Crucial role for VPPs in securing power supply

Virtual power plants (VPPs) are becoming critical tools to secure electricity supply and enhance the utilization of renewable energy resources, at a time when global power demand is growing, a consensus view shared recently showed.

With shared practical experiences and the introduction of more favorable policies, VPPs are also expected to participate more extensively in the power market, according to more than 800 energy and electricity industry experts, company representatives and government officials at a recent forum in Suzhou, Jiangsu province.

At the forum, the experts from home and abroad actively shared their experiences and insights, while exploring the future trajectory of VPPs in the country.

A virtual power plant refers to a network or collection of decentralized energy resources or power-generating units that are controlled by a central software platform to function as a larger and flexible power source.

With aggregations of distributed energy resources, including renewables, storage and controllable loads, VPPs can provide electricity to the power grid and respond to changes in demand, reduce costs and improve efficiency for consumers, facilitate the utilization of clean and low-carbon energy, optimize electricity market mechanisms and secure steady power supply.

"VPPs have seen rapid expansion in recent years. By the end of 2024, the global installed capacity of VPPs totaled about 233.5 gigawatts. At present, about half of the VPPs (in the world) are operating in European countries. China and the United States are speeding up the development of VPPs," said Zheng Zhanghua, senior researcher at Global Energy Interconnection Group Ltd.

VPPs emerged in several nations from the early 2000s onwards.

In the United States, VPPs were triggered by a "demand response "mode to better control loads and improve the grid's overall flexibility during peak hours.

Featuring flexible energy resources on the load side, VPPs in the US, such as Tesla's Autobidder, are making profits via trading and bidding in electricity markets.

In Europe, Germany had a head start in developing VPPs.

Following two decades of experience and solid policy support, several VPPs have realized commercial operation in the electricity market, including Next Kraftwerke, GETEC Energie, MVV Energie and Sonnen.

As China speeds up construction of a new power system highlighting green and low-carbon transition and high-quality growth, many of its provinces and cities have been making inroads into the VPP sector in recent years.

Data show that Shanghai has cumulatively fostered 24 VPP operators and more than 40 have been activated in Shenzhen, Guangdong province.

In the provinces of Shanxi and Shandong, VPPs are already making profits in the spot market for electricity trading, according to Zhao Xiaodong, a senior engineer from the energy research institute of the Chinese Academy of Macroeconomic Research, a think tank under the National Development and Reform Commission.

"Given the scale of its energy system and its role in global emissions, accelerating China's energy transition is critical. We see VPPs as a practical way to unlock the full potential of renewables, reduce fossil fuel reliance, and engage consumers in the energy transition," said Zhou Feng, officer of the Clean Power Program at Energy Foundation China.

VPPs have diverse operation modes in China at present.

Jiangsu Huagong New Energy Technology Co Ltd, a digital energy solutions service provider in Suzhou, is a pioneer in building management platforms integrating energy resource, grid, load and storage.

Working with Suzhou, its VPP platform has integrated the data of 215 high-energy-consuming companies, 72 photovoltaic stations, over 600 charging piles as well as other resources from energy stations and user-side storage, said Zhao Mingyuan, the company's chief executive officer.

Zhao said that the integrated data enable the platform to realize real-time monitoring and overall management of the local energy consumption and carbon emissions, which can help firms take effective measures on energy saving, carbon reduction, cost reduction and revenue increase.

Moreover, based on in-depth research data on local industrial and commercial loads, the company can better understand the reasons as to how and why these loads can supply or demand energy consumption, according to Zhao.

"After years of exploration and practices, consumers are becoming more aware of VPPs in China. Especially when new policies come out, we receive more inquiries on cooperation from consumers, partners and the government," said Zhao.

He highlighted the latest policy guidelines on accelerating the development of VPPs, which was jointly issued by the National Development and Reform Commission and the National Energy Administration last month.

According to the guidelines, China has set ambitious targets to reach 20 GW of virtual power plant capacity by 2027 and 50 GW by 2030. The nation is also encouraging diverse business models for VPPs, urging their participation in electricity markets and demand response programs to generate revenue.

Beyond grid services, VPP operators are also encouraged to explore value-added services, such as energy efficiency consulting, data analytics and carbon trading support.

Jiang Haiyan, director of the research center for VPPs at State Grid (Suzhou) City & Energy Research Institute, pointed out that VPPs can significantly help reduce greenhouse gas emissions.

By 2030, VPPs will help reduce 271.4 million metric tons of carbon dioxide equivalent greenhouse gas emissions if all are used to replace coal-fired power generation units in peak load regulation of power systems. They will help cut 64.4 million tons of emissions if all are used for the consumption of photovoltaic generation, and 62.05 million tons if the entirety is used to improve the energy consumption efficiency of companies, according to Jiang.

"Virtual power plants are not only a technological change, but also an innovation in business models," said Jiang.

Despite active attempts by VPP operators and the industry's promising future prospects, the VPP sector in China is still at a nascent stage.

Several challenges remain in establishing unified definitions, operation and management frameworks, sustainable profitability, market mechanisms and standards. These are expected to be addressed under the new guidelines.

With China constantly pursuing its dual-carbon goals of peaking carbon emissions before 2030 and achieving carbon neutrality before 2060, experts and business leaders are seeing increased positive signals and getting ready to push the sector forward.