January 29, 2024

Virtual Power Plant (VPP)

Table of Contents

Virtual Power Plant (VPP)

A Virtual Power Plant (VPP) is an aggregation of multiple small- and medium scale assets that are linked together into one connected system. The generated energy can be dispatched on demand and collectively traded according to market needs. Virtual Power Plants can quickly and efficiently facilitate energy trading between thousands or millions of distributed energy resources (DERs).

Connectivity creates efficiency

The huge global surge in DERs (namely PV systems, electric vehicles, batteries and heat pumps) is making energy systems more complex. By aggregating these assets' flexibility and making it available on power markets, VPPs reduce the complexity of trading energy between devices that produce, store or consume energy. On their own, DERs offer restricted flexibility due to limited capacity and variability. By combining multiple assets into one connected intelligent system, VPPs can overcome these limitations and provide comparable services to large power plants or industrial consumers. Small-scale assets are becoming increasingly important as the installation of household batteries and EVs proliferates, and with it their potential. Integrating these assets and leveraging their flexibility is important to make clean energy systems more reliable and to lower overall system costs.

Use Cases

Virtual Power Plants bring flexibility to the grid. They balance energy flows by utilizing the aggregated power to respond to changes in supply and demand and/or fluctuating electricity prices. VPPs have a variety of use cases:

Large-scale VPPs

Large-scale power plants, such as solar or wind farms, as well as biogas, green hydrogen or hydroelectric plants can be connected and traded to ensure a steady supply of electricity across regions. Interlinking energy generation sources helps to balance supply and demand and avoid curtailment. 


By integrating electric vehicles (EVs) to the grid you can control their charging behaviour and capacity as well as align those aspects with other connected devices. Making use of photovoltaic panels or batteries that are also connected is crucial. This way costs can be reduced due to optimized power usage. 

Residential VPPs

VPPs can also be interesting for households as the market of smart devices continues to grow. By connecting household batteries to the energy market and making use of forecasts, the full potential of small-scale solar or photovoltaic plants can be utilized. It also maximizes self-sufficiency for prosumers and minimizes costs for both end users and the energy providers.


By leveraging the power of advanced technologies, Virtual Power Plants can provide a variety of benefits such as: 

  • Reduced complexity by connecting small-scale DERs to electricity markets.
  • Minimized risk with a diversified portfolio of assets so that if one asset is faulty, other assets make up for it.
  • Stabilized grid as DERs can be optimally controlled according to price incentives and grid operator needs.
  • Optimized control thanks to constant visualization of assets and energy flows.
  • Enhanced revenue as energy players can leverage the full flexibility of assets to tap into new revenue streams and maximize cost-effectiveness of the overall system.
  • Reduced emissions as better integration of local renewable energy sources reduces reliance on fossil fuels.

Local and system-level optimization

The challenge with small-scale DERs is that they are usually controlled for local use cases, such as household self-sufficiency. Such local optimization could go against the broader needs of the grid. For example, surplus power could be used to charge a car locally rather than fed into the grid to cover demand. Connecting the local Energy Management System (EMS) to the market overcomes this and allows both self-sufficiency to be maximized and the grid stabilized.

Steps and technical requirements

  1. Acquire the ability to seamlessly connect and control all DERs. This allows operators to cluster assets, prioritize devices and set specific constraints and flexibilities.
  2. Connect to forecasting capabilities relating to the market, weather and capacity. A VPP must manage and communicate with each DER in real time to use its full flexibility, requiring a complex algorithm
  3. The VPP receives price signals and commands from the market and sends set-point signals to the assets to tell them how they behave. Power measurements, statuses, constraints and/or errors are exchanged on an ongoing basis to maximize use of assets’ flexibility.


Legislative frameworks in the EU still limit the participation of small-scale DERs in demand-side flexibility programs involving aggregration and linking to wholesale and spot market prices. This means that a lot of demand-side flexibility potential through VPPs remains untapped. Governments must determine how taxes and fees are distributed in the new system and incentivize the installation and use of decentralized assets for individual, commercial and residential projects. It is also important to protect user data, make the use of new technologies transparent and support the use of dependable cyber-physical security systems.