Techno-Economic Viability Analysis of Virtual Power Plants

Abstract

Virtual power plants (VPPs) consolidate the flexibility of distributed energy resources (DER) to provide grid services at low capital costs. Their success, however, relies on both economic viability and participant enrollment, the latter of which requires an appealing value proposition to motivate prospective participants to enroll. This paper proposes a techno-economic viability analysis framework to evaluate the interactions between VPP attributes, economic performance, and participant enrollment to identify which VPP use cases yield a viable and sustainably profitable business from an organizational and participant perspective. A VPP use case is defined by its combination of four attributes: resource pool, revenue streams, operation framework, and participant compensation. The proposed framework applies prospect theory to model participant decision-making regarding enrollment in a VPP versus self-scheduled DER operation on retail rates. VPPs are found to be profitable under industry-standard participant compensation in several use cases and multiple markets, but they can only provide a sufficient value proposition to DER owners in specific retail rate scenarios. The results showcase the importance of participant compensation in evaluating a VPP’s economic viability, as it can be a decisive factor in its long-term success.