In Depth: Virtual Power Plants Turn Energy Savings Into Cash for China’s Industrial Users

Virtual power plants (VPPs) are revolutionizing China's energy market by using decentralized resources to optimize energy consumption and promote sustainability[para. 1][para. 3]. For example, a casting and smelting company in Shanxi province earned 1.4 million yuan ($200,000) in a year by participating in a VPP network, reducing its electricity bill by 4 million yuan[para. 1][para. 2]. VPPs differ from traditional power plants as they don't generate electricity but instead use internet technology to manage power loads from energy storage, air conditioning, lighting, and EV charging stations to balance supply and demand[para. 4][para. 5]. As more renewable energy sources such as solar and wind are integrated into the energy mix, VPPs help manage their volatility by smoothing out demand peaks[para. 5].

The rise in VPPs has piqued investor interest, with VPP-related stocks surging this year[para. 6]. National policies are also supporting VPP growth, with the National Development and Reform Commission unveiling a plan in August to accelerate the development of a new power system that includes VPPs as a crucial element to achieve carbon neutrality[para. 7]. Industry leaders recognize the increasing attention virtual power plants are receiving, with global companies like Nvidia developing smart meters to allow excess electricity sales from home batteries or EVs[para. 8][para. 9]. With predictions that the VPP market could reach 10.2 billion yuan by 2025 and 100 billion by 2030, cities across China, such as Shenzhen, are launching VPP projects, aggregate resources equivalent to small to midsize power plants[para. 10][para. 11].

Development stages for VPPs typically involve grid operators managing them for stability initially, with profits driven mainly by subsidies. They then progress to interacting with the broader electricity market and eventually engaging in energy trading in a fully open market system[para. 15][para. 20]. The opportunities for growth in China's VPP market are immense, with diverse sectors investing in the field[para. 21]. However, profitability remains challenging since some VPPs heavily rely on government subsidies while struggling to maintain consistent revenue[para. 22]. Established companies with existing infrastructures perform better, although startups face difficulties gaining a foothold[para. 26].

Another challenge is navigating the complex relationship between grid dispatching and market mechanisms, often favoring established power sources such as thermal and hydropower plants[para. 28]. Despite the lower operational costs of VPPs, pricing pressures and competitive rates remain an issue[para. 29]. The introduced national standards for 2025 aim to address these challenges, but more reforms are needed to define VPPs' market roles and ensure fair competition[para. 31][para. 32]. A suggested shift towards a "bottom-up" model could allow microgrids to better manage local supply and demand, opening new opportunities[para. 34].

Engaging users presents another challenge[para. 37]. While China introduced user participation in the energy market in 2015, most users are still passive power recipients[para. 38]. VPP operators must educate users on the benefits of joining VPP networks, but resistance remains due to concerns about production disruptions[para. 40][para. 41]. Yet, as energy prices fluctuate more with renewable energy rise, spot market growth could spur broader VPP adoption, forcing businesses to adjust consumption habits[para. 45][para. 46].