Until 2015, the power sector was largely driven by conventional fuel sources such as fossil fuels for power generation. The major issue currently associated with fossil fuels is the hazardous emission of greenhouse gases leading to global warming. Moreover, as fossil fuels are non-renewable in nature, they are not available perennially for human use. Henceforth, the global power industry is presently entering an era of significant transformation. Over the last five years, the electricity sector has been primarily driven by the injection of renewable sources of energy for power generation in the energy mix. The global energy intensity is being essentially compelled by the gradual economic improvement supported by the increase in population. As a result, there is an increasing demand for electricity consumption, and according to Environmental Impact Assessment (EIA) statistics, by 2035, almost half of annual power generation is expected to be through renewable sources of energy.
The increasing use of renewable sources of energy for electricity generation leads to an unstable power supply and an increase in the demand-supply gap. There has been a growing need to maintain the demand and supply-side response by attempting to reduce the overall energy consumption and increase energy efficiency without affecting the climatic conditions. All these concerns can be addressed efficiently with a virtual power plant, which is a cloud-based centralized platform, used to stabilize the grid and meet the electricity demand by aggregating the distributed energy resources. Under the broad head of energy management, virtual power plants can control the degree of energy consumption, balance, and mitigate the intraday electricity demand, irrespective of it is industrial, commercial, or residential consumers.
The real-time insights help the companies to track their consumption and reduce its overhead cost. The measures to avoid excess consumption and increase the operating efficiency of high load devices can be decided using these insights. As a result, the energy consumption of the end-user can be adjusted using demand response programs, real-time weather responsive control systems, and advanced metering infrastructure. For instance, countries such as the U.K, Germany, the U.S., and Japan are the frontrunners in the manufacturing of virtual power plants. The introduction of virtual power plants has resulted in numerous market expansion opportunities for leading companies in these countries. For instance, in November 2018, ABB Ltd launched ABB OPTIMAX to aggregate the distributed energy resources for grid optimization.
The rising demand for power generation from renewable sources of energy across the globe has propelled the need for increasing usage of virtual power plants. Moreover, there is an essential concern for decentralized power generators in the electricity distribution supply chain to reduce electricity demand. In regions such as North America and Europe, there is a huge availability of renewable energy. As a result, the virtual power plant market currently exhibits a stable growth. However, the virtual power plant market in the Asia-Pacific is anticipated to display huge growth prospects supported by innovative technological advancements in the power industry and increasing demand for electricity. By using a virtual power plant for grid optimization, the energy efficiency of the electrical supply chain enhanced.
The virtual power plant market is expected to progress at a healthy rate in the future, supported by the gradually growing affinity for consistent power supply from a clean energy source. However, some challenges also prove to be a restraint to the overall growth of the market. Privacy and security risks involved during the operation of virtual power plants play an important role in hindering the adoption of virtual power plants by various small-scale players. Moreover, small- and medium-sized players in the power industry are hesitant in introducing virtual power plants due to the high initial set-up costs associated with the same.
High growth in the market in the coming future is expected to be driven by rising awareness among governments about the need to mitigate power outages while also taking care of the environment. The growing awareness in the market concerning the opportunities in renewable energy and battery storage systems has stimulated large-scale investments in the sector over the last decade. The majority of the investments have been in the field of renewable energy capacity addition, batteries, software, and data analytics.
Various established conglomerates, such as Tesla Inc., AutoGrid Systems Inc., Sonnen GmbH, Moixa, and Enbala Power Networks, are investing in virtual power plants. For instance, in September 2018, AutoGrid Systems Inc. invested $75 million for the development of Internet of Things (IoT) enabled software catered toward distributed energy resources.
Energy generation from conventional sources adversely affects the environment due to greenhouse gas emissions. As a result, there has been an increasing demand for energy generation from renewable sources of energy. To control the variability of renewable energy generation sources, energy storage systems play a crucial role. The energy storage systems include batteries that ensure flexible, reliable, and continuous power supply to the grid network, thereby fulfilling the electricity demand of the end-users. Moreover, these systems are used to maintain the power quality and continuity of power flow in the grid network to meet the electricity demand.
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Demand-response technology accounted for 61.3% of the total market in 2018 and is expected to maintain market dominance, owing to the high stability, increased efficiency, and reduced electricity cost. The technology is an automated grid control mechanism that aims to maintain grid stability by changing the normal pattern of electricity consumption by end-users during peak hours. The virtual power plants, when integrated with a demand-response mechanism using information and communication technology, effectively curtail the demand-supply gap and prevent power outages.
Vehicle electrification and HVAC systems are mainly responsible for an excessive load on the grid. To mitigate the issue on load hike due to vehicle electrification, smart charging mechanism using demand response technologies are used to shift the load on the grid during off-peak hours. Some of the leading players, such as Siemens AG, provide a demand response management system when integrated with virtual power plants, which will be an efficient solution to optimize the grid network.
