Guide to Virtual Power Plants (VPP)

Our electric grids are becoming increasingly reliant on renewable energy, as conventional generation plants are phased out and electrification of transport, heating, and industry continues to rise. 

Virtual Power Plants (VPPs) are becoming critical to this transition by allowing multiple Distributed Energy Resources (DER) to essentially function as one single power plant. In fact, it’s expected that generation assets operated by VPPs will make up over 20% of peak capacity in the US by 2030. 

VPPs open up new opportunities for DER asset owners by allowing them to optimize their asset’s output and access new revenue streams on a portfolio level. But should you create a new VPP from scratch or join an existing VPP? And how do you connect your assets to a VPP in the first place? In this article we explain the steps for asset owners to either create a VPP or join an existing one, and how to decide which route is optimal for your situation. 

How to create a Virtual Power Plant 

Creating a new Virtual Power Plant takes work, but offers strong potential for long-term profitability once you’re up and running. Here are 4 steps you need to take to get started:  

1. Identify which DERs will be part of your VPP 
2. Find participants for your VPP
3. Connect all participants’ assets in the EMS 
4. Start participating in grid events 

If you’re trying to decide whether to create a VPP or join an existing one, consider the following factors before you make a choice: 

• Asset portfolio: if you own or operate a relatively large portfolio of distributed energy assets in different locations, then you could create a VPP, otherwise it’s better to join an existing VPP.
• Time to market: joining a VPP is much faster, but if you’re willing to work on it for a longer time period, then creating a new VPP can still be a great option. 
• Control: if you want full control over dispatch decisions, market participation strategy, and which services the VPP provides, then you’ll need to create your own VPP. 
• Investment: the costs of joining an existing VPP are typically lower than the upfront costs of creating a new VPP, so bear this in mind if you opt to create your own VPP.  
• Risk: while creating a VPP may offer more long-term profit potential, it also carries more risk than joining an existing VPP so consider your risk appetite as part of your decision.  

We’ll now walk through each step in more detail and share some examples of successful VPPs around the world. But first let’s clarify what we mean by a Virtual Power Plant.  

What is a Virtual Power Plant (VPP) and how does it work?

A Virtual Power Plant is a network of distributed energy resources (DER)—such as generation assets, energy storage, electric vehicle charging points, and more—that combine to function as a single power plant in the electricity market. 

Virtual power plants, or VPPs, sell electricity on the market as well as providing demand response and other flexibility services that enable the grid operators to keep the grid balanced. The flexibility of VPPs to quickly adjust production or consumption of energy is critical to modern grids, especially as conventional generation plants are phased out.

But VPPs are not only essential to balancing the grid, they also offer a huge opportunity for DER asset owners to operate their assets more efficiently and to even create new revenue streams by offering their services to the grid operator. 

The difference between a Virtual Power Plant and a microgrid 

Unlike VPPs, assets in a microgrid—or smart grid—are typically co-located or located geographically close to each other. Microgrids can also typically function as an island (i.e. disconnect from the main distribution or transmission grid), whereas VPPs are usually reliant on the main grid to sell their electricity and other services.

4 steps to creating a VPP

So you’ve decided you want to create a Virtual Power Plant, but what should you do first? We’ll now explain each of the 4 steps to get started. 

1. Identify which of your DERs will be part of the VPP 

The natural first step in getting started with VPPs is to decide which of your assets will be included and what other asset types you need to procure or find a participant for. The assets in a VPP are classed as distributed energy resources, or DER for short. DER can be any small-scale energy asset (typically < 10 MW) that generates, stores, or consumes energy. 

Unlike traditional power plants where you have a large generation asset at one site, VPPs bring a range of DER together—but virtually. What does that mean? Well, the DER assets connected in the VPP do not need to be co-located, instead they just need to be connected into the same digital or cloud-based system. 

This means that you have full flexibility in choosing which assets form your VPP, and it can be as small or as large as you like. However, the best-performing VPPs tend to include a mix of generation and storage assets, as well as assets that use electricity, such as electric vehicle charging points or heat pumps.  

Some VPPs even include newer technologies like vehicle-to-grid (V2G), which allows bi-directional charging between the vehicle’s battery and the grid, meaning the battery can actually provide extra electricity to the grid if required.  

Why do you need multiple asset types in your VPP? 

The top-performing VPPs include a mix of generation technologies. This is because renewable energy is intermittent, so having multiple generation types helps avoid having no production when the sun is not shining or the wind is not blowing. 

Equally, the best VPPs also have BESS to store excess electricity when generation is higher than demand, and assets that consume electricity to help keep the balance while also providing those participants with access to clean affordable electricity

2. Find participants for your VPP

If you're planning to create a VPP the next thing you’ve to do is to determine what types of DER you want included in your VPP. 

