A virtual power plant (VPP) is software that connects many small energy resources — solar panels, batteries, smart thermostats, EV chargers — and manages them together as a single, flexible resource. Instead of one large power station, a VPP coordinates hundreds or thousands of smaller, distributed assets so they can respond to the grid’s needs and earn revenue on energy markets, much like a traditional power plant would.

In our fast-changing world, virtual power plants play a pivotal role in steering us toward more sustainable energy use. To understand why they matter, it helps to start with the basics of the energy landscape they operate in.

What is the energy grid?

The energy grid is the backbone of our modern energy infrastructure, enabling the smooth transfer and distribution of electricity from sources to consumers. Traditionally, the grid operates on a centralised model, where large power plants produce electricity that’s transmitted over long distances to reach consumers.

The rise of distributed energy resources (DERs) such as solar panels, wind turbines, and battery storage is transforming the grid from that centralised model into a more decentralised, flexible, and resilient system.

This shift lets electricity be generated closer to where it’s used, improving efficiency and reducing transmission losses. It also allows for greater integration of renewable energy. Consumers, meanwhile, are becoming “prosumers” — both producers and consumers of electricity — gaining more control over their energy use and costs, and even participating directly in the energy market.

Within this system, energy flexibility stands out as a crucial element: the grid’s ability to adapt and respond to fluctuations in demand and supply, keeping generation and consumption in balance. This flexibility matters even more as renewable energy, which is inherently less predictable, becomes a larger part of the grid.

What is the electricity flexibility market?

The energy market is where electricity is bought and sold among producers, resellers, and consumers, with prices fluctuating based on production costs, resource availability, and consumption patterns.

Within it sits the lesser-known balancing market, sometimes called the ancillary market. Unlike the traditional energy market, which mainly handles longer-term transactions like day-ahead and intraday trading, the ancillary market focuses on real-time balancing to manage discrepancies between supply and demand. Its purpose is to motivate market participants to offer flexible demand and strengthen grid security by quickly correcting imbalances.

Any company that produces, stores, or consumes energy can participate in the ancillary market, which typically offers higher revenue than conventional energy markets. Ancillary-market revenue for battery parks in markets like Finland has historically been substantial, though as more batteries enter these markets across Europe, that revenue has been thinning quickly — worth checking current figures for your specific market before modelling returns.

Key terms

Ancillary market, balancing market, flexibility market: three names for the same thing — providing real-time balancing services to maintain grid stability, address imbalances between supply and demand, and stabilise frequency.

What is a virtual power plant?

Beyond the short definition above, here’s what a VPP actually does in practice: it aggregates multiple distributed energy resources — solar parks, small-scale generators, or electrical consumption units with smart thermostats — and manages them as a unified, flexible resource on the ancillary market.

A VPP leads the integration, management, and dispatch of these diverse energy assets to improve grid stability and efficiency, combining smaller assets into a bigger one and offering their flexibility to the ancillary market as a single unit. For example, if you have more than 100 households with rooftop solar panels, VPP software manages them collectively as a single unit.

Importantly, VPPs also act as a path into the balancing market for asset owners.

How does a virtual power plant work?

A cloud-based VPP like Fusebox’s begins by connecting various energy sources to a central platform. This can be done in several ways, like an API connection for newer devices, or a dedicated controller for older equipment.

Once connected, assets can be monitored and controlled through the platform based on criteria the asset owner sets. For example, if you have a 1 MW PV park but your connection point only allows 800 kW, you can update your output to suit that restriction. There are plenty of automation filters to choose from, so every asset owner can find their fit.

The software is then integrated with the local grid operator, the transmission system operator (TSO), to gain entry into the ancillary market. This integration is crucial for receiving balancing signals from the grid, dispatching flexibility back to it, and reporting afterward. Before operations start, all electrical assets must be prequalified to access the ancillary market, following strict criteria set by TSOs. Once that’s done, the software automates all operations, making system management far easier.

The platform uses advanced algorithms to monitor real-time energy consumption, factoring in things like market prices and weather forecasts, to build strategies that maximise efficiency and reliability.

Who can benefit from a virtual power plant?

Numerous stakeholders across the energy market can benefit from a VPP. At Fusebox, the main types of business we support include:

• Utility companies. A VPP can help utilities do four key things: generate new income by offering services to the TSO; balance energy production and consumption better; incorporate more renewable energy into their operations; and provide innovative flexibility services to their clients by putting demand-side resources to work.
• Asset aggregators. Companies that combine and improve distributed energy resources are called asset aggregators. They gather assets like renewable energy setups and storage systems into a unified portfolio. Using Fusebox’s VPP technology, these companies can become energy traders by gaining access to ancillary markets and offering grid services.
• Original equipment manufacturers (OEMs). OEMs design, manufacture, and supply essential electrical assets such as solar panels and energy storage systems. These assets need to meet market regulations, including response times and bidirectional capability, to access ancillary markets, and remote control is vital for market balancing. Fusebox and our OEM partners simplify this by adapting assets like energy storage and heating systems for demand response, helping OEMs give clients access to ancillary markets for extra revenue and stronger competitiveness.
• Energy storage system owners. Owners of battery energy storage systems (BESS) can maximise their investment returns by participating in VPPs. By providing grid services such as frequency regulation, voltage support, and capacity reserves, BESS owners can generate additional revenue through market participation and ancillary service provision.

How can utility companies benefit from Fusebox’s VPP?

Power utility companies face the tough task of balancing consumption and production from scattered resources and intermittent renewables. Fusebox’s VPP solution addresses several of the pressing challenges utility companies face in energy production, management, and distribution — in three main ways.

Creating revenue streams through ancillary services to the TSO

Fusebox allows energy companies to develop highly profitable revenue streams by providing ancillary services to the TSO. The fully automated platform handles everything — setting prices, placing bids, managing operations, and creating reports — making it a complete solution for companies looking to earn new revenue and explore more market opportunities.

Key term: transmission system operator (TSO) — the company responsible for transporting electrical power at a national or regional level and keeping the grid balanced.

Reducing imbalance in a utility’s production and consumption portfolio

Fusebox helps reduce imbalance in a power utility’s production and consumption portfolio by managing unpredictable assets. That imbalance often comes from prosumers, whose production and consumption are difficult to predict.

Key term: a “prosumer” in the energy sector is someone, or a group, that both produces and uses energy — typically generating electricity from renewable sources to meet personal or organisational energy needs.

Customer growth and retention

Utility companies can offer new services to their customers through Fusebox, such as generating additional income through energy arbitrage. The VPP system allows energy arbitrage scheduling based on prices, with revenue sharing for asset owners, in two ways: using assets the utility already owns, where the utility keeps all the earnings; or offering the same service to end customers, where the asset owner gets either the total or a share of the earnings.

Most flexibility services can be offered directly to the end consumer — maximising earnings while keeping customers happy.

Key term: energy arbitrage — buying electricity when prices are low and storing it for use or resale when prices are high.

Want to see a real example?

Explore how Fusebox’s platform has helped real energy businesses grow revenue and expand through virtual power plant integration. See a case study →

Summary

Virtual power plants offer energy and utility companies a transformative way to tackle today’s energy challenges. By combining different energy sources and improving grid operations, VPP systems give these companies the tools to build a more sustainable future. Embracing virtual power plants boosts efficiency, reliability, and sustainability, playing a vital role in a greener energy landscape for all.