Understand "Virtual Power Plant" in 3 Minutes: Why It Is a Key Piece in the Carbon Neutrality Puzzle

Introduction
As the 21st century nears the end of its first quarter, the concept of "virtualization" has become widely familiar across various industries in recent years, with new terms such as virtual reality, virtual currency, virtual avatar and virtual identity emerging one after another. In the power system, the concept of "Virtual Power Plant (VPP)" has also gradually gained traction. Then, what distinguishes it from the traditional power plant that we commonly understand? Let's explore the answer next!
I. What is a Virtual Power Plant?
1. Definition Defines Identity and Role
The traditional power system consists of links including power generation, transmission, transformation, distribution and consumption. Power dispatching departments adjust and control the output of power plants according to the actual power load, realizing an operation mode of generation follows load. Power plants in China include various types of generator sets such as coal-fired, gas-fired, nuclear, hydropower, photovoltaic, wind power and biomass.
On November 28, 2024, the Guiding Opinions on Supporting the Innovative Development of New Types of Market Entities in the Power Sector issued by the National Energy Administration defined a virtual power plant as: a power operation organization mode that integrates distributed energy resources and adjustable loads through advanced technologies such as digitalization and intelligence, and participates in system operation and market transactions in a coordinated manner.
The GB/T 44241 Management Specifications for Virtual Power Plants, officially implemented on February 1, 2025, defines a virtual power plant as: a system that integrates distributed resources such as distributed generation, distributed energy storage and adjustable loads through advanced information and communication technologies, intelligent metering and optimal control technologies, so as to respond to power grid demands, participate in power market operation or accept power grid dispatching.
Combined with the operation characteristics of China's power system and the progress of power system reform, we generally consider that a virtual power plant is not a power plant that directly generates electricity, but essentially a resource management system. It aggregates different distributed generation or load resources in the system (including distributed photovoltaic power generation, distributed wind power generation, energy storage systems, charging piles, adjustable loads, etc.), covering both power source-side and load-side resources. Through adjustable capacity analysis and load regulation control, it participates in power market and power grid dispatching activities. As a new type of resource-aggregating market entity, it engages in medium and long-term power markets and spot markets, achieving the goal of peak shaving and valley filling, and providing ancillary services such as peak regulation, frequency regulation, voltage regulation and reserve.
2. Functions of Virtual Power Plants
Different from the physical topology and geographical location relationship of the traditional generation-transmission-transformation-distribution-consumption model, virtual power plants usually have no specific constraints on the geographical location and operation characteristics of distributed energy resources. For example, resources aggregated by a virtual power plant can be distributed in different cities and counties of the same province. This feature provides a highly flexible and adaptable distributed energy management method for the power system.
As an intermediate interactive link between grid-side dispatching management, power trading, new-type power load management entities and different types of distributed energy resources, virtual power plants need to predict, calculate and analyze parameters and characteristics such as dispatching plans, power curves and operation costs of aggregated distributed energy resources, and participate in power markets or grid dispatching according to declarations or agreements.
Based on different functional characteristics, virtual power plants are divided into two categories: technical VPPs and commercial VPPs. Among them, technical VPPs provide ancillary services for dispatching centers, which need to determine the adjustable power and regulation cost within the time-series coupling cycle to meet the requirements of power grid operation management. Commercial VPPs participate in power markets, which need to determine bidding strategies within the time-series coupling cycle to achieve system operation and financial profit goals.
From the perspective of market operation, in the actual operation process of virtual power plants, it is necessary to meet the goal of maximizing revenue while fulfilling the declared operation plans and power targets.
II. The Market for Virtual Power Plants
In 2024, China's power structure achieved a historic leap, with the country's total installed power generation capacity reaching 3.35 billion kilowatts. Among them, the installed scale of new energy exceeded 1.45 billion kilowatts, surpassing that of thermal power for the first time. With the rapid increase in the proportion of new energy, the contradiction of spatial-temporal mismatch between the power source side and the load side has intensified. Against this background, the state has introduced a series of measures in terms of policies and market mechanisms in recent years to address the supply-demand imbalance.
1. Policy Support
The Power Market Supervision Measures, implemented on June 1, 2024, clearly stipulates that power market entities include power generation enterprises, power selling enterprises, power users, energy storage enterprises, virtual power plants, load aggregators, etc., that participate in power market transactions. The official implementation of these measures will provide opportunities for flexible resources such as controllable loads, new-type energy storage and distributed new energy to enter the market, clarify the status of virtual power plants as market entities, and fully stimulate and release the flexible regulation potential on the user side.
The Action Plan for Accelerating the Construction of a New-Type Power System (2024–2027) and the Special Action Implementation Plan for Optimizing Power System Regulation Capacity (2025–2027), issued successively in August 2024 and January 2025, clearly propose to establish a flexible regulation resource pool on the demand side in response to the market demand and opportunities of high-proportion demand response in typical regions, and fully stimulate the vitality of demand-side response by optimizing dispatching operation mechanisms and improving market and price mechanisms. Under the new situation, combining the needs of power supply guarantee and new energy consumption, making full use of local source-load-storage resources to build virtual power plants that meet the operation needs of the local power system has become an inevitable path at present.
2. Market Orientation
The rapid development of virtual power plant technology can effectively promote the consumption of renewable energy, alleviate the supply-demand contradiction in the power market, and help the new-type power system to operate flexibly, efficiently and safely.
