Virtual Power Plant Market Size, Share & COVID-19 Impact Analysis, By Technology (Demand Response, Distributed Generation, and Mixed Asset), and by End-user (Industrial, Commercial, and Residential), and Regional Forecast, 2021-2028

The global virtual power plant market size was valued USD 0.71 billion in 2020, and is projected to grow from USD 0.88 billion in 2021 to USD 6.47 billion by 2028, exhibiting a CAGR of 32.89% during forecast period of 2021-2028. Demand Response type dominated the technology segment with a market share of 67.8% in 2020.

The global impact of COVID-19 has been unprecedented and staggering, with the product witnessing a negative demand shock across all regions amid the pandemic. Based on our analysis, the market exhibited a decline of -17.2% in 2020 as compared to the average year-on-year growth during 2017-2019. The sudden rise in CAGR is attributable to this market’s demand and growth returning to pre-pandemic levels once the pandemic is over.

A virtual power plant is a cloud-based distributed power plant that accumulates the production capacities of distributed energy resources for enhancing power generation and trading or selling power in the electricity market. It enables a reliable power supply and allows utilities to generate electricity using renewable energy sources, store it in battery banks, and supply it to customers. It provides real-time data on the capacity utilization of the networked units. The increasing share of renewable energy in the power generation mix and declining solar generation costs and energy storage boosts the market growth. The growing adoption of advanced technologies such as cloud platforms and the internet of things (IoT) applications in the power industry is also helping augment the virtual power plant market growth.

Declining Investments in Power Projects to Stall Market Growth amid COVID-19

The COVID-19 contagion is spreading at a rapid pace across the globe. Almost every country is at a different stage of the pandemic. Developing economies such as India and China have been effective in the initial containment stages and are constantly implementing additional measures to mitigate the negative impacts of COVID-19. Countries in Europe have also observed a significant downfall in investment in IT infrastructures. As per the International Data Corporation (IDC), European IT spending on software, hardware, and IT services is projected to decline by 4.7% in 2020 and reach USD 487 billion owing to the COVID-19 crisis, which continues to impact the European economy.

The widespread effect of COVID-19 has disrupted businesses in countries such as China and India, leading to reduced energy demand. As more countries are implementing lockdowns to stop the spread of the virus, investments in utilities in grid projects have declined at an unprecedented rate. Additionally, sluggish demand due to decreased consumer spending across various applications has impacted the market growth. Some countries have made a relief as a part of their pandemic response. For instance, Thailand’s state-owned Metropolitan Electricity Authority and Provincial Electricity Authority framed certain measures to mitigate the energy burden on consumers, including bill reductions of 3% across all tariff classes, bill payment grace periods, refunding meter deposits for residential, as well as small business users, and other benefits.

Government initiatives have stressed national budgets, forced reconsideration of transition to renewables, and delayed power sector reforms. For example, Vietnam planned to introduce a wholesale electricity market by 2023. In Thailand, the government has supported the formation of a state-owned single-buyer utility in the wake of the pandemic. Thus, the market is expected to gain momentum due to the heavy investments in developing energy infrastructures in emerging economies. Moreover, dipping demand in the power industry due to delays in power projects and industrial investments due to COVID-19 has also impacted the VPP market.

LATEST TRENDS

Increasing Demand for Renewable Power Generation to Fuel Growth

Increasing awareness regarding the benefits of renewable power has surged the demand for renewables in the past few years. Furthermore, supportive government initiatives for developing renewable power sources promote renewable power generation, propelling the demand for VPPs. As per the US Energy Information Administration’s International Energy Outlook 2019 report, 28% of the global power came from renewables in 2018, majorly contributed by wind, solar, and hydropower. It also forecasted that renewable power capacity will expand by more than 50% between 2019 and 2024, primarily led by solar energy. Moreover, supportive initiatives to achieve green energy targets and reduce greenhouse gas emissions are being carried out by various governments across the globe.

Increasing focus on generating renewable power and growing investments in renewables is driving the growth of the VPP market. According to the International Energy Agency (IEA), global renewable energy investment increased from USD 298 billion in 2017 to USD 304 billion in 2018 and is expected to grow significantly in the upcoming years. Hence, the increasing share of renewables is likely to augment the application of virtual power plants during the forecast period.

Cost-Effectiveness of Solar Generation & Deployment of Storage Systems to Propel Market Growth

The easy availability of power through VPP platforms and the cost-effectiveness in generating power have increased the demand for renewables and their production. As per the International Renewable Energy Agency (IRENA), the total installation cost of renewables is estimated to fall between 50% and 60% by 2030 and battery cell costs by even more, which will be a result of the optimization of manufacturing facilities, along with better technology combinations and reduced use of materials.

