What is a Virtual Power Plant?

Published: 17 June 2019

Uncontrolled integration of renewable sources could lead to energy imbalances that can affect the operation of the grid. The solution? Virtual power plants?

Renewable energy technologies have expanded worldwide, reaching new frontiers and developments in new countries. New concepts are being introduced all the time, perhaps one of the most recent is the virtual power plant.

As the market grows, more and more renewable generation is installed across the nation, some with small amounts of power capacity and others with larger amounts. 

However, uncontrolled integration of all these renewable sources to the power grid could lead to excess energy on some occasions, leading to imbalances that can affect the correct operation of the grid. 

As Distributed Energy Resources (DER) grow larger in the power grid, it is necessary to control and manage the energy production from small-scale renewable sources, integrating them into the power grid and ensuring the correct distribution of energy from these resources. 

Moreover, given the nature of DER, they can be easily integrated into electricity markets, which incentivises investments and developments in DER.

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These concepts can be integrated today, thanks to the Virtual Power Plant (VPP). 

A VPP is a new concept of power management that takes advantage of one of the greatest benefits of renewable energy. 

It focuses on gathering energy generation from multiple DER of small and medium scale like PV installations, small hydropower plants, wind farms, small biomass power plants, energy storage solutions and more. 

These resources are linked together via a centralised cloud-based data control center that uses the Internet of Things (IoT) to develop energy management of the resources. It does this by placing sensors that are distributed among all power plants, which allows control, monitoring, and production of each plant.

One of the greatest advantages of VPPs is that they act as the intermediary between the wholesale electricity market and the small renewable power plant that could not enter into that market by itself. 

Thanks to VPPs, small PV systems or wind farms can sell their energy on the wholesale electricity market and achieve lower energy bills as well. 

VPPs usually take part in the wholesale market to provide peak or base load and ancillary services to the nation’s power grid.

VPP – Previous experiences

The US has one of the most relevant cases. 

In 2017, Tesla announced their first VPP in the US. This project consisted of aggregating hundreds of its residential and commercial energy storage systems like the Tesla Powerwall, in allegiance with the Vermont utility, Green Mountain Power. 

Almost 2,000 energy storage devices were integrated to create a single energy resource for the entire community. 

The proposal of the utility was to offer the customers access to energy from batteries for backup purposes, paying $15 a month over 10 years or making an upfront payment of $1,800 that would guarantee them protection against blackouts over 10 years.

South Australia – The largest Virtual Power Plant in the world 

With the support of the South Australian Government, Tesla is going to develop a network of 50,000 home solar PV and Powerwall battery devices across the state. 

The network will represent the largest VPP in the world with a capacity of 250 MW and 650 MWh dedicated to solar energy and energy storage.

South Australia (SA) is one of the states with the largest renewable energy share in all of Australia. 

As renewable energy grows in the state, it is necessary to effectively administer the excess energy from these sources at every moment. 

Based on this context, SA needs to link large-scale energy storage systems to the grid. 

The best way to implement these energy storage systems is to integrate them in a VPP. 

The VPP of South Australia will have several advantages for the community: increasing customers’ visibility of their energy consumption, providing protection against blackouts, increasing grid stability and reducing electricity bills for customers. 

The project will begin with a trial phase by integrating 1,100 properties in SA with solar PV systems of 5kW and 13.5kWh of Tesla Powerwall battery. 

Then Energy Locals, a SA energy retailer will act as the official retail partner in the state for the households that participate in the project. They will provide account management and customer support. 

These properties will act as a reference for the project, comparing performance and costs with other households that do not choose to enter into the program.

If the trial is successful for both SA and Tesla, the next phase will be to integrate 24,000 public housing properties and 25,000 private households from mid-2019.

You can find more information about this amazing project here.


SA is leading the innovation in the field of VPP. 

As one of the states with a higher renewable energy share in the world, this project presents a very interesting approach that will show us how countries with large renewable energy shares can operate the power grid in a reliable and secure way.

The big advantage of the project is that there is no need to install large-scale energy storage devices that would cost millions of dollars and that are still unattractive for project developers. 

Instead, the VPP will use the Distributed Energy Resource nature of PV systems integrated with Tesla Powerwall to provide reliability to the power grid by spreading a lower cost into multiple households that will receive lower electricity bills. 

Therefore, if the project is successful the SA government, the SA grid, Tesla and the customers of SA will all be happy!

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