Renewable energy sources and combined heat and power (CHP) will be the winners in the development of virtual power plants. As Chris Webb discovers, after a faltering start, the concept is now being taken very seriously by those at the top table of power supply, who see it as a means to improve the environmental and economic impact of decentralized generation.


Chris Webb

Sometimes dismissed as no more than a theory or at best fit only for small-scale pilots, the virtual power plant (VPP) principle is approaching maturity. By aggregating large enough quantities of generated electricity that can be traded on energy power markets, some believe VPPs are just what distributed generation has been waiting for.

For RWE Energy, which is among Europe’s five biggest utilities, the quest to develop a coherent VPP strategy took a significant turn four years ago when, in January 2006, the company became the first German power producer to auction a virtual coal fired power plant via the Internet. The company offered total generating capacity of 300 MW of secure output.

Bids could be placed for units with a minimum capacity of 10 MW. Municipal utilities, industrial customers, energy utilities and energy traders from Germany and abroad took part in the auction.

The exercise allowed RWE to offer its customers a new instrument for flexible electricity procurement for the first time in Germany. With it, customers acquired the right to call up electricity at any time over a specified period as if they operated their owned a coal fired power plant, without the risks associated with uncertain power plant availability because RWE guaranteed supply.

VPP power auctions: mixed results

On the whole, RWE says, the auction result confirmed the general acceptance by customers of this new product, but also served to underline a worrying uncertainty of the market relating to longer term delivery times, compounded by scepticism about the regulatory and fundamental framework conditions over the longer term.

This, it says, resulted in a very conservative approach among the bidders. The volume failed to attract large volumes of successful bidders under the applicable auction rules, a trend that was to be mirrored in similar auctions in neighbouring countries.

Nevertheless, Dr. Andreas Radmacher, a member of RWE Energy’s executive board, said at the time the auction had achieved one key objective, namely that of ascertaining the extent to which customers would accept this kind of product. “The results we have garnered will help us to further develop our product range to meet our customers’ needs.”

Siemens joins the party

After the experiment, RWE turned its attentions to the potential of the VPP concept for distributed generation sources, particularly renewables and CHP when, in 2007, the company teamed up with Siemens to develop and pilot business models and technical concepts for the creation of VPPs. Not only was Siemens involved in the capacity of technology supplier, it would also be responsible for centrally managing the IT system implemented during the pilot.

Siemens had gained its first experience with similar solutions as early as 2004, when the power supply company SaarEnergie, now known as Evonik New Energies, connected various distributed generation plants into a virtual power plant via its control centre in Saarbrücken. This virtual plant participated in the minute reserve market using a Siemens network control system.

As a result of this joint venture, in October 2008, a RWE Energy/Siemens VPP went online. In the initial phase of the project, nine hydropower plants operated by Lister-und Lennekraftwerke in the Sauerland region of Germany were linked together. Each with a generating capacity of between 150 kW and 1100 kW, together they offered a total availability of 8.6 MW. During the future course of the project, additional distributed generation plants such as cogeneration plants, biomass power plants and wind powered plants were to be included in the network.

The goal of coordinating the use of distributed generation plants, in addition to the economic benefits, is primarily to help improve their market integration. VPPs enable sales channels to be utilized which would otherwise be unavailable to operators of individual facilities.

In the link-up the plants can be operated more efficiently and more economically than before, providing benefits for the operators. Or so the theory goes. It was with this in mind that the RWE Energy/Siemens pilot was conceived, with the electricity generated being marketed on the European Energy Power Exchange (EEX) and any surplus auctioned.

The venture attracted widespread interest in power circles, among them the analysts IDC Energy Insights, whose December 2009 report, ‘Defining the Virtual Power Plant,’ carried out an in-depth look at RWE’s VPP project and sought to demonstrate how the virtual power plant concept had become more than a theory or small-scale pilots. “The contribution of distributed generation in the achievement of energy policy targets can be significantly improved by the vast adoption of the VPP concept,” said Roberta Bigliani, IDC’s research director.

The VPP ‘brain’

In its report, IDC defines the VPP as a “technical, operational, and economic construct that aggregates distributed supply and demand resources in a manner that enables [the operator] to treat the distributed energy resources as if they were a single power plant”. The software solution that constitutes the ‘brain’ of RWE’s system enables demand-driven production planning, production optimization, monitoring and control.