The cost and easy accessibility to raw materials used for PV modules has increased the competitiveness for procuring them. The regulatory standards are favoring the growth of renewable energy, which is boosting the market growth. In August 2018, for instance, the State of Massachusetts in the U.S. formulated House Bill 4857 (An Act to Advance Clean Energy), directing the Massachusetts Department of Energy Resources to set up an energy storage target of 1,000 MWh by 2025. Hence, the growing cost-competitiveness for solar generation and regulatory initiatives to deploy energy storage systems is expected to stoke the demand for VPPs during the projected period.

DRIVING FACTORS

Growing Shift towards Distributed Generation to Aid Market Dynamics

The present energy distribution systems worldwide are decentralized. The energy is generated and distributed using small-scale technologies such as wind turbines, photovoltaic cells, geothermal systems, and micro hydropower plants. Distributed generation systems, particularly when combined with heat and power and emergency generators, can be used to supply electricity during power outages and the high energy demand durations. Increasing focus on decarbonization, electrification, digitization, and advancements in power generation and storage technologies are the prominent factors speeding up the shift towards distributed generation.

Distributed generation is trending owing to the cost-effectiveness of renewable technologies. In addition, the policies and regulations by local and state governments to encourage broader deployment of renewable technologies due to their benefits, such as lower CAPEX and energy security, are further boosting this market’s progress. Hence, ambitious clean energy targets to increase the share of renewable energy in the energy mix are fueling the demand for distributed generation systems, which in turn is widening the applications of virtual power plants.

Increasing Demand for Combined Renewable Energy & Growing Investments in Energy Storage to Foster Growth

Inadequate power infrastructures and a lack of integrated power systems to achieve long-term sustainability, significant power shortages hold promising growth opportunities for the VPP market players. This factor is because a virtual power plant enables the aggregation of distributed energy resources and storage devices.

As per the Distributed Energy System in Southeast Asia Report, 2018, published by the Economic Research Institute for ASEAN, DERs hold strong business opportunities as they combine wind, solar photovoltaic, geothermal, hydropower, and biomass under its business-as-usual scenario (BAU) and the alternative policy scenario (APS). As per the data published, these systems hold USD 34 billion and USD 56 billion in investment opportunities in combined solar, wind, biomass, hydropower, and geothermal by 2040.

Energy storage is an important factor for the effective integration of renewable energy, entailing the benefits of small power generation, and clean & resilient energy supply, which are crucial factors for this market. For example, in May 2019, the Asian Infrastructure Investment Bank (AIIB) granted USD 75 million to India's Tata Cleantech Sustainable Infrastructure project. Energy storage is one of the key targeted investment domains. Similarly, in November 2019, the AIIB approved USD 100 million to the SUSI Asia Energy Transition Fund to provide equity finance to green energy solutions in Southeast Asia, including energy storage and energy storage projects in North America and Australia. Hence, increasing investments in combining renewables and growing investments in energy storage are accelerating the virtual power plants market growth.

RESTRAINING FACTORS

Inadequate Infrastructure and High Costs to Restrain Market Growth

The infrastructure required for building VPP needs to be equipped with advanced communication systems such as an energy management system (EMS), enabling the monitoring, managing, and controlling of the different energy devices. These systems also allow the transmission of data for making decisions by the VPP for different energy assets.

VPP systems require artificial intelligence-enabled tools coupled with machine learning and big data capabilities to manage, monitor large volumes of data collected by a wide range of meters, collect data and ensure the reliability and quality of data for VPP platforms. High costs and a highly skilled workforce are involved in integrating advanced tools and techniques in a VPP. As a result, inadequate infrastructure and high costs associated with advanced technologies are predicted to restrain the market growth during the forecast period.

SEGMENTATION

By Technology Analysis

Demand Response Segment to Grow at a High Pace

Based on the technology, the global virtual power plant market is classified into demand response, distributed generation, and mixed assets.

The demand response segment is projected to hold the largest market share due to the increasing investments in demand-response solutions. Its demand is increasing rapidly because of its lasting benefits for end-users and its ability to improve the grid's energy efficiency. It also provides benefits such as peak load management and the possibility of earning incentives by participating in demand response programs.

The distributed generation segment is also increasing its share in the global market. With the increasing energy and pollution crisis, the development of new renewable energy technologies has become crucial. Better integration of distributed power generation resources with VPP’s can efficiently optimize grid operations.

