How Do Virtual Power Plants Work?

A Virtual Power Plant (VPP) is a distributed network that amalgamates multiple sources of energy, enhancing the production of electricity and presenting cost-effective options for both consumers and storage solutions. This technology pools together a variety of energy contributors, preparing them to meet the electrical needs of diverse industries. Moreover, VPP software is also applicable in electric vehicles and various other domains.

The combination of different types of power source systems can include natural gas-fired reciprocating engines, wind power plants (small scale), hydroelectric plants, biomass, generator sets, and more. It can replace a traditional power plant and also provide enhanced efficiency and more flexibility, which in turn helps the system to respond better to load variations.

Let’s take a deep dive into these guides of virtual power plants. How they work, and what role they play in a zero-carbon energy system are all discussed.

How Do Virtual Power Plants Work

VPP is a system connecting all the different sources of energy assets and combining them as one body. It can be used on DERs like electric vehicles, thermostats, etc. This bundle of energy can act as a balancing tool for the grid or enhance renewable energy sources. The software can be different in ways that depend on the usage and the dependable energy source.

However, the main objective is combining the energy sources as one and making them readily available for linking to the required demand.

Most energy companies and utilities are solely responsible for evaluating demand response software for the tech stack parts. So, to have a more specialized solution for missing parts that is beneficial, the need to create and control a virtual power plant arises. This reliable feature of VPP software makes it favourable for both companies looking for an aggregated DR software platform and also those looking for a specific VPP tool.

How does a virtual power plant work?

The energy which is generated from renewable sources is different from day to day. For instance, during a hazy day, solar energy generation is extremely low, however, the demand can increase which can lead to varied energy supply.

The usual demand for energy changes during extreme weather conditions or usability. This is where VPPs help in maintaining the balance between the demand and supply of energy by connecting households and their batteries through networks, thus managing energy flow, and reducing the dependency on the grid during the peak demand.

VPP and the demand

Virtual Power plants can play an important role in demand response. A lot of energy assets can be combined and traded in flexible markets; however the smallest DERs will not be able to take part. It is only when they are combined as a VPP that they can.

VPPs can play a significant role in Demand response for the residential market, where VPPs play an important role by including the single EVs and thermostats to be a part of the market. It will surely increase the pace at which we move to a more sustainable future.

Purpose of VPP – stability and renewability

The virtual power plant software utilizes energy hardware to optimize the grid and renewable energy sources.

However, some vendors are inclined towards C&I, with others interested in residential DERs (Distributed energy resources). Few are managing the diverse hardware category, while some specialize in EVs. All such differences are important when evaluating the providers, however again based on energy sources being invested.

These plants are intended to signal DERs in times when the grid needs relief from load so less energy can be utilized by DERs. This relief can be in different forms like asking the electric vehicles to stop charging or in the form of added energy, like a battery dispatching into the grid in case of a low energy supply.

The key to balancing the supply and demand is the flexibility provided by the virtual power plants so that the energy sources are optimally utilized and are not run unnecessarily.

Renewable source

Due to the distinguished ability of these plants to help in enhancing the development, implementation, and use of renewable energy resources like wind and solar they are able to balance the grid. They play an important role in providing relief to the grid by dispatching DERs, thereby balancing the grid which increases during times of irregular energy supply from wind and solar.


These plants, due to their ability to dispatch in DERs on a real-time basis, can create more stability in the grid. In times of scarcity of supply, these DER assets in the form of EVs or batteries are a boon to add more energy supply to the grid. If the need arises, these plants can ask DERs to stop or slow the use of energy in times of stressed grid.

This significant feature of VPPs to maintain the balance between the demand and supply of energy ensures stability and efficiency.

VPP and DERs

One of the major roles of Virtual power plants is energy conversion. A DER or Distributed Energy Resource is usually a single EV or thermostat, VPP, on the other hand, is a bundle of these units, i.e., this is a combined group of Distributed Energy Resources that, in turn, can be controlled as one single energy asset.

Frequently used DERs:

Electric vehicles

One of the most important components of VPPs is EVs. EVs are an effective movable grid resource. Due to their flexible nature, EVs absorb excess generation from renewable sources of energy and also act as synchronized demand response assets.

The EVs are charged only when they receive the signal from VPPs in case of excess grid supply or low prices, making the EVs an active asset for energy.


Thermostats as a DER help maintain stability in the grid during irregular peak usage. The capability of a VPP to closely, or automatically, change set points to either pre-cool or pre-heat homes so that energy is used efficiently during periods of high prices. Just like in EVs, in Thermostats also, VPPs can signal in real-time and control the usage to reduce the energy load during grid instability.

Solar and batteries

Distributed or DER solar and batteries store all the excess energy when there is too much of it, and also the prices are low and dispatch it when energy is low, and prices are high. VPPs and batteries are a dynamic combination. Solar and battery storage as DERs are more flexible and reliable on the grid.

Top VPP providers


AutoGrid is a highly skilled and experienced company in the VPP market operating in the US. Their key areas are C&I and residential use cases with a wide range of DERs like EVs, solar, battery, and many more.


Evergen is also an experienced player in the VPP market based out of Australia. They offer a wide range of products including trading, Battery commissioning, and complete VPP management.


Next, is an expert in the trading of renewable energy and is the operator of one of the world’s largest Virtual Power Plants. They offer customized VPP service solutions so you can build your VPP.

The services include load management, energy trading, and curtailment, dispatch. The company’s headquarters are in Germany but provide services across different countries.


Enode has entered the VPP market with more specialized products after working for several years on connections to DERs. The VPP is created as a collective product from all connected DERs, thus creating value in the demand response market.

How do we assess virtual power plant software providers?

The decision-making process to choose the right VPP provider depends on a few factors, which are listed below.


DERs are not created equally; few are easy to work on as compared to others. For instance, for somebody with EVs, it is better to choose a provider with an e-mobility focus.

So, on the basis of the knowledge and expertise that one holds, we can choose to go for a holistic Virtual power plant, or a specialized custom-made software based on one’s needs.

Focus area

An important consideration is the purpose of the VPP, i.e., software with a focus on C&I or residential DERs. Most of the VPP providers are specialists in one direction for a good number of years which makes them excel in that particular category.


One of the most important aspects is the difference in prices offered by different VPP vendors. There is a mix of vendors where some provide just the product and very little support; however, some provide continuous tech support and consultations.

How can we participate in VPP?

One can start with DER already owned. For example, if you have an electric vehicle or smart battery, you are already contributing our bit in saving energy and money.

Smart apps

A lot of small acts and services can act as VPP, for example, if you have Smart EV charging apps while driving an EV. If it has smart charging, then you are a part of VPP.

Utility programs

Local utilities these days offer a demand response program and might be building a VPP software, you can contact them and participate in demand response.

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