VIRTUAL POWER

Virtual Power Plants – Demand Response, Supply-Side, Mixed Asset, and Wholesale Auction VPPs: Market Analysis and Forecasts
Peter Ausmus and Brian Davis, 3Q 2010 (Pike Research)

"…Virtual power plants (VPPs) rely upon software systems to remotely and automatically dispatch and optimize generation or demand-side (or storage) resources in a single, secure web-connected system. In the United States, VPPs not only deal with the supply side, but also help manage demand and ensure the reliability of grid functions in real time through DR and other load-shifting approaches…VPPs represent an ‘Internet of Energy,’ tapping existing grid networks to tailor electricity supply and demand services…

"Without any large-scale fundamental infrastructure upgrades, VPPs can stretch supplies from existing generators and utility demand reduction programs…When compared to the fossil fuel based central station power plants that dominate electricity markets worldwide, the primary advantages of VPPs are…[1] They can react quickly to changing customer load conditions…[2] They are dynamic…[3] They deliver value in real time..."

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"VPPs and microgrids share… an 80% commonality…Yet, there are some defining differentiators…[1] Microgrids can be grid-tied or off-grid (VPPs are always grid-tied)…[2] Microgrids can “island” themselves from the larger utility grid…[3] Microgrids typically require some level of storage…[4] Microgrids are dependent upon hardware innovations…whereas VPPs are software dependent…[5] Microgrids encompass a static set of resources in a confined geography…[6] Microgrids typically only tap generation resources at the retail distribution level…whereas VPPs…[are] a bridge to wholesale markets)…[7] Microgrids still face regulatory hurdles…

"Developing market forecasts for a nebulous technology category of “virtual power plants” is…[full of] complexity and uncertainty…The market forecasts in this report divide the VPP universe into four distinct segments…[1] DR-based VPPs: This is the largest commercial segment in the United States …[2] Supply-side VPPs: Europe, particularly Germany, has led the world in this category…[3] Mixed asset VPPs: This is the ultimate goal of the VPP. This segment brings distributed generation and DR together…[4] Wholesale auction VPPs: Unique to Europe, VPP auctions have been used in the region as a condition of mergers…"

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"Pike Research has developed market forecasts for each of these four segments. All told, the VPP capacity worldwide in 2009 was 19,428 MW. The largest segment is wholesale auctions (exclusively in Europe), which represents 51% of the total VPP market. The next largest segment is the DR-based VPPs, which dominate the North America market, with 44% of the total global capacity. The supply and mixed asset segments split the remaining 5% of the VPP market virtually equally.

"Over time, it is expected that many supply-side VPPs will morph into mixed asset VPPs as more cost-competitive storage enters the market and as DR resources continue to grow…Ultimately…the lines between the DR-based, supply-side and mixed asset VPPs profiled will blur… Pike Research estimates that the total revenue from VPPs worldwide is almost $5 billion, with the vast majority (90%) of that revenue stream captured by the wholesale auction VPP segment."