Virtual Power Plants Explained

An increasingly networked world has given rise to more decentralized power infrastructure. These virtual power plants (VPPs) are made up of remotely-managed smaller units, many of which make use of renewable energy. Virtual power plants provide a degree of flexibility unheard of in traditional plants, allowing for easier management not tied to a large and unseemly facility. It also lays the groundwork for a transition to sustainable energy sources that can compensate for the variability of factors such as sun and wind.

A VPP consists of a network of smaller-scale power producers, storage units, or conversion plants linked to a centralized control system. Any decentralized unit can be integrated into a VPP, allowing smaller assets to enter markets they would not have the resources to do on their own. Control systems can adjust for changes in the network, balancing for reserves and updating in real time to grid conditions.

VPPs are similar to microgrids, which also make use of a variety of energy types to adjust to demand. However, VPPs are on-grid, whereas microgrids are often isolated or restricted to a particular location. VPP control systems also aggregate those of the individual units, whereas microgrid assets tend to be less virtual and more reliant on hardware for control. To that end, VPPs also sidestep the hefty expenses involved in upgrading existing infrastructure.

The need for powerful VPP software has seen numerous companies scramble to gain an early foothold in this field. Given the variance in VPP networks, trailblazers in the field have built and marketed platforms catering to different markets, each providing monitoring and control systems for associated assets. Many larger power companies have taken notice, snapping up the providers of VPP tools in recent years. The exchange of data facilitated by this software also grants real-time insights into the functioning of the grid and can create further efficiencies.

The flexibility that virtual power plants provide gives smaller units a foothold in the market. Due to high barriers to entry regarding availability and reliability for production, these services can work together under the umbrella of a VPP to shore up each other’s weaknesses in the event of an unforeseen outage.

The concept of virtual power plants has been around since the end of the twentieth century, but technological limitations prevented them from being anything more than a theory. Exponential advancements in computing made VPPs more feasible, affording more sophisticated and reliable control systems. Germany’s exit from nuclear power and the modification of their renewable energy act has laid the foundation for the country’s transition to VPPs as part of a larger shift toward renewable energy.

The digitalization of the energy sector can improve the way that providers distribute energy and give smaller companies a foothold, particularly with renewable assets that might not be as consistent. Virtual power plants represent an unprecedented level of agility unmatched by traditional power plants and should be considered for its variety of benefits in cost and decentralization.

About Nikolas Perrault

Nikolas Perrault is a Chartered Financial Analyst with significant experience in the financial, technology, and natural resources industries. As founder and CEO of M&A and Capital Market Advisory consulting firm Twilight Capital, Mr. Perrault provides strategic advice to select clients on a global scale. Twilight’s primary focus is natural resource companies. Additional areas of interest include AI, healthcare, and Fintech.

Nikolas Perrault was born in Rwanda and has traveled extensively for decades throughout the world. He has a passion for discovering new cultures and building bridges between them. Twilight is on a constant quest for opportunities to connect entrepreneurs internationally and to assist public and private companies in their overall capital market strategy.