How Long Until Virtual Power Plants Become Viable? (AI Translation)

【周刊提前读】让用户参与电力市场：虚拟电厂跑通还要多久？

A parts casting and smelting enterprise in Shanxi has successfully implemented a virtual power plant strategy, earning over RMB 1.4 million from August 2023 to August 2024 and saving around RMB 4 million annually on electricity bills through optimized electricity usage patterns.[para. 1][para. 3] Virtual power plants (VPPs) are digital systems that manage and aggregate distributed energy resources like power loads, energy storage, and charging stations to participate in electricity market transactions.[para. 3][para. 5] Unlike traditional power plants, VPPs require minimal physical infrastructure, relying instead on controllers and sensors to form an intelligent system.[para. 5]

The motivation for VPPs stems from the need to manage the increasing proportion of intermittent renewable energy sources, such as photovoltaic and wind power, in the power grid.[para. 6] VPPs help balance supply and demand, relieve peak loads, and enhance new energy consumption.[para. 6] Recent policy initiatives, such as the "Action Plan for Accelerating the Construction of a New Power System (2024-2027)" by China's National Development and Reform Commission, aim to advance VPP development to achieve "dual carbon" goals by aligning local sources, loads, and storage resources.[para. 11]

Interest in VPPs is rising both in financial markets and among tech companies. Companies like Nvidia see significant commercial potential in smart grids enabled by AI and intelligent meters.[para. 19] Predictions by Huatai Securities estimate the VPP market in China will reach RMB 10.2 billion by 2025, potentially expanding to hundreds of billions by 2030.[para. 28] Multiple VPP projects have been launched in cities across China, including Chengdu, Qingdao, and Chongqing, as well as Shenzhen, which boasts an adjustable load capacity of 3.1 million kilowatts — equivalent to three large thermal power units.[para. 30][para. 31]

VPPs can be broadly categorized into three developmental stages: closed-type demand response, early marketization, and mature market-oriented stages.[para. 45][para. 46][para. 54] In the initial stages, VPP profitability largely depends on government subsidies for demand response, but this revenue model is not sustainable for long-term viability.[para. 59][para. 61] For example, a Shenzhen VPP operator earns an annual income of less than RMB 500,000, insufficient to cover initial software and hardware investments.[para. 61] As the VPP market evolves, operators hope to clarify their market roles, rights, and responsibilities, which will be crucial for profitability.[para. 80][para. 88]

Standardization efforts are underway, with "Virtual Power Plant Management Specifications" and "Technical Specifications for Resource Allocation and Evaluation of Virtual Power Plants" set to be implemented by February 2025.[para. 92] Technical capabilities and effective market participation are essential for VPPs to thrive. Companies like CGN New Energy, which have piloted VPPs aggregating capacities equivalent to large thermal power units, emphasize the need for robust trading capabilities and flexible aggregation technologies.[para. 98][para. 106]

User participation is critical for the success of VPPs. Industrial users, who accounted for 65.9% of China's electricity consumption in 2023, must become more engaged in the electricity market.[para. 137][para. 138] Companies like BASF have begun participating in demand-side response programs through VPPs, guided by price signals and sustainability goals.[para. 144][para. 148] The development of electricity spot markets will further enhance VPP functionality by creating more dynamic pricing environments, encouraging active market participation from both producers and consumers.[para. 157][para. 163]

In summary, while the VPP sector shows promising potential for balancing renewable energy supply and demand, significant challenges remain in achieving profitability, user engagement, and market maturation. Initial successes, like those seen in Shanxi and Shenzhen, offer a glimpse into the future of a more distributed and intelligent power system, but further market reforms and technological advances are necessary for wider adoption and financial viability.[para. 65][para. 70][para. 76]