Germany provides a glimpse into the potential future of power generation. Next Kraftwerke, an energy company, has surpassed the milestone of 10,000 megawatts of networked capacity, which is sufficient to power approximately 5 million homes in the US.

Remarkably, this achievement was accomplished without relying on fossil fuels. Instead, Next Kraftwerke has combined the generation capabilities of over 13,000 independent renewable energy producers. The majority of the energy, 60%, is derived from solar power.

This innovative approach is known as a virtual power plant. A virtual power plant uses intelligent controls to aggregate electricity from its members and distribute it flexibly, emulating a central power plant.

Virtual power plants have significant implications worldwide. They allow small-scale energy producers to supply power to the customers of energy utilities. particularly during periods of high demand.

For homeowners with solar panels, virtual power plants save money. They also have the potential to prevent power outages.

The difficulty in satisfying peak demand

One of the main challenges in power supply is peak demand. Peak demand is when the grid needs to meet simultaneous demand for electricity from numerous appliances during peak usage periods.

To address these peaks, utilities may need to purchase energy at higher prices on the open market. Alternatively, they might generate backup power through peaker plants, which operate on fossil fuels.

However, various organizations, such as Advanced Energy and the Clean Energy Group, advocate for the reduction of peaker plants and greater adoption of clean energy solutions.

Peaker plant owners are compensated for both generating electricity and being on standby for utilities. As a result, electricity produced by peaker plants is more costly.

According to a 2020 report by the Peak Coalition, peak electricity in New York City was found to be 1,300% more expensive than the city’s average electricity cost. Additionally, peaker plants contribute to air pollution by emitting nitrogen oxides, sulfur dioxide, and particulate matter, which can harm respiratory health and cause asthma.

Due to these concerns, some utilities are exploring alternative approaches to meet peak demand.

What are virtual power plants?

Now, let’s explain what virtual power plants are in more detail.

According to engineering professor Joshua Pearce, a virtual power plant combines various renewable energy sources, including wind, solar, hydro, and battery backup. The physical location of these sources doesn’t matter. When combined, they provide load-following capabilities.

In other words, if a utility requires a specific amount of kilowatt-hours at a particular time and location, a virtual power plant can fulfill that demand.

Advancements in technology like efficient inverters, smart meters, and cost-effective battery systems have made virtual power plants feasible.

For instance, electricity usage in a typical apartment building remains constant due to appliances like refrigerators running continuously. However, when residents come home and turn on additional lights, the demand for electricity increases. A virtual power plant ensures that the electricity supply matches the increased load, preventing issues like flickering lights or brownouts/blackouts.

The primary goal of a power plant operator is to guarantee a reliable supply of electricity when needed. If a power plant fails to effectively manage load changes, it can lead to disruptions. By contrast, a virtual power plant aligns electricity supply with demand fluctuations to maintain a stable power supply.

A key advantage of a virtual power plant is its ability to rely on alternative energy sources within its network if one source is insufficient due to local weather conditions.

Check out the diagram below for a visual.

virtual power plants

How a virtual power plant works. Source: 3E Group


How virtual power plants save solar customers money 

Green Mountain Power, a Vermont utility, operates a successful virtual power plant.

In 2017, the utility partnered with Tesla to offer subsidized Powerwall batteries to customers. In so doing, Green Mountain Power provided a more affordable backup electricity source during power outages.

The program has evolved over time. According to CNET, the current version allows customers to lease two Powerwall batteries for 10 years at $55 per month or a one-time payment of $5,500.

In addition, Green Mountain Power has a bring-your-own-device program where customers can enroll their battery capacity for monetary compensation, based on the duration of discharge.

These initiatives have attracted approximately 4,000 customers and 18 megawatts of energy storage. The utility’s efforts have helped keep the residential electricity rate 18% lower than the New England average.

Canadian consumers are also saving money through virtual power plants. Calgary-based Solartility has created a virtual power plant that is saving its customers 30% on their energy bills. The company uses an innovative two-way interval meter to determine the best times for customers to export and import solar energy.


Virtual power plants are a great option for most solar consumers. However, one notable downside is loss of control.

Participants in Green Mountain Power’s program are required to solely rely on their battery for backup power. They are not allowed to benefit from time-of-use rates.

In addition, by enrolling with a smart thermostat, program participants consent to tolerating a slightly higher temperature on certain days.

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