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What is a VPP?




The market changes, the power-plants have to follow: Global energy markets are facing major changes. We move from a model with centralized electricity generation in power plants operated by large utilities towards a mix of decentralized and often renewable energy production in small facilities. Those small scale plants are typically owned by small companies or households, who become ‘prosumers’: consumer and producer at the same time.

We experience a true paradigm shift. The further penetration of renewable energy generation challenges the conventional way of operating our electricity system. Business models have to be reinvented and our grids redesigned. The variability of renewable sources like sun and wind do not necessarily endanger the system balance as long as they are dealt with appropriately. And that is exactly where a Virtual Power Plant (VPP) comes in.

One single unit cannot transition our energy system single-handedly. But joining forces, renewable energy producers can really make a change. At the end of the 1990s, a time when the power markets started to liberalize, the first concepts for Virtual Power Plants were born – but mostly only in theory. Computer and network technology at the time and the prevailing regulatory conditions were not yet well suited for projects to take shape at the necessary scale for a systemic and economic development of a Virtual Power Plant.


In a Virtual Power Plant, decentralized units in a power network are linked and operated by a single, centralized control system. Those units can be either power producers (e.g. wind, biogas, solar, CHP, or hydro power plants), power storage units, power consumers or power-to-X plants (such as power-to-heat and power-to-gas). When integrated into a Virtual Power Plant, the power and flexibility of the aggregated assets can be traded collectively. Thus, even small units get access to the lucrative markets (like the market for balancing reserve) that they would not be able to enter individually. Any decentralized unit that consumes, stores, or produces electricity can become a part of a Virtual Power Plant.

Additionally to operating every individual asset in the Virtual Power Plant, the central control system uses a special algorithm to adjust to balancing reserve commands from transmission system operators and to grid conditions – just as a larger, conventional power plant does. Furthermore, the Virtual Power Plant can react quickly and efficiently when it comes to trading electricity, thus adjusting plant operations according to price signals from the power exchanges.

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