A DEMS allows networking of decentralized generating units in a smart grid, controlling them from a central point and optimizing their use both economically and ecologically
Source: Siemens

The programme is fed all the relevant information, such as the latest electricity prices and the energy requirements of customers. On the basis of these data, the software calculates a scheduling plan for the upcoming day and, thus, determines which plants are to be dispatched.

The other key component is installed locally at the generation unit site, and allows bi-directional communication with the ‘central brain.’ Its main functionality is to execute control commands. Communication also plays another fundamental role in the success of VPP management. In order to fully integrate the generation units to the central control system, and between themselves, each unit is tracked with GPRS (General Packet Radio Service).

The IDC report maintained that, while the concept was “far from being normal practice”, the positive environmental and economic impact of decentralized generation could be substantially improved by setting up VPPs. And as recently as June this year, its author set out to explain why RWE’s VPP represented ‘best practice.’

“RWE’s VPP is exemplary for its size, and its attempt to reach a large enough scale to be able to sell on the market both its generated electricity and its reserve capacity,” Bigliani enthuses. “The generation capacity that RWE Energy is able to collect is sold on the EEX, and the reserve capacity is sold through auctions. The current success of the project has given the partners the possibility to further it by expanding its capacity to 30–40 MW over the next couple of years.”

Efficiency gains and reduced grid losses

The system has a number of advantages. It is flexible and independent from the technologies adopted for generation and, as a consequence, can easily accommodate changes and introduce and integrate small-scale renewable energy technologies such as photovoltaics and wind power in the energy supply chain.

Similarly, it improves overall efficiency, as significant reductions in electricity transmission and distribution distances reduce losses, resulting in additional energy savings and overall reduction of emissions. Furthermore, it improves reliability, security and flexibility of supply, owing to multiple grid connections.

It is easy to see why RWE Energy and Siemens chose to be at the forefront of VPP development. Power supply is facing a profound transformation in Germany and elsewhere. This affects not only the type of power generation, but also power grids in important ways. Past experience has shown that the risk of network bottlenecks and overloads is growing.

Dr. Thomas Werner, a product manager at Siemens Energy Automation’ Energy Sector in Nuremberg, explains: “Germany has committed to reducing its greenhouse gas emissions by 40 per cent by the year 2020. This ambitious goal can only be achieved by significantly expanding renewable energy sources – in other words, wind and hydroelectric power, geothermal and solar thermal energy, photovoltaics, biomass and biogas.”

The reasons for this include the efforts to reduce environmental pollution, curtail the depletion of resources and to increase energy efficiency, as well as deregulation and liberalization of the market. A Distributed Energy Management System (DEMS) allows networking of these decentralized generating units in a smart grid, controlling them from a central point, and optimizing their use both economically and ecologically.

But today’s grid structures are already reaching the limits of their capacity. Even during normal operations, the power transported by the grids has increased enormously in comparison with the original planning concept. Yet the real challenges are yet to come, chiefly because in the future it will be necessary to successfully integrate this larger number of remote power generators that rely on renewable power sources.

“This rapid expansion has serious implications for power grids,” says Werner. ”Above all, the widely fluctuating feeds lead to a number of issues in managing the grids. And this will continue to pose problems as long as storage capacities are insufficient. In this situation, an alternative is the better coordination of generation and consumption, as is the case with smart grids.” The objectives being pursued with smart grids are as diverse as they are ambitious: instead of overloads, bottlenecks and blackouts, the smart grid will ensure the reliability, sustainability, and efficiency of power supplies.

“Renewable energy sources require power plant characteristics if they are to play an increasingly vital role in our power supply in the future. The associated distributed generation and fluctuating feeds call for new strategies, which can be provided through virtual power plants.”


Moreover, as decentralized power generators increasingly penetrate the low-voltage market, VPPs can help balance the fluctuating feeds and the loads locally, in so-called microgrids. These microgrids have greater autonomy and can play a role in ensuring a reliable power supply.

In developing countries, Werner points out, microgrids make it increasingly possible to cover the growing demand for electricity locally and reduce the cost-intensive creation and expansion of transmission networks. At any rate, the ‘ingredients’ for VPPs exist, and now it is a matter of implementing and establishing smart grids.

