Virtual power plants explained:
What are they and how do they work?


As we transition from the traditional centralized power supply model to distributed power plants, an interesting concept is shaping the future of the energy sector – virtual power plants (VPPs).

This shift in the energy sector is backed by market trends and policy incentives like the Inflation Reduction Act. This act, the most significant piece of legislation in US history to combat climate change, has committed an impressive $369 billion to build a clean energy economy.

A major portion of this investment is provided through tax incentives that encourage clean energy production, effectively turning the Treasury Department into a critical player in the energy transition.

These decentralized VPP systems are disrupting the energy sector and gaining real traction – shifting the energy market toward more cost-effective and resilient solutions.

In this blog, we’ll shine a light on the power and potential of VPPs, as well as cover their functionality, benefits, and give you an example of a real-life application.

Virtual power plants: What’s the buzz about?

A virtual power plant (VPP) isn’t a “plant” in the traditional sense, but rather an intelligent network or system of energy. It’s a fascinating blend of technology and energy that’s reshaping the way we think about power generation.

It’s essentially a network of decentralized, medium- or small-scale power-generating units, such as solar panels, wind turbines, and batteries, as well as storage systems.

Each of these interconnected units is independently owned and operated, yet they all dance to the tune of the central control room of the VPP.

Within the VPP network, the roles of power demand and supply can switch depending on the situation. For example, a power consumer might become a power supplier – contributing their excess power back to the grid.

What’s truly unique about VPPs is that they harness the power of small energy sources and treat them as a single, unified energy system. They do this by using sophisticated software and communication technology to harmonize these separate energy resources, forming a coordinated, efficient, and flexible power supply network.

And as stated earlier, individuals can either draw power from the VPP or feed excess power back into the grid – thereby perfectly highlighting the intelligent allocation capabilities of a VPP.

To put it simply, imagine connecting a myriad of minor energy sources together – solar panels on rooftops, small wind farms, energy stored in electric car batteries, and more – all operating in perfect synchrony to generate, store, and distribute electricity.

This is essentially what VPPs accomplish, effectively transforming the face of energy supply by decentralizing it.

They represent a significant leap from the traditional model of having one large power plant serving a wide area. Instead, they encourage participation from homeowners, businesses, and even communities to contribute their small-scale renewable energy generation into a larger system.

Hoymiles blog:

                                   Virtual power plants bring together various energy sources and allocation power in a flexible way

How do VPPs work?

Think of a VPP as a smart network that brings together various energy sources. It’s all tied together with modern information technology.

The central control system is the brain of the operation, gathering real-time data from each energy unit and utilizing smart forecasting models to make the best decisions about how and when to use these resources.

For example, when there’s a surge in power demand, the VPP can call upon its many energy sources (like solar panels or wind turbines) to supply power to the grid. This reduces the reliance on the large, less efficient power plants that are traditionally used to meet these surges in demand.

So with a VPP, you get a seamless, efficient flow of power when and where it’s needed.

What are the benefits of VPPs?

VPPs offer a wide range of benefits, both on a macro and micro level. Let’s take a look at some of these benefits in greater depth.

Macro-level benefits

  • Reduce energy costs: VPPs can significantly lower the cost of electricity and therefore reduce your energy bills. They operate by optimizing distributed energy sources, a generally less expensive and more environmentally friendly method than relying on traditional fossil fuel or nuclear power plants.
  • Allocate power flexibly: Traditional power plants operate on an “always-on” basis. This often means that resources are wasted during periods of low demand – an inefficient and wasteful practice. However, VPPs can quickly adapt to changes in demand, bringing different resources online as they’re needed. This helps to maximize efficiency by adjusting capacity as needed.
  • Gain a stable grid: VPPs play a crucial role in maintaining grid stability. Their unique advantages include their ability to reduce the stress on transmission and distribution infrastructure since the power is generated close to where it’s consumed. They also provide ancillary services such as frequency regulation and voltage control, which are essential for grid stability.
  • Shift to greener power: VPPs support the integration of renewable energy sources into the grid, such as solar and wind power. This plays a significant role in reducing greenhouse gas emissions from burning fossil fuels.

Micro-level benefits

  • Earn extra revenue: VPPs can also contribute to your bottom line by allowing you to earn extra revenue. By selling excess power back to the grid or participating in demand-response programs, you can turn any energy investments into income-generating assets.
  • Enhance resilience: VPPs allow you to be more resilient against power outages and other energy disruptions. By creating a local network of power generation and energy storage systems, you can make sure your essential services remain operational during crises.
  • Gain energy security: By generating and storing power locally, you become less reliant on the power grid. It also allows you to work at full capacity even during peak energy hours.
  • Become a sustainability leader: While we’ve already touched on the macro-level benefit of greener power, a related micro-level benefit also exists. By adopting more sustainable practices, you can enhance your reputation as an energy-conscious leader in the community.

By contributing to a stable, cost-effective, and greener energy supply, VPPs represent a vital component of the evolving energy landscape.

They embody an exciting confluence of technological innovation and sustainable progress, promising to reshape our relationship with energy in the years to come.

VPPs in action

VPPs are making waves across the energy sector, with a number of prominent examples highlighting their potential. By decentralizing energy generation and smartly managing the balance between supply and demand, these systems are able to enhance grid resilience and empower individuals as well as communities.

One interesting example of a VPP in action is Project Hestia, a US nationwide energy project. The project is backed by the Department of Energy’s Loan Programs Office with a proposed $3 billion conditional loan.

The venture is helmed by energy-as-a-service provider Sunnova. With the indirect, partially guaranteed cash flows for loans backing customer accounts, Sunnova aims to drive up to $5 billion in loan originations.

Rolled out nationwide, the project aims to help disadvantaged communities with solar and VPP services. Using smartphones or other electronic devices, households manage their energy demand, balancing the grid while cutting energy costs.

It’s quite literally power in the hands of the people.

Ready for a power upgrade?

Are VPPs right for you? The answer might just be a resounding ‘yes.’

The transition toward more distributed, resilient, and sustainable energy systems is already underway. Whether you’re a homeowner looking to lower energy bills, a business seeking to improve energy security, or a utility aiming to enhance grid stability, VPPs could be a valuable piece of the puzzle.

At Hoymiles, our microinverters offer a flexible and efficient solution for distributed power plants. When paired with our energy storage solutions, our products open the door to participating in VPP plans.

So the only question you should be asking yourself is: Are you ready to be part of the energy revolution?

Dive deeper into Hoymiles’ solutions and explore the possibilities today.