November 19, 2017

FROST & SULLIVAN
Utilities Actively Adopt Virtual Power Plants to Cater to a Growing Network of Connected Systems

July 13, 2017

The surge in the number of distributed energy resources (DERs) installations across the globe is opening up the market for virtual power plant (VPP) programs. The large installed capacity of solar and wind-generation plants notwithstanding, generation is intermittent, which translates to the need for a solution that can balance the grid during low wind and solar period. Currently, utilities employ VPP solutions to integrate roof top solar plants, wind turbines, generator sets (diesel and gas) and batteries. Greater awareness of VPP will encourage utilities to include electric vehicles and charging stations and other DERs in their VPP solutions.

Global Virtual Power Plant Market, Forecast to 2022, recent analysis from Frost & Sullivan's Distributed Energy Growth Partnership Subscription, finds that global VPP market revenue will exceed $144 million by 2022. Frost & Sullivan's VPP market definition includes software that connects DERs with utilities and wholesale market. In terms of software we have included, software developed by global smart grid technology providers (such as GE, Siemens), pure play software solution providers (such as VPP Energy, Viridity Energy), and software developed for aggregating disparate devices including storage systems by companies such as Sunverge, Next Kraftwerke and others. The market size in the study represents the total revenue generated by VPP software vendors annually. It specifically excludes spending on energy storage systems, DERs (solar, wind, generator sets, batteries and others) and other demand side assets. For market revenue calculations, existing installed base of DERs and the penetration of VPP solutions globally have been considered. Frost & Sullivan has taken factors including smart grid regulations, future growth opportunity of DERs across all the regions in estimating the total revenue for the market for the forecast period.

Based on structure, VPPs are segmented into supply side, demand side and mixed assets. The study covers the geographic regions of North America, Europe, Asia-Pacific and Rest-of-World.

"The rise of the Internet of Things and Big Data will cause a shift from purpose-built grid devices to multi-purpose computing devices that can communicate with peers on an open platform," said Frost & Sullivan Energy & Environment Research Analyst Rajalingam A C. "Vendors will also be looking to focus on regions with high installed capacity of renewables, as they require intelligence in the grid network. Similarly, regions with strong regulations and standards are ideal during the early years."

VPP is proving a huge hit among utilities for the significant improvements it enables in grid reliability and resiliency, particularly in limiting the need for new peak-period generating capacity. Additionally, it is best suited to address grid requirements such as coordination in maintaining DERs, and the need to take immediate operational decisions, depending on the grid changes. With the VPP, the response time for such operational decisions has decreased from minutes to seconds and sub-seconds.

"To use VPP optimally, data collected from every component, including roof top, inverters, energy management systems and other distributed resources, needs to be processed in a centralized system," noted Rajalingam. "Developing such a unified grid network poses huge technical challenges in sharing data about individual systems with the group."

Although some regions are still battling hurdles such as poor grid connectivity, lack of strong government policies, unstable governments and low investment from utilities, successful demonstration projects across the globe will drive VPP growth in the US, Germany and the UK. Eventually, VPPs will experience large-scale commercialization in countries such as Australia and Japan.

With a compound annual growth rate of 14 percent, North America and Europe will boast the fastest growth, primarily driven by regulations and increasing DER penetration. Finally, Asia-Pacific, Middle East, Africa and Latin America will witness trial projects for VPP by 2022.

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Global Virtual Power Plant Market, Forecast to 2022
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