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From large to small and from central to decentralised

Virtual power plants as a building block in the energy transition

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How do virtual power plants work and what is their role in the energy transition? Researchers on current developments in the technology.

Virtual power plants | © Shutterstock

Virtual power plants | © Shutterstock

"The energy supply in Germany is currently undergoing a massive change - away from centralised large-scale power plants towards smaller-scale distributed generation structures. Electricity generation, storage and consumption are increasingly being controlled decentrally at the level of residential or commercial districts down to individual building units. This also redefines former sectoral boundaries between the energy industry, the construction and real estate sector and urban development," says Prof. Verena Rath from Biberach University of Applied Sciences. There, the expert for marketing, energy and mobility coordinates the business studies programme, which is designed to prepare students for the challenges of future climate-neutral energy systems as well as urban and neighbourhood development.

The energy future is decentralised, digital and renewable. Large conventional power plants (gas, coal, nuclear) are going off the grid, while at the same time renewable energies are being expanded. One of the main challenges here is to continue to guarantee grid stabilisation, which has so far mainly been provided by large power plants. For despite the increasing share of volatile energy sources such as wind and solar and new consumers, the grid must be balanced - at all grid levels. The need for flexibility is therefore increasing, both on the generation side and on the consumer side.

"The Ariadne scenario report estimates the need for flexibility to cover generation gaps at around 100 to 120 TWh per year in 2045 - that is ten times the electricity consumption of Hamburg today or as much as Germany consumed in two months in 2022," says Daniel Zahn. The engineer works at the Fraunhofer Institute for Energy Economics and Energy System Technology (Fraunhofer IEE) as the product manager of the virtual combined cycle power plant system EnergyConnect. By flexibilities he means technologies that can absorb, store and release energy for a few hours at very short notice, but also for weeks at a time: biomass-fuelled combined heat and power plants, pumped storage, electricity storage or power-to-x plants that convert electricity into heat, hydrogen or synthetic fuels.

fuels. If consumption also becomes more flexible at the same time, this makes balancing even easier. "For tomorrow's climate-neutral electricity supply, we need providers that bundle small, flexible consumers such as electric cars, heat pumps or battery storage and thus make the valuable flexibility of these assets accessible," says Prof. Katrin Schaber. Prof. Verena Rath's colleague conducts research in Biberach on sector coupling and the integration of renewable energies.

It is precisely this bundling that virtual power plants, also called swarm or combined power plants, can achieve. They combine small and very small producers and storage facilities in order to increasingly replace large power plants. Via these swarm power plants, the smaller decentralised plants can act in concert on the various energy marketplaces such as the electricity exchange. But they can also offer grid operators services to ensure security of supply. One such grid-serving service is the so-called control reserve, which is used to compensate for short-term deviations in generation and consumption (for example due to power plant outages or forecast deviations). This market is not accessible to small producers and consumers without prior bundling via virtual power plants. In addition, since forecast errors balance themselves out more easily with thousands of plants pooled together, it makes weather-dependent generators such as wind and solar farms more predictable. The virtual power plant is the technology for this - a digital platform for networking a wide variety of energy plants with state-of-the-art software and communication technology.

Swarm power plants for load management

Anyone who has a PV system on their roof knows the problem: when feed-in prices fall, it is best to simply consume the electricity yourself, because self-produced electricity is always cheaper than purchased energy. In detail, however, it is not so simple. Turning on the washing machine only when the sun is shining is not a big problem, but watching TV or cooking only when the sun is shining is restrictive. What might work on a small scale with reflection and behavioural change becomes even more complex on a communal or regional level.

Tara Esterl already sees one of the great potentials of virtual power plants in so-called load management: "Making previously completely unobserved consumers such as heat pumps, boilers, electric cars, battery storage or other components, for example in industry, observable, and even being able to influence the behaviour of these components in the case of the virtual power plant, offers enormous advantages. Load shifting, for example, makes it possible to use renewables in a very targeted manner at the time of generation, and the remaining system-wide storage requirements can be reduced as a result. In addition, high simultaneity factors of generation or consumption components can be better regulated, thus also reducing the need for grid expansion."

