At present, there is no widely acknowledged or precise definition of a virtual power plant (VPP). The very use of the term “virtual” connotes something not solid, temporary, and perhaps even fleeting. In many ways, these attributes are accurate. Unlike a large coal-fired power plant or nuclear reactor, most VPPs are fairly invisible to the naked eye. Yet, VPPs can provide extraordinary value and services to transmission and distribution (T&D) grid infrastructure as well as to myriad stakeholders engaged in the provision of electric power.

Growing investments in the full range of distributed resources – renewable distributed energy generation (RDEG), demand response (DR) load, advanced storage, and plug-in hybrid vehicles (PHEV) – throughout the world will require new business platforms to manage this increasing diversity and complexity. The increasing variability of both generation (from solar and wind) and loads (due to DR and PHEVs) will require more sophisticated and decentralized decision making, embedding intelligence deep down throughout the system’s distribution lines.

Some observers provide such a broad definition of a VPP that virtually the entire power market could be segregated into regional VPPs. For example, The California Renewable Energy Collaborative (of the University of California) claims that each utility system could be considered a load-following VPP. With structures like Competitive Renewable Energy Zones (CREZ), which are currently being developed in large states, such as California and Texas, central station power plants like concentrated solar power projects or large utility-scale wind farms could also be viewed as VPPs. Going down to the distribution level of grid service, a net zero community’s energy infrastructure is a VPP, as is a net zero energy building, according to this perspective. All have costs associated with supply, delivery, storage, and efficiency components; they also all require integrated planning and operations.

As a result of this wide divergence of what constitutes a VPP, Pike Research has come up with a narrower, yet still broad definition of a VPP that encompasses four different primary segments: DR-VPPs, supply-side VPPs, mixed asset VPPs, and wholesale auction VPPs. What one company calls a VPP is often dismissed by a competitor. In fact, one could argue that the vast majority of today’s DR resources do not even meet the following Pike Research definition of a VPP: a system that relies upon software systems to remotely and automatically dispatch and optimize generation, demand-side, or storage resources (including PHEVs and bi-directional inverters) in a single, secure web-connected system.

Ironically enough, the most vibrant and commercially advanced segment of VPPs does not involve (virtually) any power generation at all! Like the microgrid sector segment of the smart grid, these so-called DR resources are most advanced in the United States. With strong regulatory and policy support from the Federal Energy Regulatory Commission (FERC), this segment is undergoing rapid changes as new technologies empower utilities and end-user customers alike to respond to changing market conditions when real-time and dynamic pricing programs are offered in organized markets.

With the backing of the FERC, DR simply turns conventional wisdom on its head. Instead of firing up a fossil fuel peaking power plant on a hot afternoon, it is far more cost effective and efficient just to lower demand by an equal amount. One of the best ways to capture the essence of a this VPP market segment is with this definition: the ability to tap resources in real time, and with enough granularity, to control the load profiles of customers, aggregate these resources, and put them up on a trader’s desk.

Considerable debate exists as to whether managed load reductions and dynamic pricing programs should both fall under the VPP umbrella. For the purposes of this report, the entire universe of DR activity is presented. However, it is the dynamic pricing segment – and particularly automated DR – that most clearly matches up with VPP vision. Using this narrower definition would reduce DR-VPP capacity by over half, but still represent the largest single category of VPPs by 2017. As a sign of expected surge in growth, utility dynamic pricing capacity grows from 4.8 GW in 2011 to 29.9 GW by 2017, a 35.6% CAGR.

Between now and 2017, DR-VPPs (both managed load reduction and dynamic pricing) will lead the way in terms of projected capacity additions within the forecast period, especially in the United States, with 44 GW already available today, virtually doubling in capacity to 85 GW by 2017 in the average scenario. As documented in the new report from Pike Research, DR is also now slowly gaining traction in Europe and more rapidly taking off in the Asia Pacific region as smart grid deployments expand. Unlike the U.S. market dynamics, DR is less about shaving peaks and more about balancing variable RDEG and large-scale renewables in other parts of the world. In terms of Europe, Denmark and Germany are leading the way in the supply-side and mixed asset category of VPPs. But more about those models in a future blog post.