How Virtual Power Plants Can Solve the Energy Crisis Safely and Sustainably

Explore why cloud computing-enabled smart grids are cleaner, more reliable and secure than traditional power plants.

By Jean Thilmany

By Jean Thilmany July 15, 2021

In late June 2021, a heat-dome clamped itself over the Pacific Northwest, shattering record high temperatures in Portland and throughout the entire region. With air-conditioners working overtime and thousands lacking electricity, fears grew that the power grid wouldn’t be able to handle demand.

Once-in-a-lifetime weather events like this are no longer once-in-a-lifetime. They happen regularly. Earlier in June, for example, temperatures in Texas likewise soared, sending electricity demand in the Lone Star State through the roof. In response, state regulators pleaded with Texans to cut their power consumption or face the type of failures they’d seen the prior February, when an uncharacteristic string of winter storms stressed the Texas power grid, leaving 69% of Texans without electricity.

It’s not just weather that threatens the power supply, however. It’s also security. In May, for example, cyber criminals hacked into the systems of the Colonial Pipeline, which transports gasoline and jet fuel across the Southeast from Houston. In response, the pipeline’s owners halted operations and paid a hefty ransom in exchange for a software application that would restore the network.


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These and other challenges are taking place against a backdrop of increasing energy appetite as electronic devices become ubiquitous, electric vehicles enter the transportation network and more industries become digitized. With demand for electricity increasing and supply threatened, new solutions are needed to keep the world flush with power.

One such solution is virtual power plants, or VPPs — distributed energy resources that are linked together to create a cloud-enabled “smart grid.” In the face of a looming energy crisis, proponents say they could be the missing link that will make power grids more powerful, reliable, resilient, sustainable and secure.

What Are Virtual Power Plants?

How do virtual power plants work? It’s a fair question. Because VPPs don’t exist in the same way as standard power plants, they may be hard to visualize. It’s therefore helpful to have the virtual power plant explained.

When you close your eyes and imagine a power plant, you probably envision a huge industrial monolith, like a nuclear power plant with its characteristic cooling towers, or a coal-powered plant with its giant, smoldering smokestacks. A VPP isn’t that. In fact, it isn’t a single power plant at all. Rather, it’s many smaller power plants that are connected to each other via the cloud in order to create what’s known as a “smart grid.”

Alone, these disparate energy providers are too small to meet the energy demands of a traditional power substation. By pooling their resources, however, they can look and behave as if they were a single, large-capacity energy source, according to Roberto Rodriguez Labastida, senior research analyst at Guidehouse, a management consulting firm that tracks VPPs.

“It’s an alternative to actual power plants and can shed or shift loads, usually at a megawatt scale,” explains Rodriguez Labastida, who says VPPs can supplement traditional power plants in important ways.


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For one, they can expand existing power grids, adding energy capacity and supply without the need for new or upgraded infrastructure. They also create redundancy and resiliency. If a conventional power plant fails, for example, it must be taken offline, whereas VPPs can continue operating even if one of their nodes experiences a service interruption. Likewise, VPPs can sense when the power grid is stressed, then automatically redistribute and rebalance energy loads during periods of peak demand in order to spare overworked energy assets. In this respect, they can emulate or replace peaking power plants – i.e., power plants that run only when demand for energy is high.

The increased power capacity and resiliency from VPPs acts like electrical insurance for consumers and businesses, who because of VPPs are less likely to experience power outages – even when electricity demand spikes. With VPPs as a power source, for example, Texas might have been able to reduce the number of residents who suffered blackouts and freezing temperatures during the aforementioned winter storms that took place there in February 2021.

VPPs’ virtual networks also ensure that critical infrastructure like hospitals and banks – both of which need power to do business that saves lives and livelihoods – will continue operating uninterrupted. Plus, VPPs keep unexpected power surges from damaging electrical equipment, which keeps the larger power grid in working order to the mutual benefit of consumers and their coffers.

The Virtues of ‘Virtual’

By supplementing traditional power plants and providing increased power supply during periods of peak demand, VPPs may prevent power outages like the one in Texas. But that’s just one benefit among many.

