Virtual power plants could help solve the AI energy problem

What are virtual power plants?

VPPs aggregate distributed energy resources to create a unified, virtualized power network. The idea is to identify and unify the disparate power sources that are available, including industrial solar arrays, wind turbine farms and industrial battery storage systems. Energy from this collective power source is distributed to participating power users.

The key here is efficiency. For instance, a VPP can use excess power from wind turbines and solar farms that produce more power than their owners and operators require. The VPP identifies and balances power sources and loads in real time to discover, connect and direct power in the most effective, mutually beneficial way for the devices across its grid. Excess daytime power a solar farm generates at one site can be redirected to charge an industrial battery array at another location for nighttime use. The VPP doesn't create more power; it makes efficient use of the power that already exists.

This is what differentiates VPPs from traditional power plants. A traditional power plant is a single industrial installation that burns fuel to spin a turbine to make electricity, which is continuously delivered to the commercial grid. A traditional power plant can cost billions of dollars and take up to a decade to bring online. VPPs are intricate networks of small, aggregated energy devices that make, store and use electricity. A VPP can be operational in less than a year and at a fraction of the cost, while responding to changing grid needs and conditions in just milliseconds.

The potential of VPP technology can't be understated. Google is investing significant funds and intellectual capital to develop and adopt VPP for its massive data centers. Google's Voltus partnership, community incentives, internal grid flexibility and investments in additional power infrastructure signal the importance of VPPs for industry and host communities. Clean energy transition nonprofit RMI estimates VPPs could reduce U.S. peak power demand by 60 gigawatts by 2030, a trend that could continue to grow.

How virtual power plants work

A VPP uses software to interconnect many small, diverse energy sources and loads. This creates a unified "virtual" power source that can balance the traditional power grid and supply power as needs shift in real time. There are four major elements to a VPP:

• VPP operator. The operator is responsible for running the software and organizing the greater VPP grid system. It orchestrates the DERs, allocates energy to loads, handles billing or cost shifting and interacts with the commercial power grid.
• Software layer. The software layer or energy management system (EMS) collects and analyzes data from energy devices. It can tell how much power is available, from which devices and where and when to store or distribute that energy to run equipment, devices, systems or buildings. AI analytics supports the software layer, reporting on defective devices, power use patterns and costs, and predicting energy use and VPP effectiveness.
• Sense and communication. A VPP is an intricate network of devices that requires careful monitoring and communication. IoT and other real-world devices monitor energy levels and determine device health and relative energy levels.
• Energy devices. These are the distributed energy resources and loads that make, store and use power. DERs include solar panels, wind turbines, battery storage systems and fuel-driven generators. Loads can range anywhere from electric vehicles to data centers.

It's also helpful to understand these two concepts integral to VPP operations:

Aggregation in VPPs

Aggregation is the key to VPP operation. An EMS organizing and coordinating thousands of power sources could provide enough energy to stabilize today's overtaxed power grids, prevent brownouts and blackouts and reduce the need to build more traditional polluting power plants.

The overall success of a VPP relies on the sheer number of connected DERs, where every new panel, turbine or battery installation matters. The Brattle Group's 2025 report "The Demand Side Grid Support Program: An Assessment of Scale and Value," found that California's VPP program could deliver 539 megawatts of energy, more than the output of a large gas power plant.

IoT and AI in VPPs

IoT and AI play critical roles in VPP operation. IoT supports a range of smart sensors that perform three tasks: collect data, send it to the network for collection and processing, and act when directed. IoT devices can deliver data, such as information on device health, energy levels and other performance. It's IoT devices that tell the EMS platform what's connected, how it's working, what it can deliver or what it needs. EMS can also direct IoT devices to act, such as connecting or disconnecting a device from the VPP grid.

AI integrated into the EMS typically analyzes live IoT data. AI analytics let the EMS see the entire VPP grid in real time, balance power sources and loads, and help stabilize the commercial power grid. AI can use weather forecasts, historical patterns and real-time data to predict energy needs and make distribution decisions, such as whether to store power in a battery bank, deliver it for use or sell it back to the commercial grid. AI can also track market power costs and determine the most profitable times to sell power to the grid.

