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The concept of Virtual Power Plants (VPPs) overturns the more traditional idea of relying on centralised (often CO2-emitting) power plants for predictable and reliable power output. As more and more small and large independent power producers enter the scene, solar, wind, and other renewable energy sources (RES) have penetrated the electricity grid all across Europe, opening the transition to a clean and sustainable energy infrastructure. However, the integration of these Distributed Energy Resources (DERs) into the grid is posing several challenges related to transmission congestion and/or voltage and frequency stabilities; renewables, in particular, are creating reliability issues due to their uncertain and intermittent nature. This clean power has disrupted the energy grid and created the need for new models and solutions for their integration.

A VPP aggregates many dispersed and independent DERs into a single operating agent that acts like a traditional power plant, with a similar sizable generation capacity, allowing it to participate in power system markets (both wholesale and retail) or sell services to the operator. A VPP thus represents a flexible portfolio of DERs to enable smaller power system agents (i.e., consumers, producers, prosumers, or any mix thereof) to engage in electricity markets and provide services to the grid.

Virtual Power Plant (IRENA, 2019)

VPPs can help the integration of RES by providing both demand- and supply-side flexibility services to the main grid. VPPs can aggregate demand-response resources or energy storage units responding to grid requirements (demand-side flexibility), as well as incorporate fast-response units such as capacitors and batteries, along with CHP and biogas power plants to optimise power generation (supply-side flexibility). Through these two types of core services, VPPs can provide tangible benefits such as (IRENA, 2019):

  • Supporting grid operation through various ancillary services
    • Demand-side management and real-time load shifting based on price signals to reduce peak demand – making a business case for deferred investments in transmission and distribution grid infrastructure
    • Balancing services and providing ramping requirements via optimisation platforms to compensate for fluctuations of any variable generation output from RES
    • Increasing local flexibility at the distribution system level, if there is a regional local market for flexibility in place
  • Decreasing the marginal cost of power
    • By reducing or shifting load during peak demand to avoid the use of large (fossil-fuel) power plants to meet a small amount of electricity demand at an elevated cost, or
    • By completely replacing the peak power plant with the dispatch of the aggregated DERs and charged batteries
  • Optimising investment in power system infrastructure
    • By saving on the costs of new capacity additions and/or grid reinforcement with the provision of real-time operational reserve capacity from already connected DERs, while providing them with additional revenues through their participation in ancillary markets when needed.

Problems to be solved

Raising grid stability and reliabilityIncreasing demand for integration of  renewable sourcesRestricted marketIncreasing & changing energy demandIncreasing costs & emissions from current energy supplyDemand for greater grid resilience and flexibility


The increasing usage of renewable energy raises the risk of unpredictable energy generation drops or peaks. A virtual power plant reduces these risks by aggregating several small production units. Besides balancing (unpredictable) sustainable energy supply and demand in neighbourhoods, it improves the yield of energy generation units as it enables households to store and/or trade surplus energy.

Main benefits
  • Reducing operation costs

  • Enhances grid stability

  • Improving energy supply efficiency

  • Reducing energy bills

Potential benefits
  • Reducing use of fossils

  • Improving energy usage efficiency

  • Increasing share of renewables

  • Reducing GHG emissions

  • Promoting sustainable behavior

  • Increasing energy efficiency of appliances

  • Enhanced data collection


Functions help you to understand what the products can do for you and which ones will help you achieve your goals.
Each solution has at least one mandatory function, which is needed to achieve the basic purpose of the solution, and several additional functions, which are features that can be added to provide additional benefits.

Mandatory functions
    Controlling energy generation

    Products controlling the local generation of energy through renewable sources

    Managing energy distribution

    Products managing the energy consumption time-wise and for several devices through an ICT-infrastructure

    Enabeling bilateral grid communication

    Products enabling the communication between the virtual power plant and the grid to receive and sell energy

Potential functions
    Storing energy

    Products saving energy, such as home batteries, to enable the system to shift the energy generation and consumption or selling time-wise

    Predicting energy consumption

    Products giving future predications on the energy consumption, for example due to seasonal or personal impact

    Predicting energy generation

    Products giving future predications on the local renewable energy generation, for example due to weather conditions

    Informing user about possible improvements in their energy consumption

    Products informing inhabitants about their current energy consumption and the source of the consumed energy, as well as possibilities to improve their consumption financially or to reduce their environmental impact

    Allowing user input on future energy demand

    Products enabling inhabitants to adjust the prediction on their future energy consumption

    Predicting energy prices

    Products giving predictions on the development of energy prices, for example depending in the daytime or seasonal consumptions

Products offering these functions

Virtual Power Plants

Creating a virtual power plant will make it easier to optimize grid stability and maximize energy trading earnings.

Virtual Power Plant optimization

Improving the prediction of the energy performance and energy markets for RES electricity and heat.

Energy storage solutions

Intelligent battery-based storage solutions to enable a sustainable, reliable, and cost-effective electricity supply.