Other benefits are sustainability and cost, as VPPs can incorporate renewable energy sources like wind turbines, solar parks and battery farms, which are cleaner and often cheaper than fossil fuels, but typically can’t generate enough energy on their own to power an entire grid.

“Renewables are positioned to overtake coal this decade as the most popular way to generate electricity,” author Jennifer Castenson writes in an article for, in which she says solar power is now cheaper than natural gas and coal across most of the United States. 

“Those cheaper costs along with government efforts to slash climate-damaging emissions will increasingly push coal off the grid and give renewables 80% of the market for new power generation by 2030 … This accelerating trend is paving the way for the virtual power plant.” 

With VPPs, energy consumers can not only consume electricity, but also supply it, selling back to the grid the energy they generate from home solar arrays, batteries or other on-premise energy sources. For example, South Australian electricity provider Energy Locals and automaker Tesla are collaborating on South Australia’s Virtual Power Plant, which eventually will comprise up to 50,000 solar and Tesla Powerwall home battery systems. Homeowners who install the systems are expected to cut their electrical costs by more than 22% compared to the standard electricity price, Tesla says.

Yet another benefit of VPPs is security. As the Colonial Pipeline hack illustrates, traditional infrastructure is increasingly vulnerable to security breaches by hackers and other bad actors. If a traditional power plant is compromised, the whole plant goes down. With VPPs, however, there is built-in redundancy that mitigates risk; if a hacker brings down a single asset in the network, the network’s other assets can continue operating.

VPPs can be protected using the same security methods that are utilized in edge computing—i.e., computing where processes and applications operate as close as possible to data’s point of origin, like running mobile apps on smartphones instead of on remote servers. For example, VPPs can be protected with edge-based firewalls, researchers suggest in the March 2021 edition of the journal Energy Informatics.

Edge security is a well-recognized concept used to protect users and apps at the farthest reaches of a network. That information is protected using a built-in security stack to thwart “zero-day” threats, malware and other vulnerabilities at the point of access. Using this method, network operators can securely steer traffic to the nearest point of access, according to digital technology developer Citrix.

Manufacturers and others that use edge computing are investing heavily in solutions that will keep their technology secure. Those investments undoubtedly will benefit other users and use cases—including VPPs, which will continue to benefit from security advancements in the many other sectors that utilize edge computing.

In the Cloud and on the Edge

Their benefits have persuaded many industry experts to predict swift growth for VPPs. The consulting firm Fortune Business Insights, for example, predicts that the global market for VPPs will reach $2.85 billion by 2027, an increase of 27.2% over 2019, when the market was valued at $87 million.

“The electricity networks of 2030 will not use digital, they will be digital,” says Matt Rennie, a strategic regulatory advisor at Rennie Partners, an Australian firm that provides energy advisory services. 

“By 2035 to 2040, the electricity system will mostly constitute decentralized Internet of Things devices effectively communicating through virtual power plants and distributed energy systems.”


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Cloud and edge computing are enabling technologies that will turn his predictions into reality, according to Rennie.

“As VPPs become integrated into the power system, the use of cloud and edge will become one of the defining features of security, resilience and processing speed,” he said. 

He added that cloud and edge computing will operate in tandem – although it’s not yet clear how VPP workflows will be delegated between them. Some devices can be safely and effectively connected and coordinated through the internet, for example, while others, like those with direct access to critical infrastructure, cannot be. 

“As the number of VPPs rises to hundreds of thousands, each communicating with household IoT and with each other, which information should be processed locally and which can be sent to the cloud will become the new exam question,” Rennie said.

Although practical questions remain, such as how best to govern and deploy a network, VPPs’ strategic value is obvious: improved cost, reliability, capacity, environmental sustainability and security.

Never mind that they don’t occupy the same physical footprints as traditional power plants. VPPs can be there when needed. And that’s important. Just ask those who warmed themselves with open oven doors in Austin last winter, or those who fruitlessly sought air-conditioned comfort in Portland this summer.

Jean Thilmany is a freelance writer living in St. Paul who writes about engineering and technology.

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