The European Take on Virtual Power Plants

Europe, considered the birthplace of the virtual power plants (VPPs), is pushing the envelope on the concept. The continent is adapting platforms to provide new and more sophisticated capabilities to maximize the value of flexibility resources while opening doors to new value streams linked to creative ancillary service markets and real-time energy trading.

Historically, the European VPP market has centered on renewable energy integration. While this remains the case today, a shift is underway to learn from other evolving VPP markets in Canada, Australia, and Japan. The new focus includes integration of demand side resources as well as energy storage and EVs. Today, virtually anything that produces, consumes, or stores electricity (or energy) is a candidate for VPP inclusion. 

The Search for Balanced Resources

Europe lags the US—another major VPP market—in demand response (DR), largely due to the intense efficiency built into residential and commercial and industrial buildings. However, large fluctuations in solar and wind generation are providing incentives for aggregators, utilities, and grid operators to search more intensely for new balancing resources. This intense deep dive into potential assets (also on the demand side of the energy exchange ledger) is tilting toward large industrial loads that can be economically harvested with the right software platform. Europe is the most integrated market in the world as a result of increased VPP uptake, with market revenue forecast to reach more than $3 billion annually by 2028. 

Annual Total VPP Capacity, Implementation Spending and Market Revenues, Europe: 2019-2028

(Source: Guidehouse Insights)

A key distinguishing feature of Europe’s VPP market is a focus on using advanced software platforms to enable smart energy trading. This focus is likely to shape innovation in other global markets. As a result, this region is proving out exciting new possibilities to examine how VPPs can balance the grid, provide economic value exchanges between prosumers and the larger grid, and usher in commercially viable forms of transactive energy.

Growth Through Modified Rules and Learning from the US Market

Historically, the focus on Europe has leaned on supply-side resources. Given the enormous growth in renewable power generation, most of which flows directly into wholesale markets under feed-in tariff contracts, the VPP market is quickly shifting to tap more diverse assets as these contracts expire. While structural reforms are enabling cross border trades and ushering in potentially the largest VPPs in the world by the likes of Next Kraftwerke and Statkraft, there is important work still to be done.

One example of a reform that could accelerate VPP markets throughout Europe would be to modify market rules to allow participants to offer smaller bid volumes (e.g., lowering threshold to 100 kW instead of the current 5 MW). Another necessary reform would be to allow aggregation of smaller generators to participate as flexibility resources. In general, this could allow more diverse types of distributed energy resources to participate in the provision of market services, including controllable loads and energy storage. 

Europe could learn from the most active VPP markets in the US—the PJM control area. VPP software platform provider Enbala was one of the first participants to offer controllable loads into PJM for frequency regulation. The company designed methods for DR resources to participate by designing metrics that include calculating a basepoint, upper control limit, and lower control limit for a chiller, all in megawatts. Characterizing demand resources in this way is not as easy as a generator, but capturing the grid value of diverse demand resources opens the door to state-of-the-art mixed asset VPPs. 

For more information on the European VPP market, see the recent white paper from Enbala and Guidehouse Insights.