Grid integration of e-mobility: bidirectional charging still in its infancy

What does it mean for the energy market if vehicle fleets are increasingly operated electrically? Not only does this increase electricity consumption, but also flexibility - if the potentials are combined wisely. When asked how the storage and charging power of electric vehicles can be accessed and controlled, Daniel Zahn answers: "The more charging points I combine, the more reliable and predictable the charging becomes." Together with historical data and artificial intelligence, it will be possible to market the storage potential of vehicles in virtual power plants in the future. Prof. Katrin Schaber also sees it this way. "The control power must always be ready. Consequently, the pilot tests were only ever carried out with stationary cars (or batteries from the same). Here, the regulatory system still has to develop further so that a statistically certain part of the vehicle fleet can also participate in the control power." Daniel Zahn adds: "Bidirectional charging is a great opportunity, but is still in its infancy."

However, the way ahead is foreseeable. "In short-term electricity trading, commercially operated fleets in particular can already achieve considerable cost advantages if charging is always carried out at favourable prices," says Prof. Katrin Schaber. There are already providers who operate sub-swarm power plants, so to speak, and interconnect the charging points via a local controller and make them controllable. The software virtually takes over the "translation" to the various interfaces of the charging points. The network can participate jointly in the spot market and is invoiced jointly. In the future, this could become an element that can then be integrated into a larger combined power plant. Something similar could become possible for private households in the next few years. Currently, utilities are sometimes taking on a similar role: "More and more electricity suppliers are also offering tariffs in which, for example, battery flexibility is marketed within the electricity tariff. Those who have an e-car then define a time window in which the vehicle is to be charged and leave the price-optimised control to the electricity supplier," explains Prof. Katrin Schaber.

Where is the virtual power plant really located?

Many, mostly independent aggregators are already active on the electricity market with their swarm power plants. Prices on the spot and control reserve markets are increasingly formed on a cross-border and European basis. So here it is usually irrelevant where exactly the plant is located that is to be included in a virtual power plant. "If one wants to eliminate potential bottlenecks in the transmission grid, which are caused by a geographical imbalance of generation and consumption and insufficient transmission capacities, on the other hand, the local distribution of the individual plants in the bid plays an essential role," explains Regina Hemm from the AIT Center for Energy.

Soon, however, the lower grid levels will also come more into focus, the experts agree. "We will have more and more e-vehicles and heat pumps, so there must also be a sensible coordination of generation and consumption at the lower grid levels," says Daniel Zahn. Combined power plants could bundle small plants and relieve the grid via regional flexibility platforms. But it is not only in this case that the location of the energy plants of the swarm power plant really matters: "If the distribution grid operator wants to use the virtual power plant for operation that serves the distribution grid, the exact location of the subcomponents in the grid is of utmost relevance," explains Tara Esterl. "However, there is currently no uniform approach for this use case." The AIT experts see great opportunities here to gain a market advantage now. The framework conditions in the energy market could change soon.

Where is there a need for action?

Speaking of framework conditions. Daniel Zahn sees a need for improvement in several areas: Firstly, both the electricity price zone and the grid fee regulation are currently counterproductive for the regional use of flexibilities in the energy system. Variable and smart tariffs for households could only develop their full effect if there were regional markets and prices. Matching local supply and demand locally - where the electricity is consumed and increasingly also produced - could reduce the frequency of bottlenecks in the grid. What does this mean for the use of virtual power plants? "To avoid grid bottlenecks, there are currently still very many open research questions, such as the choice of aggregation level or which information is needed by which stakeholders," explains Regina Hemm.

Daniel Zahn currently sees another challenge in the fact that large-scale combined-cycle power plant solutions only really scale if the plants can be connected via plug & play. "This is currently easiest for the manufacturers of energy systems, such as Sonnen for battery storage. That's why, in addition to standardisation, we need new approaches such as energy data spaces for trustworthy data exchange and digital identities for secure authentication." This could reduce the effort required to combine systems from different manufacturers and providers. So far, he said, the diversity in the market has been a major development effort for providers of swarm power plant systems. "In order for a virtual power plant to be easily operated by a citizen energy community, for example, there still needs to be some simplification," Tara Esterl and Regina Hemm also believe.

Nevertheless, larger citizen energy initiatives have already set out on this path. The cooperative Elektrizitätswerke Schönau (EWS), which grew out of the anti-nuclear movement, has already been cooperating with the direct marketer ane.energy for two years. Initially, the marketer integrated 50 MW of the power installed by EWS into its own virtual power plant, which provided power directly to large customers (Power Purchase Agreement). In the meantime, EWS itself has control over the swarm power plant, and ane.energy now provides the software in the partnership. In this way, the technology also makes smaller players more capable of acting - real energy transition from below.