VPPs operate on different optimisation models, techniques, and algorithms with two main purposes: (1) optimising the capacity and power flow of the aggregated DER units within the distribution system, and (2) maximising the value of the DER portfolio from the participation in the energy markets. The focus of the specific optimisation strategies determines the system configuration, parameters, and control schemes. VPPs are thus classified into two main types: Technical VPP (TVPP) and Commercial VPP (CVPP). It is possible that one or more DERs can simultaneously be part of both a CVPP and a TVPP.

Source (FENIX, 2006)


TVPP focuses on optimal operation and management of several DERs (but also energy storage systems) that are connected to local networks from the same geographic location. TVPPs determine the values of different technical parameters and real-time data to influence the local network and fulfil the load demand in the electricity market, considering the marginal costs and operating characteristics of the portfolio.

TVPP provides system management services on the distribution level, as well as balancing and ancillary services at the transmission level.

This allows small units to provide ancillary services and reduces unavailability risks by diversifying portfolios and capacity compared to stand-alone DER units.

TVPPs need to collect different information from connected CVPPs, such as the maximum capacity of each DER of the storage system, forecasted values of future requirements, geographical locations, available control strategies, etc. With this information, TVPP ensures a secure and safe way to run the optimal operation of VPP.

Use Cases



Virtual Power Plant in Mülheim

"The solution consists of a virtual power plant which connects local photo-voltaic production, heat pumps and batteries. A charging station for electric vehicles is also be integrated into the system. It lowers the demand for external energy by increasing energy self sufficiency of buildings.



Smart City Central Energy Controller

A Virtual Power Plant energy management platform, providing the capability to city stakeholders to actively manage Distributed Energy Resource (generation, storage and load) from a single platform.


CVPP mainly emphasises financial aspects in the electricity market to maximise the profits with minimum system costs. CVPP integrates different DERs concerned with the precise marginal costs and the rational evaluation of energy market conditions, disregarding the impact of the local distribution network. CVPPs perform commercial aggregation and do not into consideration any operation aspects that active distribution networks have to consider for stable operation: Therefore, numerous DERs from different locations can be integrated through CVPP and can be maintained by the operator sitting at any other geographical location. A single distribution network region may have more than one CVPP aggregating DER units in its region.

CVPP services and functions include trading in the wholesale energy market, balancing of trading portfolios, and provision of other ancillary services to the transmission system operator.

CVPP determines the electricity market’s current load demand and previous information to utilize DERs in the energy market. It reduces the imbalance and risks from the system and introduces high efficiency with minimum cost.

Value Model

City Context

Local governments can play a key role in supporting the development of VPPs and enabling market access for aggregators and other market players. This can be a complex task that requires institutional changes and regulatory updates. Nevertheless, VPP operators respond to market signals, and local policy can create clarity, communicate priority levels and lower entry barriers. In addition, local governments can engage stakeholders and citizens around needs and opportunities and even become a VPP operators themselves in specific municipality-led initiatives, e.g., the municipally owned Energy Service Companies (EsCos) in the UK. Some key factors to enable deployment can be summarised in two themes (IRENA, 2019):

  • Regulatory Framework, which should enable aggregators to participate in the wholesale market and in the ancillary services market as well. A liberalised wholesale market without price caps (especially with spot markets in place) is essential for aggregators to emerge and establish themselves. The main incentives for the creation of an aggregator come either from the difference between peak and off-peak pricing in wholesale markets or from signals from TSOs to deliver control reserve or other ancillary services.
  • Enabling technological infrastructure, which should enable real-time two-way communication and data transfer between VPP operators and the connected DERs. Local authorities could promote and support the development of smart grid infrastructure projects, particularly the wide deployment of advanced metering infrastructure, which comprises smart meters, broadband communication infrastructure, grid remote control and automation systems (grid digitalisation). This will help improve grid efficiency, as the data collected can be used to better predict demand. In turn, this would enable the application of advanced forecasting tools and techniques needed to predict power generation from renewables as well as loads in the electricity system.

Supporting Factors

  • Deploying enabling ICT infrastructure, such as controllable load and supply DER assets; smart meters, home gateways, and smart appliances for energy management; advanced energy management and forecasting algorithms; and real-time, two-way communication between aggregator and network assets.
  • Fostering standardisation and common interoperable communication protocols for coordination among system operators, grid operators, and prosumers.
  • Introducing regulations to allow DERs to provide services to the main grid, as well as aggregators to participate in electricity wholesale and ancillary service markets.
  • Ensuring clear price signals to guide the operation of aggregators.
  • Introducing regulations to mandate the implementation of smart meters and smart grid infrastructure.
  • Creating local markets at the distribution level for DSOs to procure services to prevent grid congestion and ensure grid stability.
  • Setting rules for data collection, management, and sharing for market actors to ensure consumer privacy.
  • Introducing regulations that set clear roles and responsibilities for market parties, as well as define standardised methodologies –e.g., for computing dynamic prices.
  • Fostering liberalised well-functioning retail markets that facilitate market entry to new actors as well as innovative products and pricing models, tailored for varying customers' needs.

