By Farid Najafi, founder of Arbox Renewable Energy, which provides HAP, asset management software for solar independent power producers

You may have heard the term virtual power plant, or VPP, but what does it really mean?

In simple terms, VPPs are cloud-based data control centers that aggregate production data from various distributed energy resources (DERs). Examples of DERs include solar PV plants, battery storage facilities or residential systems connected to the grid. These data centers use various communication technologies and internet of things (IoT) sensors to gather data, which allows an operator to monitor and control the production of each plant. By integrating several types of power sources such as solar, wind, small hydro and batteries, virtual power plants enable a reliable power supply. It also allows utilities to generate electricity using renewable energy sources, store it in battery banks and then supply it to customers.

Many countries are experimenting with VPPs. According to an article by GTM, Australia, Germany and some Nordic countries are showing increasing interest in VPPs.  The largest VPP demonstration is in Australia, implemented by Sydney utility company AGL. The USD $15 million, 5-MW VPP will integrate battery units and residential PV systems via a single platform. In Germany—which is at the forefront of renewable energy—VPPs have been under development for a number of years. Leading companies in this area include Caterva, Fenecon and Next Kraftwerke.

More U.S. utility companies also are diversifying from conventional methods of power generation to VPPs to provide users with a reliable power source. Experts believe that due to a shortage of natural gas in California, utilities will test VPPs. Power producer Con Edison also has invested in a 1.8-MW virtual power plant using residential solar systems. Finally, Duke Energy is doing an experimental project that combines various sources such as renewable energy, battery storage and grid electricity.

The future for VPPs looks promising. The U.S will be the biggest contributor in North America, UK in Europe and Japan in Asia. Some believe that capacity of VPPs in the United States alone will reach 28,000 MW. According to P&S Market Research, the global market for VPPs is likely to reach $1.187 billion by the year 2023. Growth will be driven by increased investments in DERs across the globe, facilitated by government policies to reduce carbon footprint and generate more renewable.