Some VPPs consist of a small number of generation assets and a couple of assets that consume electricity, whereas larger ones may have 10 or 20 different types of assets that generate, store, or consume electricity. Either way, you need to confirm what types of assets you want in your VPP and find participants that can provide the assets you don’t have. 

But how do you find potential participants? Well, some grid operators will have a publicly available list of DER currently connected to the grid, or else you can reach out to Independent Power Producers (IPPs) and other storage and demand asset owners in the country where you operate (or further afield as VPPs have no physical boundaries). 

If there is an innovative element to your new VPP, you may even qualify for funding from the national government or programs such as the EU’s Innovation Fund.

3. Connect all participants’ assets in the EMS 

After you’ve selected participants for your VPP, the next step is to create a digital ecosystem for the VPP and all the assets that are part of it. You’ll first need to decide whether to buy or build the energy management system (EMS) you’ll use to operate your VPP. 

Then you’ll need to find a solution that enables real-time, accurate transfer of data between all the DER assets and your VPP’s centralized EMS. As your participants will likely have equipment from many different manufacturers, it’s important that you choose a solution that is compatible with a range of hardware and software. 

Plus, you’ll need to ensure that your solution has very high standards for latency, security, and reliability of data streams. Any lags between the data streams from assets in your VPP or inaccurate data will put the VPP at risk of selling generation or flexibility services that it cannot provide. And if this happens, the VPP will miss revenue opportunities and may even receive penalties or fines from the grid operator or regulator. 

For example, imagine a VPP places a bid to provide a flexibility service such as storing excess power in a BESS, and the grid operator awards the contract. But then imagine that the data stream from the BESS was delayed and now the BESS doesn’t have the capacity to store more power. The VPP will not only have reputational damage, but will also receive a sizeable fine for offering a service that it couldn’t deliver. 

This is not a situation that any VPP would want to be in, but it highlights the criticality of using a solution that connects asset data with your EMS in real-time. Finally, you also need to check that your solution complies with any necessary standards or regulations set by the national regulator or the transmission and distribution grid operators. 

If you’re looking for a secure, scalable solution to either create a new VPP ecosystem or connect your assets to an existing VPP, Smart Grid Manager may be exactly what you need (but more on that later!).

4. Start participating in grid events 

Once all the assets are connected in the VPP, it’s time to explore the new revenue opportunities that operating a VPP creates. These opportunities mainly involve selling electricity on the market and providing ancillary services to the grid operators to help them to keep supply and demand for electricity balanced, such as: 

Export excess power: while VPPs usually involve both assets that produce and consume electricity, there will be times when the VPP generates more electricity than it can consume. In this case, the VPP can sell this excess generation on the electricity market to increase its revenue. 

Shift consumption to off-peak hours: many of the DERs in a VPP have some flexibility over when they need to consume electricity e.g. electric vehicles are often plugged into charging points overnight, so can be charged from the moment they’re plugged in or at 4am before they’re needed the next morning. 

This means that VPPs can help the grid operators reduce peak demand by consuming electricity when most households and businesses are not using electricity. Typically, the DER assets that offer this flexible consumption will be compensated for providing this flexibility as it not only reduces peak demand but also helps keep the grid balanced during periods of low demand.   

Store/discharge energy for the grid: DER assets that involve a battery can discharge, store, and consume electricity depending on the needs of the grid. This makes them a valuable asset to grid operators as they can quickly switch between consuming or storing electricity to discharging excess electricity back to the grid at times when generation is low.

An example of this is vehicle-to-grid (V2G) technologies which can consume electricity when there is excess generation and discharge electricity from the vehicle’s battery when demand exceeds supply of electricity. 

How to join an existing VPP

If creating your own Virtual Power Plant is not an option for you, then it’s also possible to join an existing VPP. A huge advantage of joining a VPP is that it comes with less responsibilities: you select a suitable VPP and securely connect your assets to its EMS. All other aspects are managed by the VPP operator. 

Below are our tips to help you pick which VPP to join, and connect your assets effectively:

1. Choose a VPP to join 

If you’re looking to join an existing VPP, you need to first choose the best VPP for your specific needs. Selecting a VPP can be overwhelming due to the number of VPPs available in most countries, check out these considerations to help you decide on which VPP to join: 

