All about Virtual Power Plants

Imagine a world where small-scale renewable energy producers’ companies can compete with large power plants. Welcome to the world of Virtual Power Plants (VPPs)


What is Virtual Power Plant in simple words?

In essence, a virtual power plant is a network of different, small and medium energy sources that come together to function as a single, unified power plant in the eyes of the market. While the term “virtual” implies that it’s not a physical entity, it is in fact a real market participant. VPPs trade electricity on energy markets, integrating flexibility through demand response, storage and generation flexibility. VPPs will also optimise power generation, while creating new revenue streams for the owners of the aggregated assets.


What is a VPP and what are its mechanisms?

The world of energy production has undergone a significant transformation over the past decade thanks to an increasing focus on distributed energy and renewable resources. As this transformation continues, managing the complexity of the new energy landscape has become a priority. One established solution that has proven effective in addressing these challenges is the concept of Virtual Power Plants (VPPs).

VPPs have transformed the way small-scale renewable energy resources (like solar panels, wind turbines, hydro systems, heat pumps, etc.), consumption flexibility and storage systems interact with the grid. By aggregating these resources, VPPs create a unified network capable of participating in balancing, wholesale and flexibility markets. This development has enabled smaller flexibility resources, which previously faced barriers to entry, to offer their flexibility to Transmission System Operators (TSOs) and Distribution System Operators (DSOs).


How does a VPP work?



Below we will try to answer the question that you might be asking yourself: “but how does a VPP actually work?”  If you are about to create a VPP, here it is what you should know about the components:


Distributed Energy Resources (DERs):

These are the building blocks of VPPs and correspond to small-scale renewable energy resources (such as solar panels, wind turbines, hydroelectric systems, heat pumps, etc.), consumption flexibility and storage systems.

Communication infrastructure:

This is the critical link that connects DERs to the VPP cloud software, consisting of a local box and the Internet/IP network.

VPP Cloud Software:

The brain of the VPP, this software control system manages and coordinates DERs, optimising their output based on factors such as weather and energy demand.

Energy Market:

VPPs participate in electricity markets, such as the wholesale market, by optimising the sale of electricity from the aggregated DERs.

Flexibility market:

In flexibility markets, VPPs sell services to both TSOs and Distribution System Operators (DSOs) to help maintain grid stability and accommodate the variable nature of renewable energy sources.

In short, VPPs bring together small-scale renewable energy resources and enable them to participate in electricity and flexibility markets, transforming the energy landscape and contributing to decarbonisation for a sustainable future.


Energy Trading within a VPP

Virtual Power Plants, or VPPs, are changing the energy industry by allowing small renewable energy producers to take part in electricity and flexibility markets. One essential element of VPPs is energy trading, which lets these resources buy and sell power, optimise output, and help keep the grid stable. Let’s explore the basics of energy trading within VPP.

Energy trading in VPP includes:

Forecasting and Optimisation: VPP software uses smart algorithms to predict energy production and use based on factors like weather, past data, and current market prices. This helps the VPP operator fine-tune its operation and decide the best trading strategy.

Bidding and Market Participation: VPPs join various energy markets, including day ahead, intraday, and real-time imbalance markets. They place bids to buy or sell electricity according to their strategy. Market operators either accept or reject bids based on factors like market price, grid conditions, and other participants’ bids.

Dispatch and control: Once the VPP’s bids are accepted, the distributed energy resources (DERs) are dispatched following the individual asset’s profile, market schedules and the VPP’s strategy. The VPP software constantly oversees and controls DERs’ operation, ensuring they stick to the accepted bids and schedules while adjusting for unexpected changes in production or use.

Settlement and reporting: After trading, the VPP handles financial settlements with market operators. This includes checking actual energy production and use, reconciling differences between accepted bids and real performance, and sending regular reports to market operators about their market involvement and performance.

In conclusion, energy trading within VPP includes forecasting, optimisation, bidding, dispatch, control, settlements, and reporting. This process allows VPPs to participate effectively in different energy markets, making the most of small-scale renewable resources and contributing to a greener and more efficient energy system.


Ancillary services and flexibility markets within a VPP

Ancillary services and flexibility markets have become vital components of today’s power systems, ensuring grid stability, reliability, and overall efficiency. As the power grid evolves with increasing levels of renewable energy and decentralised energy resources, these services play an even more significant role in securing a sustainable energy future.

But what exactly ancillary services are?

In Europe, ancillary services fall into four main categories: Frequency Containment Reserves (FCR), Automatic Frequency Restoration Reserves (aFRR), Manual Frequency Restoration Reserves (mFRR), and Replacement Reserves (RR). Each service has a unique role in supporting the power grid often operated by a Transmission System Operator. It’s worth noting that the implementation of these mechanisms varies among European countries, as each nation’s grid operators and regulations may have different requirements.

Virtual Power Plants (VPPs) are a key player in this landscape, as they can manage access to these mechanisms for small distributed energy resources (DERs) in countries where they’re available. By bringing together and optimising the performance of these DERs, VPPs effectively participate in ancillary service markets, using the combined power of numerous small-scale assets. This approach not only allows for the efficient use of DERs but also enables smaller energy resources to actively contribute to grid stability and reliability, fostering a more sustainable and decentralised energy system.


What is the difference between a microgrid and a Virtual Power Plant?

There are so many terms in the universe of energy management that might be confusing – microgrid, VPP, DERMS, EMS.. Is there any difference?

We will focus here on the differences between a microgrid and a VPP:

  • A microgrid is a local energy grid that can operate independently or in conjunction with the main power grid.
  • A microgrid typically includes a variety of distributed energy resources, such as solar panels, wind turbines, energy storage systems, and backup generators.
  • Microgrids are designed to provide reliable and resilient power to a specific geographic area, such as a remote community, a campus, an island..

Whilst, a Virtual Power Plant :

  • is a network of distributed energy resources that are centrally controlled by a software platform
  • The objective of VPP is to provide grid services, such as balancing supply and demand or providing ancillary services. VPP aim is also cost optimisation.

To sum up, both microgrids and virtual power plants involve the integration of distributed energy resources, the main difference lies in their purpose and operation. Microgrids are typically designed to provide reliable and resilient power to a specific area, while virtual power plants are focused on reducing costs, providing grid services and supporting the integration of renewable energy into the grid.


Example of a VPP 

The Energy Pool’s software solution consists of a local stand-alone system integrated with an Energy Management System (EMS) that enables local monitoring and control of distributed energy resources (DER). The EMS participates in energy and flexibility markets, bids and, depending on the bidding result, creates a plan for the operation of DERs. This method promises to improve the whole system and realise the full potential of DERs.

Discover more about Energy Pool’s VPP created for one of our utility customer, in the Netherlands.


The success of virtual power plants not only highlights the expertise of energy professionals and engineers, but also underlines their importance in creating a more sustainable, efficient and resilient energy system. As the industry moves forward, the role of VPPs in the integration of renewable energy sources will continue to be essential in promoting a cleaner and greener future.