Since the accelerated rise of renewables, electric vehicles, and heat pumps, the concept of virtual power plants (VPPs) and aggregators has gained significant attention in the energy scene.
A virtual power plant is a technology- and software-driven approach to energy generation, distribution, and management. It optimizes the use of smaller, decentralized energy resources in light of the real-time overall situation of the electrical energy system — energy prices and costs, demand, supply, grid utilization, weather — of a region or country at any given point in time. A VPP allows owners of decentralized energy assets (B2B, SME and B2C) to create additional income or avoid energy procurement costs compared with the “do nothing” alternative.
VPPs also face significant challenges. Given their extensive use of operational technologies (OT) — hardware and software monitoring and controlling electrical processes — as well as public and semi-public communication and data infrastructures, VPPs are highly exposed to cyber and data security risks. They increase the energy industry’s threat surface exponentially (e.g. denial-of-service attacks, false data injection, tampering). Effective cyber and data security strategies for VPPs are therefore required, and countermeasures must be implemented.
Benefits of virtual power plants
Decarbonization and enhanced grid reliability
VPPs promote decarbonization and the use of renewable energy and reduce reliance on fossil fuels. They distribute energy generation across a network of decentralized resources, making the grid more resilient. This distributed approach can help minimize the impact of power outages and improve overall grid stability.
Driven by the electricity transition (renewables, storage), the mobility transition (electric vehicles) and the heating transition (heat pumps), grid capacity bottlenecks will become the “new normal”. VPPs can partly solve this problem by efficiently integrating flexible energy assets that deliver balancing energy, ancillary services and more to the grid.
Efficiency
Virtual power plants optimize the use of energy resources by aggregating and dispatching them based on real-time demand and market conditions. VPPs ensure that energy is generated and used efficiently, and they support the integration of intermittent renewables, stabilizing the energy system.
Demand-side flexibility and cost optimization
Virtual power plants enable demand-side flexibility, allowing participants to adjust their supply or demand in response to price signals and grid conditions. This helps lower energy bills and reduces the need for expensive grid extensions or high-cost peak capacity. In addition, energy asset owners can generate additional income through bilateral (OTC), wholesale market or ancillary services deals.
Security and business challenges
Virtual power plants rely entirely on IoT devices, software, and communication technologies, and are therefore heavily exposed to cyber and data security risks and vulnerabilities. Given the decentralized nature of a VPP, traditional security strategies like air-gapping cannot be applied — and these approaches are not fully secure even in more centralized settings like conventional generation or large-scale solar and wind. Emerging VPPs also need to consider financial viability, given various elements of price uncertainty.
Technology challenges
Virtual power plants are very complex systems:
- Ownership: the energy assets in a VPP are owned by different entities, and the VPP service is often run by a third party (an aggregator). Secure data interoperability, governance and proof of delivery must be ensured.
- Integration: integrating diverse energy assets (different asset types, different hardware vendors) and deploying advanced monitoring and AI control systems from different vendors is a very complex task that requires sophisticated software and hardware technologies.
- Interoperability and latency: interoperability and compatibility between different energy technologies and devices is challenging, and standards must be established to enable seamless integration. VPPs also need low latency, because they must respond to developments in the energy market within seconds.
- Security frameworks: different assets and technologies lack common cyber and data security frameworks, which would help increase resilience against malicious attackers.
Data security and privacy challenges
The reliance on digital infrastructure and communication networks exposes VPPs to cyber and data security threats. Protecting the data generated by VPPs and the commands transmitted to them is essential to prevent unauthorized access, data breaches, and potential disruptions to the energy system. Concerns about data privacy must also be addressed, especially when VPPs collect and analyze consumers’ energy consumption data.
Business challenges
The upfront investment required to deploy virtual power plants can be substantial, which may be a barrier for smaller players. VPPs depend on revenue streams, and regulators can support their business case by incentivizing flexibility. Electricity markets have limited predictability, so participants will face at least some risk exposure. A lack of open standards and limits on the ability to switch assets between VPPs (e.g. hardware suppliers creating a “VPP lock-in” to their own platform) are areas of concern that regulators should address.
Conclusion
Virtual power plants are here to stay and will grow rapidly into a substantial part of the energy system. They are an efficient way to enable demand-side flexibility, which is widely recognized as a key ingredient for decarbonizing the energy system.
With VPPs on the rise, their distributed nature means cyber and data security require extra attention. Centralized system security was managed quite effectively, at least in the past. VPPs rely entirely on decentralized assets, IoT and software, requiring new security technologies, innovations, and secure system-oriented strategies and actions.