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The global virtual power plant market size was USD 0.87 billion in 2019 and is projected to reach USD 2.85 billion by 2027, exhibiting a CAGR of 27.2% during the forecast period.
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 then 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 costs of solar generation and energy storage boost 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 in augmenting the growth of this market.
Declining Investments in Power Projects amid COVID-19 to Stall Market Growth
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 had 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 virtual power plant 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 and small business users, and other benefits.
Government initiatives have stressed national budgets and forced reconsideration of transition to renewables and delayed power sector reforms. For example, Vietnam planned to introduce a wholesale electricity market by 2023, and in Thailand, the government has supported the formation of a state-owned single-buyer utility in the wake of the coronavirus. Thus, the market is expected to gain momentum owing to the heavy investments for developing energy infrastructures in emerging economies. Moreover, dipping demand in the power industry due to delay in power projects along with industrial investments due to COVID-19 has also impacted the VPP market.
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Increasing Demand for Renewable Power Generation to Fuel Growth
Increasing awareness about the benefits of renewable power has surged the demand for renewables in the past few years. Furthermore, supportive government initiatives for the development of renewable power sources are promoting renewable power generation, which propels 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 is set to expand by more than 50% between 2019 and 2024, primarily led by solar energy. Moreover, supportive initiatives to achieve green energy targets to reduce greenhouse gas emissions are being carried out by various governments across the globe.
Increasing focus on generating renewable power along with growing investments in renewables is driving the demand for these virtual plants. 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 these type of power plants in the forecasted period.
Cost-Effectiveness of Solar Generation & Deployment of Storage Systems to Propel Market Growth
The easy availability of power through virtual power plant platforms and the cost-effectiveness in generating power has increased the demand for renewables and their production. As per the International Renewable Energy Agency (IRENA), the total installation costs of renewables are 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 US formulated the 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 for the deployment of energy storage systems is expected to stoke the demand for VPPs during the projected period.
Growing Shift towards Distributed Generation to Aid Market Dynamics
The present energy distribution systems worldwide are decentralized, where 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 high energy demand durations. Increasing focus on decarbonization, electrification, digitization, and advancements in technologies for power generation and storage are the prominent factors that are 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 renewables technologies owing to their benefits such as lower CAPEX and energy security are further boosting this market. 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 these virtual plants.
Increasing Demand for Combined Renewable Energy & Growing Investments in Energy Storage to Foster Growth
Significant power shortage, owing to inadequate power infrastructures and lack of deployment of integrated power systems to achieve long-term sustainability, holds promising growth opportunities for the VPP market players. This is because this type of 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 enabling 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 the Tata Cleantech Sustainable Infrastructure project in India, under which 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 application of these type of power plants.
Inadequate Infrastructure and High Costs to Restrain Growth
The infrastructure required for building virtual power plants needs to be equipped with advanced communication systems such as an energy management system (EMS), which enables the monitoring, management, and control of the different energy devices. These systems also allow the transmission of data for making decisions by the VPP for different energy assets.
To monitor and manage large volumes of data collected by a wide range of meters, VPP systems require artificial intelligence-enabled tools coupled with machine learning and big data capabilities to collect data and ensure the reliability and quality of data for virtual power plant platforms. To integrate all these advanced tools and techniques in a VPP, high costs are involved and require a highly-skilled workforce. As a result, inadequate infrastructure and high costs associated with advanced technologies are predicted to restrain the market growth during the forecast period.
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Demand Response Segment to Grow at a Fast Pace
Based on technology, the market is segmented into demand response, distributed generation, and mixed asset. The demand response segment is projected to hold the largest market share owing to the increasing investments in demand-response solutions due to their lasting benefits for end-users and their ability to improve the energy efficiency of the grid. They also provide 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 these virtual plants can efficiently optimize grid operations.
Residential Segment Dominated the Market in 2019
Based on end-user, the market is categorized into residential, commercial, and industrial. The residential segment holds the largest market share owing to the wide application of smart meters, smart home appliances, and their interoperability with home energy management systems (HEMS).
The commercial segment is also estimated to grow steadily owing to the deployment of VPP systems in commercial complexes, hospitals, universities, shopping malls, and other end-use applications.
North America Virtual Power Plant Market Size, 2019 (USD Billion)
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Geographically, the global market is segmented into five major regions, namely, North America, Europe, Asia Pacific, Latin America, and the Middle East & Africa. North America is projected to hold a large market share owing to a large number of projects sanctioned in the United States and Canada for the deployment of VPPs. For instance, in May 2020, SimpliPhi Power deployed a virtual power plant demonstration project in Louisiana.
Europe is making substantial investments in renewable energy and energy storage systems, which are propelling the demand for VPPs. For example, Statkraft's virtual power plant in Germany is the biggest and the first of its kind in Europe. It generates a total of 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 virtual power plant 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 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 at a steady rate owing 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 virtual power plant 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 to grow in the Middle East & Africa region in the projected period.
Increasing Mergers & Acquisitions and Strong Technological Advancements to Propel Growth
The market is consolidated owing to the remarkable distribution network of major companies in developed and emerging economies. Currently, ABB, Autogrid, Next Kraftwerke, and AGL Energy are the leading major players in the market, accounting for a dominant share in 2019. 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 had signed an agreement in Japan to build the world’s largest virtual power plant in terms of storage and asset volume.
An Infographic Representation of Virtual Power plant Market
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The virtual power plant market research report provides a detailed analysis of the market. It focuses on key aspects such as leading companies, product types, and leading applications across various industries. Besides this, the report offers insights into market trends and highlights key industry developments. In addition, the report encompasses several factors that have contributed to the growth of the market over recent years.
Value (USD Billion)
Fortune Business Insights says that the global market size was USD 0.87 billion in 2019 and is projected to reach USD 2.85 billion by 2027.
Growing at a CAGR of 27.2%, the market will exhibit excellent growth in the forecast period (2020-2027).
In 2019, the North America market value stood at USD 0.32 billion.
The demand response segment is expected to be the leading segment in this market during the forecast period.
Growing shift towards distributed generation, increasing demand for combined renewable energy, and rising investments in energy storage are the factors driving the growth of the market.
ABB, Siemens, Schneider Electric, AutoGrid, Next Kraftwerke, AGL Energy, and General Electric are the major players in the global market.
North America dominated the market share in 2019.
A plant combines various independent energy resources from different locations into a single network with the help of a cloud-based platform, which delivers reliable, flexible, and efficient power compared to a conventional power plant. It is predominantly used in commercial applications such as restaurants, hotels, cafeteria, small-scale industries, and residential areas.
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