Energy systems are changing. As variable renewable energy generation replaces retiring fossil fuel-run power plants, we see a shift from our century-old mindset of centralized supply following demand, to a more distributed grid with distributed energy resources (DERs) playing an essential role in a sustainable energy future. In order for renewable energy resources and DERs to replace conventional power plants, they need to be able to act like power plants – virtually at least.
At technology and innovation’s finest hour, we are able to aggregate disparate, geographically dispersed DERs and orchestrate them in such a way that they are able to respond to the grid’s needs at the same speed and accuracy as a traditional power plant. That’s where the Virtual Power Plant (or VPP for short) comes in. Navigant Research defines a VPP as:
VPPs are critical for the transition to more sustainable energy systems – so where is the technology at? Where can we find VPPs? And what can we expect in the future?
VPP Technology Applications
Navigant’s most recent VPP research report, 2019 Market Data: Virtual Power Plants,1 categorizes three types of VPP applications: Demand Response, Supply-Side and Mixed-Asset.
Demand Response VPPs
The International Energy Agency’s (IEA) Clean Energy Tracker2 shows that the uptake for demand response (DR) is lagging behind when it comes to meeting international sustainable development goals. These goals include climate change mitigation, universal energy access and reductions in air pollution – all of which are critical to maintaining grid reliability and resiliency. DR VPPs meet peaks in demand by ramping down unessential loads in near real-time and are essential in supporting the uptake of DR around the world.
Diverse renewable energy resources are aggregated together to supply orchestrated balancing to mimic services that a conventional 24/7 coal or nuclear plant would provide. Largely pioneered in Europe, Navigant suggests that supply-side VPPs may have already peaked in terms of market traction.
Navigant describes the Mixed-Asset VPP as the epitome of a VPP. It brings generation, load and energy storage together to provide a synergistic sharing of grid resources. Since 2016, Enbala has been ranked Navigant’s #1 VPP Provider, with new disparate DER assets being added to the platform regularly to enable value stacking for both utilities and their customers.
Where are VPPs Being Deployed?
Navigant’s Research Report shows world VPP capacity at almost 4 GW in 2019. Leading the market is Europe, with 2,120 MW under VPP control (mostly through supply-side VPPs), followed by Asia Pacific and North America with 1,045 MW and 680 MW under VPP control in 2019, respectively.
The structure of the European grid, with tightly interconnected national markets and high penetrations of front-of-the-meter variable renewable generation, has set the stage for supply-side VPP market opportunity, according to the previously mentioned Navigant Research VPP report.1 By 2040, renewables are predicted to make up 90% of the electricity mix in Europe, with wind and solar accounting for 80%.2 This suggests that there is still opportunity for supply-side VPPs. However, it is more likely that we’ll see mixed-asset VPPs supply the necessary flexibility for the expected increase in renewable generation.
In the UK, onshore and offshore wind is growing fast and is expected to account for 64% of UK electricity generation by 2030.2 Currently 160 MW of capacity are under VPP control, with capacity auctions creating a market worth 50M GBP for demand response aggregators.3
Germany sees rapid change over the coming decade with 82% of generation to come from renewables.1 With this shift, it’s no wonder that Germany is a leader in supply-side VPPs, with up to 650 MW under control.1 While demand response is not a key resource in the country currently, there are a various plans and projects underway to change this.3
In Italy, 350 MW of capacity is under VPP control. While in Ireland, 426 MW cleared in a 2019/20 capacity auction from demand response.3
Belgium and France have both defined roles and responsibilities for independent aggregators, and capacity available tripled between 2013 and 2015. A number of other countries including the Nordics, Netherlands or Austria have implemented retailer-based DR programs, but have not yet recognized aggregators.3
Australia’s power system is on track to become the most decentralized in the world, with consumer PV and behind-the-meter batteries making up 38% of all capacity, driven by a hyper-competitive, small-scale PV market and comparatively high retail tariffs.2 In addition to Enbala’s VPP project with AGL Energy in South Australia, some 600 MW is predicted to be operated through DR programs for emergency reserve through retailers and distributers, with plans to open up DR aggregation for third parties.3
Strong consumer uptake of small-scale PV and batteries make Japan one of the more decentralized power systems in the world, with 30% of installed capacity behind-the-meter.2 Around 1GW of demand response capacity is expected through a range of programs, an interruptible service and an incentive-based program.3 Widespread smart meter rollout, and plans to open ancillary service trade for demand response, also drive these large VPP capacity predictions. Find out more about Japan’s expected VPP expansion in Navigant’s latest white paper.
Singapore is the leading country in creating sandbox trials for advanced demand response services, where interruptible services amounted to around 7.2 MW in 2017.3
China continues to be the largest market for wind and solar, which together are expected to grow from 8% to 48% of total generation by 2050.2 While in South Korea, renewables will account for nearly 70% of additional generation, with 93 GW of new PV and 69 GW of wind predicted, Navigant predicts that Asia Pacific will have strong control of new capacity additions over the next decade.
The United States lead worldwide adoption of demand response. Around 28 GW of demand resources participate in wholesale markets, just under 6% of peak demand, and 35 GW from retail programs.3 Leading regional markets include PJM, CAISO and MISO, with a number of states expanding time-based rate pilots, particularly linked to off-peak charging of electric vehicles (EVs).3 The demand response capacity controlled by VPPs in the US is approximately 680 MW. The US is the market leader as it shifts from the demand response VPP model to a greater reliance on mixed-asset VPPs.1
In Mexico, utility-scale PV is predicted to top 100 GW by 2045, with onshore wind amounting to 57 GW by 2050. Higher peak load spurred by air conditioning demand and a growing share of renewables increase the need for flexible capacity,2 making Mexico a notable region for long-term VPP opportunities.
As the trend towards a more distributed and sustainable grid continues, Navigant expects to see a significant increase in the number of VPPs utilized across the globe — from almost 4 GW of capacity in 2019 to almost 35 GW of capacity under VPP control in 2028. Conservative assumptions show VPPs providing more than 6 billion USD in market revenue via grid services by 2028.1
SOURCE; NAVIGANT RESEARCH:
To prepare for this transition, Navigant recommends that utilities seek out partners to move forward in the VPP space, identify successful organized market structures and support adoption of similar structures for regions of the world where VPPs have yet to gain traction. Navigant also urges utilities to anticipate the evolutionary nature of the VPP market as it begins to shift to a DER Management System (DERMS) application, improving products and services to address not only economics and frequency but also voltage and distribution feeder challenges.
2 Bloomberg New Energy Finance. 2019, New Energy Outlook.
3International Energy Agency, Demand Response - Tracking Clean Energy Progress, updated June 11, 2019.