The Answer to China’s Energy Woes? Harnessing Virtual Power.

The Answer to China’s Energy Woes? Harnessing Virtual Power.


Virtual power plants are often seen as a potential solution to grid stability amid extreme weather. But they remain in a nascent and exploratory stage in China.

Between the energy crisis in Europe, extreme weather-related power shortages in Texas and Sichuan, and the surging cost of natural gas, nations across the globe are struggling to keep to the ambitious decarbonization goals agreed to in Glasgow late last year.

China has approved a slate of new coal-fired power plants. Germany has rolled back plans to phase out nuclear power. But what if there was a way to improve power production, not by generating more power, but by harnessing power from overlooked sectors and allocating it more efficiently? That’s what national governments, regional utilities, and even electric car manufacturers like Tesla are hoping to achieve by investing in virtual power plants (VPPs).

The concepts underpinning VPPs date back to the 1990s. In essence, a VPP is simply an agent that aggregates flexible energy sources like household solar, small-scale wind power, biomass, generators, and batteries, monitors demand in real time, and dispatches or cuts power as necessary. In times of tight supply and demand for energy, VPPs can relieve pressure on the energy system by deactivating flexible sources of demand like air conditioning or electric vehicle charging, and by activating distributed energy sources like rooftop solar panels.

This summer’s extreme heat and drought called attention to the need for VPPs in China. Weather conditions not only caused energy consumption to skyrocket, but also forced the southwestern province of Sichuan, China’s biggest hydropower producer, to limit power use to keep its grid running. With questions over grid stability amid extreme weather the subject of increasing debate, some experts see VPPs — which could activate otherwise dormant power resources and feed them into the grid as needed — as a potential solution.

Most of these proposals remain on the drawing board. Although China has experimented with VPPs since 2014 and this year’s National Energy Administration action plan for reaching carbon neutrality highlighted the importance of VPP construction, far more work needs to be done before VPPs can be considered a core part of China’s decarbonization effort.

China has invested heavily in renewable power sources over the past decade, increasing the proportion of renewables like wind and photovoltaic solar in its energy mix to nearly 30%. This emphasis on renewables, while necessary to reach carbon neutrality, has posed a challenge for grid stability due to a mismatch between peak generation and usage. For example, wind energy generates more power in the early mornings when grid load levels are low, but it generates less power in the afternoons when grid load levels are high.

VPPs might be able to help offset this imbalance. The theory and application of VPPs dates back to the 1990s, and there are as many approaches to VPP development as there are power systems. Germany, for instance, is typical of European countries in that it uses VPPs mainly to aggregate distributed power sources on the generation side, whereas the U.S. primarily uses them to regulate consumption. Japan, meanwhile, concentrates more on user-side energy storage and distributed power sources. 

The practical work of developing VPPs started in China in 2014, when Shanghai was designated as the country’s first pilot area for VPPs, followed by Jiangsu, Hebei, and Guangdong provinces. In Jiangsu, home to the world’s largest VPP, the pilot program gradually expanded from balancing electricity use of industrial enterprises to managing loads for air conditioning in residential buildings, and activating electric vehicle charging stations. Its top peak reduction at a single time was 4 million kilowatts, or between 3% and 5% of the province’s peak load at the time. It was also able to boost power supplies up to nearly 2.6 million kilowatts.

At present, a number of Chinese provinces have pursued policies to promote VPP development and introduce VPPs into power systems to regulate energy use and distribution. Broadly speaking, however, these projects remain in a nascent and exploratory stage. Current efforts are generally spearheaded by the government and implemented by state-owned grid enterprises, with technical and equipment support from private firms like Huawei. With the exception of a few projects like in the northern province of Hebei, VPPs are not treated as independent market participants in China’s tightly regulated power industry.

It has also proven difficult for China to mobilize its vast number of residential customers to join VPP networks. For one, they have little incentive to participate thanks to subsidies that artificially suppress energy costs. They also use very little energy in the first place, so VPP operators would need to rally a large number of residents to have any meaningful effect. For that reason, operators prefer to work with commercial and industrial users like buildings and industrial parks.

VPPs are still a relatively new concept in China. Many Chinese industrial parks and residential customers don’t fully understand them, and enthusiasm for participation is low. Implementing VPPs calls for extensive involvement from customers and the aggregation of large numbers of distributed power sources, and because they cannot compete on an open market, this depends on incentives — like financial compensation — set up by the relevant agencies to attract stakeholders. Without clear VPP-specific policies and standards on business access and grid-connected systems, private firms’ involvement in the market will likely remain limited.

Given the challenges China faces in securing its energy security, VPPs merit a closer look. But success will hinge on reforming China’s power market.

Zhong Haiwang is an associate professor at Tsinghua University’s Department of Electrical Engineering, and the director of the Trading and Operations Institute of Sichuan Energy Internet Research Institute.
Translator: Katherine Tse; editors: Cai Yiwen and Kilian O’Donnell; portrait artist: Wang Zhenhao.
(Header image: Peshkova/Getty Creative and inkoly/VectorStock, reedited by Sixth Tone)

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