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Virtual power plant

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A virtual power plant, or VPP, is a sophisticated system used to manage electricity. It works by aggregating distributed energy resources, which are known as DERs. These DERs are small energy sources located in many different places. Instead of relying on one massive building, a VPP connects these tiny sources together. This coordination allows them to behave like a single, large power plant. VPPs are essential for balancing the supply and demand of electricity on a modern grid. They help utilities manage power more efficiently and reliably.

The mechanism of a VPP relies on a central management system. This software securely controls operations, billing, and payments for everyone involved. The system accesses both dispatchable and non-dispatchable resources. Dispatchable resources are those that can be turned on or off when needed. Non-dispatchable resources, like wind or solar, provide power based on the weather. The VPP can manage the supply by pulling power from batteries or generators. It can also manage demand by adjusting how much power devices use. For example, it can turn off heat pumps or air conditioners for a short time.

There are many different types of resources that make up a VPP. These include micro-CHPs, which are small combined heat and power systems. They also use natural gas-fired reciprocating engines and biomass. Renewable sources like wind power plants, photovoltaics (PV), and run-of-river hydroelectricity are common. Battery energy storage systems, or BESS, are also vital components. These include large batteries or even the batteries in electric vehicles. Vehicle-to-grid, or V2G, technology allows electric vehicles to participate by discharging power back to the grid. This heterogeneity, or variety, means the system does not depend on just one source.

The concept of the VPP has evolved significantly over several decades. Shimon Awerbuch first proposed the VPP idea in 1997. Early development was slow because of technology and regulatory limits. In 2008, RWE launched the first real VPP using nine hydroelectric plants for 8.6 MW. The University of Kassel later piloted a system using solar, wind, biogas, and hydroelectricity. In 2011, Kraftwerke began expanding VPPs across seven different countries. In the United States, growth was supported by the 2009 American Recovery and Reinvestment Act.

Regulatory changes have helped VPPs become more active in energy markets. In 2011, Federal Energy Regulatory Commission Order 745 allowed demand reductions to be treated as generation. Later, Order 2222 in 2020 enabled direct bidding from distributed energy resources. These rules allow VPPs to provide important services like peak shaving. Peak shaving delivers power during times of high demand to avoid using expensive peaker plants. This process can save between 40% and 60% in costs. VPPs also provide ancillary services, such as frequency regulation and operating reserves. These services respond to grid needs within seconds or minutes.

VPPs are reaching massive scales across the globe. In the United States, capacity reached 37.5 GW by 2025. In 2023, the Department of Energy estimated capacity was between 30 and 60 GW. This represented about 4% to 8% of peak electricity demand. In California, Tesla and SunRun supplied significant amounts of power during peak times in 2022. In the UK, Tesla and Octopus Energy work with many homes. Europe is also seeing huge projects, like the Enpal and Entrix plan. They aim to reach 1 GW of capacity by the year 2026.

Managing these systems requires complex mathematical strategies to handle market risks. Operators use several methods to make decisions in wholesale energy markets. These include Info-gap decision theory (IGDT) and Robust optimization (RO). They also use Conditional value at risk (CVaR) and stochastic dominance methods. These strategies, such as First-order (FSD) and Second-order (SSD), help hedge against price fluctuations. By using these tools, a VPP can act as a reliable, dispatchable plant. This connects small-scale home energy to the massive, global energy economy.

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