By End-user Analysis

Residential Segment to Hold the Highest Position Due to Smart Meters' Increasing Applications

Based on end-users, the market is categorized into residential, commercial, and industrial.

The residential segment holds the largest market share due to smart meters' wide application, smart home appliances, and interoperability with home energy management systems (HEMS).

The commercial segment is also estimated to grow steadily due to VPP systems' deployment in commercial complexes, hospitals, universities, shopping malls, and other end-use applications.

REGIONAL INSIGHTS

The market has been analyzed across five key regions: North America, Asia Pacific, the Middle East & Africa, Europe, and Latin America.

North America is projected to hold a large market share due to many projects sanctioned in the U.S. and Canada to deploy VPPs. For instance, in May 2020, SimpliPhi Power deployed a VPP demonstration project in Louisiana.

Europe is making substantial investments in renewable energy and energy storage systems, propelling the demand for VPPs. For example, Statkraft's VPP in Germany is the biggest and the first of its kind in Europe. It generates more than 10,000 MW of electricity, which is equivalent to 10 nuclear reactors. Hence, the growing share of renewable energy in Europe is augmenting the demand for VPPs in the region.

Asia Pacific is anticipated to strengthen its hold on the global VPP market share. The massive potential of renewable energy, coupled with rapidly developing residential & commercial sectors, is projected to contribute to the regional market growth. Developing economies such as China and India are experiencing excessive energy demand. The deployment of smart metering, adoption of demand response, investments in energy storage, and promotion of retail competition are expected to flourish in the electricity sector in the Asia Pacific region. The growing need for decentralized power generation is also expected to drive market growth in the region.

The Middle East & Africa region is growing steadily due to increasing investment in VPP projects. For instance, in April 2019, the Dubai Electricity and Water Authority (DEWA) partnered with the Canadian smart grid solutions company Enbala to build the first VPP in the region. The VPP will increase renewable energy integration capabilities, supporting the Dubai Clean Energy Strategy 2050 to produce 75% of Dubai’s total energy from clean energy sources. These initiatives are expected to help the VPP market grow in the Middle East & Africa region in the projected period.

KEY INDUSTRY PLAYERS

Increasing Mergers & Acquisitions and Strong Technological Advancements to Propel Market Growth

The market is consolidated owing to the remarkable distribution network of major companies in developed and emerging economies. ABB, Autogrid, Next Kraftwerke, and AGL Energy are the leading players in the market, accounting for a dominant share in 2020. Small key players such as Limejump, Flexitricity, and Kiwi Power hold a small stake in the global VPP market. Supportive government initiatives for the growing renewable industry and an increasing number of mergers and acquisitions have led to intense competition in the market. For instance, in June 2019, AutoGrid signed an agreement in Japan to build the world’s largest VPP in terms of storage and asset volume.

LIST OF KEY COMPANIES PROFILED:

• ABB (Switzerland)


• Siemens (Germany)


• General Electric (U.S.)


• AGL Energy (Australia)


• Schneider Electric (France)


• Enel X (U.S.)


• Cisco Systems, Inc. (U.S.)


• Bosch (Germany)


• IBM (U.S.)


• Hitachi, Ltd. (Japan)


• Mitsubishi Heavy Industries (Japan)


• Next Kraftwerke (Germany)


• AutoGrid Systems, Inc. (U.S.)


• Blue Pillar, Inc. (U.S.)


• Enbala Power Networks, Inc. (U.S.)

KEY INDUSTRY DEVELOPMENTS:

• September 2020 - Tesla announced plans to launch phase 3 of its massive virtual power plant in South Australia and confirmed connecting almost 4,000 homes with Powerwalls and solar connected to the system.


• November 2020 - Siemens has developed a business model to support the energy optimization for Finnish brewery Sinebrychoff, a subsidiary of the international Carlsberg Group. These solutions will be implemented at Sinebrychoff’s plant in greater Helsinki, a VPP and the latest energy storage technology, supported with financing solutions. It uses digitalization to create the potential for saving and improving the quality of the power supply.

REPORT COVERAGE

The global virtual power plant market research report presents a comprehensive industry assessment by offering valuable insights, facts, industry-related information, and historical data. Several methodologies and approaches have been adopted to make meaningful assumptions and views to formulate the market research report. Furthermore, the report covers a detailed analysis and information as per the market segments, including type, end-user, and regions, helping our readers to get a comprehensive overview of the global industry.

REPORT SCOPE & SEGMENTATION