A virtual power plant (VPP) is software that adjusts thousands of water heaters, batteries and chargers a little, so that together they act like a power station the grid can call on. No new plant is built. The devices already exist in homes and shops, and the software coordinates them.
The grid must always keep supply equal to demand. This is grid balancing. One way is to start a power plant. Another way is to reduce demand for a short time. A VPP does the second. When the grid is short of power, the VPP asks thousands of devices to use less, or to send power back. The grid operator sees all of this as one plant. Reducing demand like this is called demand response, where customers are paid to use less power at peak hours. A VPP does it automatically, at the scale of thousands of devices.
The USA is the largest market for VPPs today. Utilities there pay households and businesses for this service. Many leading VPP companies are American, so the example below is set there. In India, the idea is at an early stage. It needs smart meters first, and discoms have so far tried only small schemes, such as asking air-conditioner users to use less at peak hours.
Take, for example, a utility in Texas, USA, that signs up 20,000 homes with one smart water heater each. Each heater uses about 4.5 kilowatts. On a hot summer evening, when the grid is short of power, the VPP switches off every heater for 20 minutes. Together this reduces demand by 90 megawatts, about the output of a small power plant. No home notices, because the tank holds hot water. The utility pays the VPP company, which passes part of the payment to each home, say about $30 a year. The VPP can also use batteries, smart charging for cars and a home's smart electrical panel.
To do this, the VPP must know which devices can shift their use. Data from energy disaggregation helps. The VPP offers the spare capacity to the control room. It can also sell it in the power market through energy trading and risk management software.
This is part of the grid edge, the growing set of small devices at homes and shops that both use and supply power.