Virtual power plants (VPPs) hold the potential to reshape the energy system
Sébastien Condom, Head of International Business at Voltalis
Virtual power plants (VPPs) hold the potential to reshape the energy system and ensure a sustainable future, writes Sébastien Condom, Head of International Business at Voltalis.
The global energy landscape has entered a period of radical transformation. By 2030 installed renewable electricity capacity will exceed 10,000GW, almost tripling its level in 2023 .
Within just six years, half of global electricity production will come from low carbon sources, with 30% from variable wind and solar. At the same time, power grids will need to manage the electrification of global energy demand – expected to grow by 3% per year out to 2035.
These developments pose an urgent question: how to integrate such large amounts of intermittent generation into power systems? Balancing renewable electricity supply with changing demand is now the core challenge of the energy transition.
Power system flexibility
The key is developing system flexibility. Without flexibility, the expansion of electricity grid infrastructure and storage will fail to keep pace with demand.
Consumers will face much higher energy bills. They will not be able to charge their electric vehicles or install their heat pumps. The power system will become unreliable. Coal and gas will be burned for longer to balance the network. Without flexibility, the energy transition risks stalling.
Time is running short: addressing the scale of the ‘flexibility gap’ will require exploiting all the available resources. The IEA projects that by 2030, 500GW of flexible capacity will be required. We are still very far from this target. We need to learn from what already works today, identify what can be scaled quickly and create the conditions to do so.
One major underexploited flexibility resource that has providing itself as a scalable solution already is the virtual power plant. VPPs integrate various distributed energy resources (DERs), such as solar panels, wind turbines, battery storage, and flexible power consumers, into a unified, cloud-based network.
Through digital platforms and advanced software, these resources are centrally controlled to act like a single power plant, allowing them to optimise power generation, storage and consumption.
VPPs are particularly useful to aggregate and automate individual consumer electricity demand from residential and commercial buildings – a large share of untapped flexible demand.
As an example of how demand response VPPs could impact electricity prices, it has been estimated, in France, that wholesale peak prices could be reduced by around €40/MWh. They have helped to enable better use of renewable power, reduced energy system costs, and helped to decarbonise the power mix (displacing natural gas) during peak-load hours.
Exploiting the full potential of VPPs
Despite new markets to exploit these opportunities in France and in the UK, the potential of VPPs is still largely untapped. Exploiting the full potential of consumer demand response from VPPs requires three conditions to be met.
The first is the recognition of the essential role of automation and digital technology to fully exploit flexibility potentials. Most consumers lack the time, information or risk appetite to optimise their energy consumption in response to dynamic prices without automation. VPPs are essential to address this barrier.
A second condition is an attractive enough value proposition to consumers. Consumers want meaningful savings on energy bills, the ability to digitally optimise their energy consumption and reliable information on how they are supporting clean energy. Simplicity and ease of access to participation in demand response matters. For example, removing financial barriers to installation of equipment, such as smart thermostats, is critical. Ensuring reliability and consumer comfort is also essential.
The third condition is a favourable regulatory framework. VPPs need to able to sell their aggregated demand reductions at meaningful scale into wholesale power markets, not just balancing or capacity markets. They need long-term visibility about the scale of the market to finance their capex. Power market design must treat demand response equally to conventional physical generation assets and remunerate it accordingly.
If these three conditions are in place, VPPs become an asset that can be financed at scale. Financing flexibility VPP projects should be seen as similar to independent power projects: they rely on project finance to roll out essential power system infrastructure and their gigawatt-level capacity and multi-billion-euro investments.
Virtual power plants represent a fundamental shift in how energy grids are managed. With the right regulatory and financial support, they hold the potential to reshape the energy system and ensure a sustainable future.
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About the author: Sébastien Condom, Head of International Business at Voltalis
Sébastien is a seasoned Senior Executive in the energy sector, specialising in industrial and enterprise software business management. Currently Senior VP at Voltalis, he oversees the company’s international expansion after holding key leadership roles at Framatome, General Electric and Baker Hughes. He is passionate about leveraging innovation to support the global energy transition.
