Virtual power plants: Microcosms of the IoT

The Internet of Things (IoT) is driving significant change in all industries. The IoT is about connecting products (things) and enabling a new environment of intelligent services. These three components: products, connectivity and intelligent software-based services are becoming crucial features of modern industries and their markets.

The energy sector is no stranger to similar developments. If you explore the evolution of virtual power plants (VPP) within the sector, you will trace a clear path of energy units becoming smarter and connected, and eventually, within evolved frameworks of VPP, begin to closely resemble a microcosm of the IoT. Let us take a closer look at how this is happening and what it actually means.

Energy units become smarter and connected

The energy sector has witnessed a wave of new and connected energy units. In our homes, smart thermostats such as NEST, Hive, Tado, and Heatmiser Neo have allowed home owners to manage home heating in new and innovative ways, ultimately to save energy costs. Installed in our homes, smart meters measure our hourly or daily energy consumption, building and sharing valuable information about our energy demand within timeframes which allow for real-time actions. A significant change in the IoT, also reflected in the energy sector, is that through the pervasiveness of connected things, data about the physical world is generated, extracted and processed within near real-time, allowing for many of the new services to build timely actions as opposed to building ‘schedules’ based on historic trends and information.

In industry, energy units such as commercial refrigerators, building automation systems and lighting solutions have become substantially smarter. From being connected for the sole purpose of accessing power supplies, these smarter and connected energy units are now collecting and sending data back about their status and environments, and executing commands based on received instructions as well.

In VPP functional management environments (see figure below), Demand Response (DR) solutions have enabled energy operators to monitor, predict and manage peak time energy demand of the machines remotely. This ability to manage the critical relationship between energy demand and supply is where operators have begun to transform the energy industry. With real-time information, operators are able to analyse, predict and action periods of energy scarcity, and initiate demand response and additional energy supply requests. In addition to managing these operational challenges through information technology, operators are able to provide enterprises with financial benefits for accepting and managing the reduction of demand at critical times on over-strained networks. As in IoT, this is where we begin to see the convergence of operational and informational technologies.


On the supply side, smarter energy units have also started to contribute to the production of energy. Distributed Energy Resources (DERs) such as solar panels, wind turbines and domestic microgeneration are no longer isolated but connected to the larger energy grid, contributing to the overall managed supply of energy. And beyond this, the drive for efficient use of electricity has encouraged a massive adoption of monitoring of electricity distribution grids, where the difference between the most efficient (with around 4% losses) and the least efficient (with 40-50%) is startling.

As illustrated in the examples given above, the energy sector, in all its forms, has been one of the first to embrace the IoT, or at least a precursor of the IoT in the form of remote machine-to-machine (M2M) monitoring. However, a transformation in energy markets is taking place.

This change is driven by intelligent services such as the convergence of operational and informational technologies, building on connected things (DERs and DRs), and providing new abstracted services and business models in what we now term the Smart Energy Market Enablement (SEME) stage of VPPs. What are these services?

From connected things to intelligent services

VPPs have been evolving for some time, from traditional, operational control-based VPPs to the Smart Energy Market Enabler (SEME) model of a VPP. This evolution has not occurred within a single dimension but across many, related, connected and emerging VPP attributes.

The seven key VPP attributes are:

  • Distributed energy resources
  • Demand response solutions
  • Distributed energy storage
  • Energy trading
  • Analytics and management
  • Systems development agility
  • End user billing relations

As discussed in the recent white paper entitled “A New Generation of Virtual Power Plants,” how these attributes have evolved, underpinned by 23 criteria, establish what the new, virtual and intelligent SEME VPP solution looks like.

The SEME VPP is based around intelligent business rules and models across and between the attributes, working on the basis of abstraction through service requests that avoid being tightly integrated and embedded within solutions. These intelligent services are what transform the operational, narrowly focused control VPP to SEME VPP.

These high intelligence services and abstraction implicit in the SEME VPPs are reminiscent of the requirements for the IoT. In the IoT environment, unlike with traditional remote M2M monitoring, the connected devices may change and the information that the devices will share may require adaptations in solutions and data models. The same may happen in SEME VPP markets where Distributed Energy Resources, Demand Response solutions and Distributed Energy Storage may be changed and adaptations to systems, data and end user billing relations will be required. The dynamics of the markets will require agility and flexibility throughout intelligent services.

In this way, the approach taken by new VPPs is highly consistent with the IoT. Both of these new markets will also allow for new business models, for instance a new group of aggregators, which develop alongside service industries to manage distributed assets, either in the form of devices and data, or in the form of energy storage and demand response.

What is clear is that the energy sector will transform. This sector like so many others will leverage and resemble the technologies and infrastructures of the IoT. From a time of monolithic yet disconnected units, energy markets will continue to see a growth in smarter connected things with intelligent services to provide customers with a better service, e.g. to integrate end-customers into demand response programs. New services that utilities can offer could then be green electricity for a good price when they need it.

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About the author

Emil Berthelsen

Emil Berthelsen

As an M2M, IoT and Big Data industry analyst, Emil Berthelsen brings more than two decades of experience with management, strategic and research consulting from a number of leading and international consultancies. Emil has advised multiple global CSP and enterprise clients on emerging revenue opportunities from new product, service and market opportunities in M2M, Enterprise IoT and Big Data, produced numerous market sizing and intelligence reports for competitive advantage initiatives, and identified strategic and innovative partnerships across the complete ecosystem of device and module manufacturers, connectivity providers, solutions and platform providers and system integrators. Some of the key markets analysed have included energy, automotive and retail. Emil has chaired and spoken at several leading conferences on M2M, IoT and Big Data in Europe, the US and Asia, and regularly contributes to articles in industry journals on these topics. Emil holds an MPhil in International Relations from Cambridge University. Emil Berthelsen is a guest author for the Bosch ConnectedWorld Blog.