• Contractual terms: Each VPP can set the terms and conditions for their participants which can vary from multi-year fixed contracts to monthly subscriptions. It’s important to review the contract terms in advance and ensure they’ll work for your business in terms of contract length, fees, and requirements for your assets. Also, check whether there are penalties for early cancellation or non-participation as these could be pretty costly if your equipment unexpectedly needs to be taken out-of-service. 
• Financial compensation: Similar to contracts, VPPs can use a variety of different payment models, from performance-based earnings to flat annual compensation. Before joining a VPP, you should calculate your earning potential and the risks involved and decide if the financial compensation model it offers will fairly reward you for your participation. 
• Track record: There’s no point in joining an unprofitable or poorly managed VPP, so look into the track record of each VPP on your shortlist to understand how much revenue its participants earned in previous years, whether any large companies are part of it, whether it is accredited by any standards and the grid operator etc. If possible, try to speak to an existing participant in the VPP to get their first-hand experience. 
• Data security: It goes without saying but check that the VPP applies high standards of cybersecurity and data protection to minimize the risk of your data getting leaked or unauthorized personnel gaining access to your assets. Review whether they have any certifications, or undergone any audits or pentesting to protect the VPP against common cybersecurity vulnerabilities.   

Once you’ve chosen which VPP you’ll join, you can move on to the next step of actually integrating your assets into the VPP. 

2. Connect your assets to the VPP’s EMS 

When joining any VPP, you’ll need to find a gateway solution that securely connects your assets to the VPP’s EMS. This solution will converge your OT and IT systems, integrating data and control streams from on-site hardware to endpoints in the VPP’s cloud. However, VPPs have different tech stacks, so make sure you choose a gateway solution that is equipment-agnostic and compatible with all EMS and IT systems. 

There are usually specific standards for latency, security, and reliability of data streams that any new DER must meet before connecting to the VPP. This is to ensure that all the assets in a VPP are providing accurate data so that the VPP only bids for ancillary services it can actually provide. Otherwise, it could be liable for high penalties (as previously mentioned). 

Smart Grid Manager makes connecting your assets to a VPP easy and hassle-free, enabling you to quickly get up and running and take advantage of the extra revenue opportunities that being part of a VPP offers. . 

How to decide whether to create or join a VPP 

There are pros and cons of both creating a new VPP or joining an existing VPP. The best choice for your business will depend on the following factors: 

• Size of your asset portfolio: if you own or operate a relatively large portfolio of energy assets (e.g. more than 15 assets located in different geographical locations), then you could consider starting a VPP. Otherwise, it’s better to explore joining an existing VPP.
• Time to market: joining an existing VPP can get you up and running quickly, often within weeks, whereas creating a new VPP takes a lot longer—from a couple of months to a year—depending on the size and complexity.
• Control: if you want full control over dispatch decisions, market participation strategy, and which services the VPP provides, then you’ll need to create your own VPP. However, if you’re looking for a simpler, more hands-off approach then join a VPP instead. 
• Investment: the costs of joining an existing VPP are typically lower than the upfront costs of creating a new VPP (e.g. connection fees, market access fees, regulatory compliance etc.), so bear this in mind before opting to create your own VPP.  
• Risk: while creating a VPP may offer more long-term profit potential, it also carries significantly more risk than joining an existing VPP where someone else is legally and financially responsible for keeping the VPP going and complying with regulations. 

By keeping these factors in mind, you can make the right decision for you on whether to create or join a VPP. 

2 real-life examples of VPPs 

Now you know what a VPP is, how to create or join one, and the pros and cons of each. But what does a successful VPP look like? Here are two examples of high-performing VPPs in Europe and Australia. 

Statkraft VPP in Germany

Statkraft’s Virtual Power Plant brings together more than 1,000 renewable energy sources across Germany and the UK to create a giant digital power plant that has over 10 GW of installed capacity–enough to power an entire city. The participants include providers of wind power, solar energy, bioenergy and hydropower. 

Its dedicated trading platform, Statkraft Unity, allows trading of electricity produced by the VPP participants, providing benefits to the generation owners as well as the grid operators and energy consumers.

Tesla Energy Plan in Australia

As the largest VPP in Australia, ​the Tesla Energy Plan is designed for Powerwall owners to power their homes with affordable renewable energy and provide excess electricity to the wider community. While this VPP is aimed at individual customers rather than DER owners with multiple assets, it is a good example of how EV charging infrastructure can deliver benefits to the owner, the grid operator and the wider community. 

How Smart Grid Manager can turn your renewable energy assets into a VPP

Whether you’re creating a new Virtual Power Plant from scratch or joining an existing VPP, Helin’s Smart Grid Manager is the solution you need to securely integrate data streams from physical DER assets to the centralized EMS. But why choose Smart Grid Manager for your assets? Well, it can help you: 

• Optimize performance of any DER asset
• Prevent negative returns during negative electricity prices
• Implement condition-based maintenance strategies 
• Provide ancillary services to the grid operator to earn extra revenue
• Easily add new capabilities through any (3rd party) application
• Comply with local regulations like the Realtime Interface in the Netherlands

Want to learn more? Schedule an intro call to learn how Smart Grid Manager can help you create a new VPP or connect your assets to an existing VPP.