News of China Energy Storage: In order to accomplish the “carbon peaking and carbon neutrality” goals, China is accelerating the adjustment of its energy structure and increasing the proportion of renewable energy. By 2030, China plans to have a total installed capacity of wind and solar power exceeding 1.2 billion kilowatts, forming an energy system dominated by renewable energy. However, such factors as the grid connection of high-proportioned renewable energy, the electrification of energy consumption terminals, the rise of power electronics, and the large-scale integration of distributed new energy into the grid will pose significant challenges to the balance, regulation and support capabilities of the power system. Improving the flexibility of the power system is a crucial means to achieve clean and low-carbon development in the energy and power sectors.
During the 13th Five-Year Plan period, the fact that the power systems in China are insufficiently flexible has made it difficult to fully accommodate the explosive growth of new energy. The power systems face numerous issues, including limited flexibility resources leading to inadequate new energy consumption, declining system reliability, increased risks for energy users, and rising system costs.
More flexibility resources need to be introduced, such as accelerating the construction of virtual power plants, so as to integrate high-proportioned renewable energy and enhance the power system’s regulation capabilities.
Virtual Power Plants (VPPs) aggregate adjustable (interruptible) loads, energy storage, micro-grids, electric vehicles, distributed power sources and other resources from different locations, realizing autonomous coordination and optimization control. They participate in power system operations and electricity market transactions. As a new business model, VPPs can act as “positive power plants” to supply power and peak shaving, or as “negative power plants” to increase load consumption and support valley filling.
Compared to the traditional power energy ecosystem, the most significant change in the VPP ecosystem is the transformation from a clear boundary between generation, transmission, distribution and consumption, with a “source-follows-load” operation mode to a system where generation, transmission, distribution and consumption boundaries intersect. Each part of the system can act as both a producer and a consumer, operating in a “source-load interaction” mode. Each component is a small energy system, representing an extension of the smart grid.
VPPs can be divided into three types: (1) load-type VPPs: Refers to the VPP operator aggregates its bound market-oriented power users with load regulation capabilities (including electric vehicles, adjustable loads, interruptible loads, etc.), and forms a VPP as a whole (presented as a load state) to provide external flexible response adjustment services on the load side. (2) generation-side VPPs: Built on the generation side of distributed power sources. (3) integrated source-grid-load-storage VPPs: Combine generation sources and load users, operating as centralized power plants and participating in the electricity market as independent entities without occupying system peak-shaving capacity in principle.
Since 2021, national and local governments have introduced policies related to VPPs, while some provinces and cities have issued specific implementation plans or subsidy standards.
From a policy perspective, VPP demonstration projects launched by the two major grid companies primarily rely on demand-side response as a profit model. Those auxiliary service market policies launched by local governments guide VPPs to participate in the peak and frequency regulation of power system. With the ongoing development of the electricity spot market, more demonstration projects may produce innovative and viable business models.
In terms of industry development, VPPs have achieved commercialization in mature electricity markets like Europe and the U.S., while China is still in the early pilot stage with unclear business models. Pilot VPP projects have emerged in Jiangsu, Zhejiang, Shenzhen and Shanghai.
VPPs in China are mostly in the pilot demonstration phase, with unclear business models and few profitable projects. Why are VPPs mature overseas but still in the pilot stage in China?
We can learn from the success of Next Kraftwerke, the largest VPP in Europe.
Next Kraftwerke, a certified energy trader in the European Power Exchange (EPEX), participates in the spot market of energy.
Relying on excellent resource aggregation capabilities and innovative business models, Next Kraftwerke has achieved remarkable growth and performance. Its main profit models include:
(1) Participating in electricity market trading. (2) Demand response for peak-load shaving. (3) Providing grid auxiliary services.
The success of European VPPs shows that a mature electricity spot market is a sufficient condition for VPP profitability, while the development of distributed power sources and distribution networks is a necessary condition for VPP development.
While European VPPs focus on the generation side, integrating distributed power sources and energy storage to promote new energy consumption, U.S. VPPs concentrate on user-side resources, with profit models centered on auxiliary service compensation.
The U.S. with abundant solar resources has seen home photovoltaic energy storage systems become a cost-saving alternative for residents under a lot of government subsidies and incentives, thus ensuring self-generated and self-consumed electricity. Tesla has embarked on residential energy storage solutions with its Powerwall and has partnered with utilities to launch VPP programs. Tesla has worked with utilities and electricity retailers such as EnergyLocals, Green Mountain Power, and PG&E to successively launch VPP projects, which have helped Tesla rapidly expand the installation of its energy storage systems. Meanwhile, electricity retailers sign agreements with Powerwall users to gain partial access to distributed battery power, realizing demand-side resource aggregation and commercial expansion of VPPs.
The success of U.S. VPPs demonstrates that by leveraging the regulation capability of energy storage in distributed energy systems, the transformation of end-use energy consumption from a “rigid load” to a “flexible load” will be realized, contributing to carbon neutrality through comprehensive electrification and zero emissions.
Compared to Europe and the U.S., China’s VPPs started later, with an underdeveloped electricity spot market and a complex structure integrating generation-side, energy storage, and user-side resources. Due to the “carbon peaking and carbon neutrality” goals and the transformation of the energy structure, posing great challenges to the flexibility regulation of the power system, VPPs can serve as the “switch” to enhance power system flexibility.
Looking ahead, the rapid development of VPPs will be driven by external policies and internal grid demands.