It was in light of this, Werner says, that Siemens Energy set about developing the concept of VPPs with RWE. “Decentralized energy management and communication with power generating units play a decisive role in virtual power plants. VPPs can be completed within a very short time by using available products from the Siemens Energy portfolio, such as DEMS.

“Communication between the energy management system and the plants can take place via various transmission channels, such as mobile phones or over the Internet.”

DEMS, the ‘brain’ of the decentralized power generation fleet, brings in to a network the individual units and, through controlling them intelligently, helps them to operate more economically and with reduced ecological impact, harnessing the full potential of VPPs. Connected to the process via Siemens WinCC automation technology, DEMS is also compatible with the SIMATIC world in industrial energy systems. Together, they provide functions for predicting loads and generation from individual renewable energy sources. Based on these predictions, the system calculates optimal timetables for using the distributed generation plants, taking into account all relevant technical and economic constraints.

Based on the generation schedule, planning variances that occur during management are redistributed cyclically to generators, storage units, and controllable loads at optimal costs, ensuring adherence with the target level. In this way, requirements for purchase, delivery, and corresponding contracts are met externally.

A variety of distributed generating units can be combined with intelligent loads to form a large-scale VPP
Source: Siemens


The EEX obliges suppliers to provide their electricity within a 15-minute period. If the deadline is not respected then the supplier is subjected to penalties or fines. Using DEMS, individual boilers (or whatever distributed energy resources – DERs) can be powered up precisely, thereby reducing standby costs to a minimum.

Without DEMS or similar energy management tools, suppliers are only able to predict average values for energy availability and demand, forcing them to calculate safety margins into their figures to avoid facing penalties for incorrect forecasts.

The technology represents an important shift for enterprise-level chief information officers and IT directors who are developing dynamic or smart grid applications. IDC’s Bigliani explains further: “Even if centralized power generation goes on being the most important pillar in energy supply, distributed power generation will continue gaining importance in the coming years.”

She continues: “These types of plants, typically belonging to consumers – industrial, commercial and residential – are usually connected, but not fully integrated in the national power supply network. But their increasing deployment must be coordinated more effectively if such plants are to be economically and environmentally viable and are to play a greater role in providing a reliable power supply.”

Bigliani believes VPPs could be the marriage of the dynamic power grid and distributed network capabilities that those in the green power industry had been hoping for all along. The VPP concept is not in itself a new technology but a scheme to combine decentralized generation and storage, which exploits the technical and economic synergies between systems’ components. This aggregation is not necessarily pursued by physically connecting the plants but by interlinking them using the appropriate information and communication technology (ICT).

500 kW minimum needed to be economic

With the link-up of hydropower plants, Siemens and RWE Energy believe they have proven that VPPs are technically and economically mature. Initial findings showed that it is economical to integrate generation units with a capacity of a minimum of 500 kW. Yet the partners in this VPP project acknowledge there remain, for now at least, certain limitations.

Below this 500 kW threshold the communications costs relating to the installation of the necessary hardware (i.e. modems, etc.) combined with operational communication costs to transmit data are currently too high to generate a positive margin when compared to the revenue coming from the limited quantity of energy that can be sold on the market.

In most cases, the owner of a distributed generation facility has as his first goal the provision of energy for his own consumption. Yet there may soon be better news for VPP aggregation of generation units with a capacity lower than 500 kW. Increased standards related to communication and deployment of smart meters in the case of residential distributed energy resources could in the future facilitate interoperability and foster DER integration at a lower cost.

From a technical perspective, the most important lesson learned from this case is the importance of having a reliable communication system in place. In this instance, the availability of 15-minute period data is a prerequisite to trade on the EEX. If information on tradable capacity is not available, the VPP cannot operate.

Also, customers’ knowledge, acceptance and participation are critical aspects for the running of a VPP. The RWE pilot experienced a very positive customer willingness to join the initiative with their generation units. The key to success was a clear communication and understanding of expectations and the creation of a transparent partnership.

There is no doubt that the future belongs to smart grids. Power generation will change considerably by the time they become a reality. Large power plants will continue to ensure basic supplies, but there will also be small and large power generators that use renewable energy sources which will cause fluctuations on the grid.

RWE and Siemens believe they have shown leading-edge ICT to be the key to bundling several individual facilities to form a successful VPP.

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