Benefits of VPPs for the enterprise

Virtual power plants offer several important benefits for the modern energy-intensive enterprise, including the following:

• Cost management. VPPs both accept excess, unused energy and draw additional energy from the VPP grid. This poses three factors for business leaders to consider: Virtual power plants can supplement energy to the enterprise, especially during periods of peak demand; they can buy back excess energy, letting organizations recover some of the costs of their own DER investments; and they can help utilities defer the costly investments in new power plants.
• Operational advantages. VPPs can respond quickly -- often within milliseconds -- to changing energy demands and conditions. This lets VPP grid operators help utilities balance loads and avoid devastating power grid disruptions, such as brownouts and blackouts, which can impact enterprise workload availability.
• Intelligent integration and balance. VPP platforms' data collection and analytics processes readily adapt to changing conditions of intermittent, daily or seasonal power sources, like wind and solar. This intelligence lets VPPs shift between storage and consumption in real time to meet changing demands.
• Sustainability and ESG. VPP adoption aligns perfectly with enterprise goals for sustainable energy initiatives and helps address environment, social and governance (ESG) concerns. VPPs provide incentives and opportunities for organizations to invest in their own sustainable energy deployments by connecting to the VPP grid for cost containment and operational management. This contributes to business continuance and risk management issues for business leaders.

The challenges of VPPs

Despite the potential promises, VPPs also pose some important challenges for business leaders to consider when planning DER development and VPP partnerships, including the following:

• Limited control. VPP participation can limit how electricity is directed or used. An enterprise with an extensive solar array connected to the VPP might not directly control whether that energy is used locally in the enterprise, stored locally or remotely, or sent to the principal power grid for sale. It's important to discuss concerns about control and use priority with the VPP provider.
• Volatile pricing. As populations climb, communities expand, and new data centers and facilities come online, the demand for power will result in escalating and often unpredictable power costs. VPPs might be unable to guarantee the price for power delivered to the business, nor commit to compensation for excess electricity sold to the grid. As such, VPPs are rarely a strong cost-saving play for energy used and typically don't provide a stable long-term revenue source for energy sold.
• Regulatory issues. VPPs are a relatively new concept in energy collaboration. However, most governments and regulatory bodies have rules and regulations intended for commercial-scale power generation and distribution. Current regulations typically don't fully account for how VPPs operate, limiting their ability to compete and manage proper compensation and billing for the parties involved.
• Operational complexity. An organization relies on the VPP operator to aggregate, monitor, manage and maintain countless DERs and loads, all while adhering to regulatory requirements and prevailing codes. The VPP platform must collect, analyze and react to vast amounts of real-time data across a public network prone to congestion and disruption. This creates a complex environment, and any oversights, mistakes or disruptions to the VPPs can affect every enterprise participating in the VPP. Businesses must have confidence and trust in their VPP operator.
• Security. VPPs rely extensively on IoT data exchanged across public networks. As with any IoT deployment at scale, businesses must address the potential for security vulnerabilities. IoT fleets must support discovery and management to maintain security across the larger threat surface. They also aim to prevent exposing energy data or leaving control mechanisms vulnerable to possible tampering or malicious actors.

How does an enterprise join a VPP program?

Joining a VPP isn't difficult, but it does require planning, preparation and close collaboration with local providers. The process of joining a VPP involves the following five phases:

1. Identify energy resources

VPPs are two-way streets -- a home, business or enterprise typically must possess some DERs to connect to the VPP grid. These can be solar arrays, wind turbines, battery storage arrays or traditional fuel-powered backup generators. Most organizations can justify the DER investment as part of a sustainability and ESG initiative. It's important to note that these DERs and other load devices require a level of intelligence that enables VPP partners to discover and control them.

2. Identify a VPP provider

While a local power utility could offer a list of regional VPPs, it's always worth some research to identify and learn about VPP offerings and operations. Established VPPs include CPower Energy, Enel, Lunar Energy, PowerFlex, Stem, Swell Energy, Tesla and Voltus. Businesses that want to tap into these resources deal directly with the VPP rather than utilities. They would contact the potential VPP partner and conduct detailed discussions about participation before making a decision.

3. Discuss details and limits

Any discussions with a VPP provider must include comprehensive organizational requirements and limitations. Never give up complete control of DERs. Negotiate the enterprise's basic energy needs, outline how providers will use DERs and set any rules or limitations on how energy is exchanged through the VPP. It's important to understand commitment terms and ensure that ample support and cancellation terms are favorable for the organization.

4. Plan and implement VPP integration

Integration typically involves deploying an EMS software platform and a local control device, called a remote telemetry unit, to connect local DER equipment to the virtual power plant. In some cases, newer "smart" DER equipment can be compatible with the VPP provider's EMS platform and integrate simply through an API. The VPP provider can assist with integration support.

5. Review the VPP relationship

Periodically reassess the relationship with the VPP and consider their support and tangible operational benefits to the business. Address any concerns with the provider. If it can't remedy tangible concerns, consider terminating the relationship in accordance with any contractual obligations.

Stephen J. Bigelow, senior technology editor at TechTarget, has more than 30 years of technical writing experience in the PC and technology industry.