Government Initiatives

In European countries, the implementation of local energy systems is supported by many initiatives and policies at the European or national level, where many research and development projects, benefitting from national or European funding, are focused on smart grids, energy efficiency, integration of distributed renewable resources, smart network management and much more.

In the context of EU policies, the policy drivers for such projects include increasing grid congestion and energy demand, climate change, depletion of fossil fuels, ageing infrastructure of electricity network and internal European energy market; all of these factors pushing for the implementation of local energy systems has been inspired by the EU’s latest climate and energy package ‘Clean energy for all Europeans’, and now the new European Green Deal.

A noteworthy initiative is the establishment of the Smart Grid Task Force (SGTF) as part of the EU's third energy package in 2009 to advise on policies and regulations concerning smart grid deployment. For instance, under the development of a common standard for European Smart Grids, several mandates have been issued by the EC to the European Standards Organisations (ESO) seeking to establish standards for the interoperability of smart utility meters, EV charging standards and high levels of smart grid services and operations.

The EU is currently directing member countries to update their electricity market and renewable energy regulations to allow communities to act as aggregators of renewable generation, flexible loads and storage services to the overall grid, paving the way towards community microgrids.

Stakeholder Mapping

Stakeholder Map (BABLE, 2021)

Market Potential

The VPP market is being driven by the growing shift towards distributed generation and decentralised market dynamics within the energy sector. This is due to the increasing focus on decarbonisation, electrification, and digitalisation, where rapid advances in digital technologies as well as in energy generation and storage systems offer smart solutions to the world's growing demand for electricity (Navigant Research, 2020).

As a result, the global VPP market size was valued at USD 0.87 billion in 2019 and is projected to reach USD 2.85 billion by 2027, with a CAGR of 27.2% (Fortune Business Insights, 2020). However, declining investments in energy projects in the wake of the COVID-19 pandemic are expected to dampen market growth. For example, countries in Europe are experiencing a significant decline in investment in IT infrastructure (IDC, 2020), which is essential for the wide deployment of VPP applications. Governments around the world are under budget strains that have forced them to reconsider the transition to renewables and delay power sector reforms.

VPP Capacity by Region (Guidehouse Insights, 2020)

Europe is considered the birthplace of virtual power plants, where the demand has been driven by a major push for investments in renewable energy and energy storage systems. Therefore, European VPPs have focused more on the aggregation of supply-side DERs and the integration of renewable energy, rather than on-demand response applications -which other regions such as North America have built into their VPPs. In Europe, VPP platforms are developing towards more sophisticated capabilities to maximise the value of grid flexibility and enable smart energy trading across borders. Even so, a shift is underway towards more mixed assets, where VPPs include more demand-side resources, as well as energy storage and e-vehicles (Guidehouse Insights, 2019).

Operating Models

Generally speaking, VPP operators -a.k.a. aggregators- seek to manage their portfolio of DER units optimally and generate maximum revenue for their participants by bidding on the energy trading market or providing ancillary services to grid operators. The configuration of a VPP and its technical requirements depend on the type of market participation, target customers (e.g., small-scale producers or industrial sites) and the types of DERs that make up the VPP portfolio (ABB, 2017). 

As such, the business and operating models can be broadly categorised into three main “functional roles” in the market: (1) Forecasting, trading, and curtailment of renewable energies, (2) Aggregation of grid flexibility from renewable energies, and (3) Demand response aggregator. However, the boundaries between these models are fluid and depend largely on the structure and regulation of the energy market where the aggregator is active (Next Kraftwerke, 2020).

Possible Operating Models (Next Kraftwerk, 2020), (ABB, 2017)

The creation of this solution has been supported by EU funding

Use Cases



Virtual Power Plant in Mülheim

"The solution consists of a virtual power plant which connects local photo-voltaic production, heat pumps and batteries. A charging station for electric vehicles is also be integrated into the system. It lowers the demand for external energy by increasing energy self sufficiency of buildings.


Greencity in Zurich

Greencity is the first urban district in Switzerland to meet the conditions of the 2000-watt society and represents a largely grid-independent area, relying on 100% supply from locally generated renewable energy sources and an innovative and environmentally friendly mobility concept.



Creating Renewable Energy Communities

Citizens are involved in the definition of the actual needs and the most appropriate solutions for the energy community. They also participate in the design of the energy community as an entity (legal form, structure, organisation, rules of operation and governance), and management of decisions.



Connecting Elevators and Escalators to Smart Building Energy

Elevators and escalators communicate with the smart building energy management system in order to limit the peak power visible to the external electricity grid.



Virtual power plant

The Virtual Power Plant integrates thousands of heterogeneous plants and devices through IoT technology, optimizes energy flows with advanced AI methods, and dynamizes the balance of supply and demand through incentive-based activation of citizens.

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