As a new type of market entity in the construction of the new-type power system, the main target markets of virtual power plants are still the electric energy market and the power ancillary services market. Among them, the electric energy market is a trading venue for power supply and demand, used for buying and selling electric energy. According to the trading cycle, it mainly includes the medium and long-term trading market and the spot trading market. The power ancillary services market is a supplementary market aimed at supporting the stable operation of the electric energy market and the stability of the power system, including categories such as active power balance services, reactive power balance services, and accident emergency and recovery services, which are divided into basic power ancillary services and paid power ancillary services.
With the full clarification of the main operation status of virtual power plants by the state and many provinces and cities, virtual power plants will have great prospects in the development of the power market in the future.
III. Technology and Application of Virtual Power Plants
The resources aggregated by virtual power plants mainly include power source-side and load-side resources. Based on the aggregated objects and main business directions, virtual power plants are mainly divided into three types: generation-type VPPs, load-type VPPs and hybrid-type VPPs. Their external main identity is a "power plant" different from traditional power plants, which can provide electric energy or power ancillary services.
1. Virtual Power Plant Technology and Business Model
1.1 Core Technologies
To meet the operation index requirements such as electricity trading, peak regulation, frequency regulation and demand response for aggregated resources, virtual power plants need to establish control strategies and technologies for different controlled objects. Similar to the distributed control system of traditional power plants, resource aggregation needs to realize functions such as data collection, analysis and calculation, and resource control needs to realize the control and regulation of parameters such as voltage, frequency and power.
In addition, for resource combination and control strategy formulation, it is necessary to consider resource aggregation grouping models, power market forecasting and transaction strategy optimization calculation, which are also important functions for virtual power plants to achieve reliability and economy.
In addition to having resource aggregation and control functions that meet operation requirements, the quality and accuracy of data communication are also important indicators for system operation. Communication technologies based on input and output information of different interactive objects have become key technologies for virtual power plant entities to compete in performance indicators in the future market.
Virtual power plant technologies mainly include market operation, coordinated optimal operation and Internet of Things (IoT) technology.
1.2 Business Model and Market Space
With the continuous deepening of China's power system reform and the official implementation of the Basic Rules for Power Market Operation, the commercial development of virtual power plants has ushered in more challenges and opportunities, and it is necessary to formulate different business models according to local conditions.
Virtual power plants dominated by distributed energy resources, adjustable loads or energy storage respond to various regulation needs in system operation through market-oriented means. According to the current policy documents issued, the types of transactions that China's virtual power plants can participate in include peak regulation ancillary services and demand-side response. In the long run, the types of transactions that can be participated in also include power spot trading, medium and long-term trading, frequency/voltage regulation ancillary services, financial derivatives, etc. From the perspective of the current tradable varieties of virtual power plants in China, demand-side response has a relatively high unit value.
Based on the calculation of the demand response market for demand-side management, the 2024–2025 National Power Supply and Demand Situation Analysis and Forecast Report released by the China Electricity Council (CEC) points out that the national unified dispatching maximum power load reached 1.45 billion kilowatts in 2024, an increase of 110 million kilowatts year-on-year. It is estimated that the national unified dispatching maximum power load will reach about 1.55 billion kilowatts in 2025.
From the perspective of construction investment, the Measures for Power Demand Side Management (2023 Edition) mentions that by 2025, the demand response capacity of each province will reach 3%–5% of the maximum power load. It is estimated that the demand for demand response capacity will be 46.5–77.5 million kilowatts. Based on the construction cost of 500 yuan per kilowatt, the market space for virtual power plant transformation in 2025 will be about 23.3–38.8 billion yuan.
From the perspective of market operation, based on the annual peak load duration of 50 hours and the subsidy standard of 3 yuan per kilowatt-hour, the estimated annual market space will be 6.975–11.625 billion yuan.
(Note: The above are preliminary estimates, subject to the actual policies of each province and city and power grid operation strategies.)
2. Virtual Power Plant Applications
In recent years, many batches of virtual power plant demonstration projects have been built successively in different provinces and cities in China, participating in intra-provincial and inter-provincial power markets, and gradually exploring a set of virtual power plant operation modes adapted to the development characteristics of local power grids.
Domestic virtual power plants have successively launched demonstration tests since 2016, with long-term demonstration tests carried out in Jiangsu, Zhejiang, Guangdong, North Hebei and other regions. Domestic demonstration projects mainly focus on load-side resource regulation with relatively few aggregation types; the market mechanism is in the exploration stage, and the power spot mechanism is yet to be improved; the business model is still in the initial exploration stage, with the revenue model mainly based on low-frequency invitation-based demand-side response. It is expected that the late stage of the 14th Five-Year Plan to the early stage of the 15th Five-Year Plan will be an important stage for exploring the business model of virtual power plants, and the operation experience data of built virtual power plants will provide important reference for the development direction of virtual power plants.
3. JDEnergy eMind-VPP Virtual Power Plant Intelligent Management System
The eMind-VPP Virtual Power Plant Intelligent Management System, innovatively launched by JDEnergy, is a professional operation platform for virtual power plant business. Based on the operation of grid-side and user-side energy storage power stations distributed in many provinces and cities across the country, it aggregates charging piles and distributed photovoltaic power generation projects, explores new virtual power plant operation formats for the national market, develops businesses such as intelligent energy storage, power trading and virtual power plants, and is committed to becoming a first-class domestic R&D and operation provider of virtual power plant intelligent management platforms.
At present, the system has been put into practical application in many regions including Northwest China, North China, East China and South China, providing stable and reliable technical support for improving the operation efficiency and intelligent operation of energy storage projects, optimizing the operation of multiple resource aggregation, participating in power demand response and the ancillary services market.