption of more than 100,000 kWh.

What about private individuals?

Consumption by private households is, of course, much lower, but they too can easily participate in a virtual power plant. However, this is only possible once everyone has a smart meter. The use of heating, stoves, washing machines, refrigerators, and hot water can also be automatically optimized based on price fluctuations in the electricity market. In the future, families will therefore also be able to coordinate their electricity consumption and generation in a cost-effective manner.

Families, too, can use a virtual power plant to balance their electricity consumption and generation in a cost-effective way.

The future is digital

The future is digital, and that goes for the energy sector as well. We are moving away from large, fossil-fuel-powered power plants toward small, decentralized systems that together form a network. All of this has been made possible by digitalization.

Just like platforms such as Airbnb, virtual power plants are driving democratization—in this case, of the energy supply. After all, the operator of a virtual power plant no longer owns its own power plants but optimizes the use of small power plants owned by others that are connected to the grid. In terms of installed capacity, the largest virtual power plants have already surpassed major nuclear power plants. Through their network, they produce climate-neutral electricity and thus make a substantial contribution to the energy transition.

Driven by major consumers such as households, transportation, and data centers, the demand for electricity is skyrocketing. If we want to protect the climate, we simply cannot meet that demand using conventional methods. Thanks to computer technology and decentralized energy sources, virtual power plants are therefore the way forward toward a new energy landscape.