Energy Innovation News

What is a Virtual Power Plant & How Do They Work?

Gexa Energy
April 26, 2023
minutes read
Gexa Energy
Publication Date:
August 21, 2023
Last updated:
September 12, 2023

In the past few decades, expanding technologies have allowed more and more industries to grow into the virtual space. From virtual reality gaming to virtual meeting spaces for remote workers, creating networks beyond the physical allows new growth and connection in a variety of niches and businesses.  

Even the energy market has begun to take advantage of all that the virtual world offers in the form of virtual power plants. These plants bundle together multiple smaller renewable energy-generating systems to create a more powerful and efficient energy supply for consumers.  

Explore the future of sustainable energy and learn all about virtual power plants, how they work, and what they offer to the electrical grid and electricity consumers.  


What Is a Virtual Power Plant?

A virtual power plant (VPP) is a network of smaller energy generating and storage devices, like solar panels and battery systems, that are combined to boost the power of the electrical grid. VPPs can supply additional power when the electrical grid is strained or can store excess solar and wind energy for later use.

Almost any type of renewable energy generating system can join a virtual power plant, including the following:

  • Solar power systems
  • Wind farms
  • Battery storage systems

In some cases, a virtual power plant is made up of multiple units of a single type of asset, such as multiple batteries or solar panel systems. Sometimes, however, a VPP is created from different types of power generation systems.  

The most important thing to understand about virtual power plants is that they can take the place of power plants that use fossil fuels, offering the same level of power but instead using clean energy sources. In this way, virtual power plant companies can help reduce reliance on fossil fuels, combat climate change, and ensure that power is readily available to those who need it.  

Related: Learn about Renewable Energy Credits and their role in clean energy.  

How Do Virtual Power Plants Work?

Individuals and businesses can sign up to be part of a virtual power plant, allowing the energy they generate to be used by utility companies during periods of high demand or stored to be used when needed. The owners of solar panels, wind farms, and other renewable energy sources and storage systems are compensated for their participation in a VPP.

In order to participate in a virtual power plant, your system must be connected to the power grid. Learn more about the difference between on-grid vs. off-grid solar systems.  

Benefits of Virtual Power Plants

VPPs can help to advance many of the goals for the power grid, from providing more reliable power to consumers to making energy more efficient and affordable. By combining the forces of smaller devices that generate clean energy, electrical utilities can reduce their reliance on highly-polluting power plants and accelerate their carbon-neutral goals.

Virtual power plants could also have a major impact on reducing energy demand in the U.S., with estimates suggesting that the virtual power plant market could reduce peak demand by as much as 60 gigawatts (GW) by the year 2030. That’s equivalent to the amount of energy consumed by 50 million households. By 2050, the reduction in energy demand could be as high as 200 GW.

VPPs also have the potential to empower individual consumers, helping energy users take on a more active role in determining how electricity is generated, used, and distributed in their homes and communities, and allowing everyone to enjoy the health benefits of renewable energy.  

Virtual Power Plants vs. Microgrids

You may have heard of microgrids, which are similar in concept to VPPs. Microgrids are also often made up of a mix of renewable energy generating sources, storage systems, and even sometimes fossil fuel power plants. However, microgrids tend to be off-grid, while virtual power plants are integrated into the power grid.  

VPPs are designed with a focus on the wholesale energy market and the grid, while microgrids focus more on the consumer power supply. Microgrids also usually provide power when the grid is down. Virtual power plants, meanwhile, are used to supplement the power of the electric grid, meeting or exceeding energy demand.  

Virtual Power Plants vs. Demand Response

Demand response refers to utility programs that adjust and optimize energy consumption to meet demand. These programs use smart thermostats to allow utilities to automatically control the temperature in individual households during peak energy usage times, reducing strain on the grid and preventing potential outages.  

As the term implies, demand response programs focus on reducing energy demand. Virtual power plants, on the other hand, focus on increasing supply to meet demand.

Texas Virtual Power Plants

Texas has recently joined the growing virtual power plant industry with the approval in October 2022 of the Aggregated Distributed Energy Resources (ADER) Pilot Program. Texas homeowners and businesses in some parts of the state can now sign up to participate in VPPs, so long as their chosen local utility company chooses to participate.  

As of January 2023, Octopus Energy and David Energy have begun to offer consumers the opportunity to participate in Texas virtual power plants to help advance the distributed energy market and strengthen the power grid. The Tesla virtual power plant has also started accepting participants.  

Key Takeaways

Virtual power plants can help expand access to clean energy across Texas and throughout the country, improving energy reliability, efficiency, and affordability. When consumers choose to participate in a VPP, they can contribute to decreased reliance on fossil fuels and help create a cleaner environment for all.  

Learn more about Gexa Energy and their 100% renewable plans from environmentally friendly renewable sources. Shop Gexa Energy electricity plans today.  

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Gexa Energy purchases renewable energy credits (RECs) from renewable generation resources throughout North America to match 100% of the energy sold under your electric plan. The RECs Gexa purchases represent the renewable attributes of power generated from a variety of renewable energy sources, including, but not limited to, the sun, wind, geothermal, hydroelectric, wave or tidal energy, and biomass or biomass-based waste products, including landfill gas.