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Virtual Power Plant – Internet for energy production

Updated: Aug 25

Picture: Research Gate

Virtual power plant - VPP

Virtual Power Plant, or VPP, is a cloud based distributed power plant, aggregating the capacity of distributed energy resources, DER. The core idea is to bundle up various sources of energy to provide reliable energy supply, compensating for the weaknesses of the individual energy sources. The goal is to enable the transition to a carbon free energy system, at the same time reducing the need for extensive investments in expensive high-capacity grid development.

Distributed Energy Resources – DER

A VPP aims to bundle up energy from different sources – wind, solar, hydro or bio, depending on what is available. Technically, also fossil power plants may be included. An important source will be various types of energy storage, to compensate for the instability of wind power or the absence of sunlight during night or when weather is cloudy. Storage can be in the form of battery packs, hydro pump power plants, flywheels or hydrogen.


A VPP requires stern control with both production, storage and consumption., says Jarle Lysberg, Chairman of Ewave Holding AS. - Every point of production, consumption and storage need to be controlled in real-time, ensuring both balancing of demand and supply as well as correct pricing at any given time. Expanding into hundreds or even thousands of relatively small production sites necessitate standardized, low-cost solutions, in order to reduces hurdles for attaching new participants. Further, the consumption must be measured in real-time, demanding smart-home solution for private consumers alongside equivalent “black boxes” at larger industrial and other non-private consumers.

-Finally, grid-cost can also be a bottleneck. If the energy is transported between the participants in the VPP, grid-cost can make it financially non-viable, says Steinar Fretheom, adviser to Ewave. - The grid cost can have the same effect as a tax wedge, causing the prices received and paid to deviate. Thus, grid cost must be considered, ensuring a model not inhibiting the flow of energy between the participants in the VPP.

Market development

The market for VPP is still considered to be in its infancy, especially since some of the challenges have not yet been met with practical solutions. - As the vast majority of homes still are not “smart”, the private consumer market is still largely inaccessible, says Jarle Lysberg. - But some players have managed to establish themselves. The German player Next Kraftwerke GmbH, with appr. 11.000 participants, trading for some 600 MEUR in 2018m, was sold to Shell August 2nd, 2021. Next Kraftwerke, being based in Cologne, has operations in 8 countries. The acquisition by Shell was part of the energy giants shift towards the green sector, highlighting the large, multinational oil companies increasing understanding of the necessity to transit into a low carbon, renewable future.

Steinar Fretheim continues - With a rapidly increasing number of small and domestic points of renewable energy production, combined with a smart-house revolution, the market for VPP`s is very likely to expand massively over the next few years. The introduction of digital, real-time metering in the EU, the roll-out to be completed in 2024, opens a large universe for participants in VPP´s. Still, regulatory hurdles are to be overcome, but the vision of a carbon free Europe requires VPP as a key component in reaching the targets. It also advents the disruption of the energy markets, shifting power from the large energy behemoths to thousands of small players, enabling them to participate with domestic production without being dictated by the gatekeepers of the olden days. It will be a transition like the one caused by the introduction of the internet.

Look up for

Jarle Lysberg is expecting Key players in the VPP development to be companies providing key elements in the system. - This includes suppliers of proper energy management systems providing the necessary smart-home features to engage with VPP´s as well as providers of domestic installations for energy production and storage. Block-chain solutions are most likely important parts of a VPP, enabling smart contracts and clearing and settlement solutions. Disruptive change for the large, established energy giants is ensured – the question is if they will experience their respective Kodak moments or not.

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