virtual power plant

What is a virtual power plant?

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At its core, a solar panel installation at your home or business is basically a miniature power plant – even more so once you add a solar battery to be able to store the solar electricity you produce and use it even after the sun has gone down. As more and more homes and businesses install solar panels across the country (we’re at over 3 million solar installations nationwide!), these distributed, miniature power plants present an opportunity: if you aggregate enough of them together, you can turn all of those miniature solar power plants into one, larger “virtual” power plant. Here’s how virtual power plants work and how you can participate in one. 

Find out what solar + storage costs in your area in 2021

Key takeaways


  • A virtual power plant is a way to pool the collective power of smaller distributed energy resources to mimic a larger, central power plant
  • Aggregators will pay you to participate in a VPP with your solar and storage system at your home or business
  • Take the first step to participating in a VPP by installing solar and storage through the EnergySage Marketplace

How the grid currently works

To borrow from another article of ours:

“At present, the electric grid is very centralized: Large power plants are connected to electricity buyers through a web of transmission and distribution lines. These high-powered generation resources are designed to satisfy the electricity needs of hundreds of thousands — or even millions — of households and businesses in a given region. With the benefit of a connected grid of transmission and distribution lines, these large power plants do not need to be located close to customers, but rather can remain part of a centralized market.”

To summarize, we have large, central power plants that are responsible for powering entire communities or cities. These power plants are often quite large: compared to residential solar installations, which are normally around 10 kilowatts (kW), most central power plants are at least a few hundred megawatts (1,000 kW = 1 MW), and some are rated in gigawatts (1,000 MW = 1 GW). 

Where virtual power plants come into play

Now that we also have miniature power plants distributed throughout neighborhoods, it’s possible to aggregate multiple of these distributed energy resources to play the same role as a single, central power plant, with a number of co-benefits. In other words, if you aggregate enough of these solar (or solar-plus-storage) projects together, you can find enough kW to offset MW of power plants. 

That’s exactly what a virtual power plant achieves.

This has a few key implications:

  • Resilience: by aggregating multiple, smaller projects together, virtual power plants provide added resiliency to the grid. Instead of having one single, major point of failure (i.e., a central power plant), expanding 
  • Avoiding major infrastructure investments: in many cases, the need for large, grid-scale infrastructure projects and investments can be offset by aggregating distributed energy resources. For instance, virtual power plants can (and have!) offset the need for building new central power plants, as well as pricey transmission line or substation upgrades.
  • Access to markets: by relying on residential or commercial distributed energy users, aggregators–the people who find enough solar projects to create a virtual power plant–are able to provide more access to energy and power markets for individuals. When your solar (and storage!) plays a significant role in helping the grid, virtual power plants and aggregators help make sure you get compensated for that service. 

Characteristics of a virtual power plant

No two virtual power plants look alike, but there are some standard hallmarks that you can be on the lookout for with virtual power plants. 

Grid-tied, not off-grid

As opposed to microgrids, which are often optimized for being able to run off-grid in the event of an emergency, the whole point of a virtual power plant is that all of its components are connected to the grid so they can operate in markets. The projects are optimized to provide grid services, whether that means power (measured in MW), supply (measured in megawatt-hours, MWh), frequency regulation, or reserve capacity.

Software solution, not a hardware solution

virtual power plants mimic traditional power plants and physical infrastructure with software to dispatch its resources to respond to signals from the grid operator. While there certainly are hardware aspects of virtual power plants like the solar panels on your roof or batteries in your garage, a key characteristic of a virtual power plant is that it’s primarily a software solution, not a hardware solution. Hence, “virtual” power plant. 

Could be either a supply-side or demand-side project

Often, a kilowatt-hour (kWh) of electricity that you don’t use can be just as valuable–or even more valuable!–than a kWh of electricity that you produce. In that way, a lot of virtual power plants are a mix of supply-side and demand-side solutions, meaning they can combine both power production and power reduction into a single project. In fact, in California, virtual power plant projects may just require you to use electricity from your battery instead of from the grid at certain times of the day, which is likely not too different from how you already run your solar-plus-storage system.

Aggregators bring the benefits to you

The most important characteristic of a virtual power plant from a home or business owner’s perspective is that it provides you access to markets and benefits that you otherwise wouldn’t be able to harness with solar-plus-storage. By participating in a virtual power plant aggregation program, you can get paid to help stabilize the grid, improving your own energy resilience at the same time. 

How blockchain enables virtual power plants


The same way that blockchain is the foundational element that allows cryptocurrencies to be created, mined and traded securely, a blockchain can also provide a secure, safe “ledger” of transactions for distributed energy resources participating in wholesale markets. With energy markets, at least, the notion of using a blockchain to secure energy trades, deliveries and transactions remains theoretical, but it’s an exciting possibility that could open up access to more markets for more people and resources. 

Become part of a virtual power plant today! 

The first step to joining the energy revolution is to install a solar or solar-plus-storage system at your home. EnergySage is built for that: when you sign up for a free account on EnergySage, we’ll gather custom solar and storage quotes for you from high quality solar companies in your area. Once you’ve installed your solar-plus-storage project, we can help get you set up as a participant in a virtual power plant, pointing you to the right aggregators to put money in your pocket. 

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About Spencer Fields

Spencer is the Manager of Market Strategy & Intelligence at EnergySage, where he writes about all things energy. Prior to joining EnergySage, he spent five years at Synapse Energy Economics, providing environmental, economic and policy analysis for public interest groups. Spencer has degrees in Environmental Studies and Hispanic Studies from Brown University, meaning when he's not in the office you can find him outside or traveling somewhere to work on his Spanish.

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