According to the International Energy Outlook 2019 published by the U.S. Energy Information Administration (EIA), renewable energy sources will generate 49% of global electricity by 2050. In the coming years, the expanding capacity of renewable power plants will augment the need for centralized infrastructure to facilitate the continuous flow of electricity. This will, therefore, accelerate the development of virtual power plants (VPPs) to integrate the newly installed renewable energy power plants with the centralized electricity distribution infrastructure.
Moreover, the soaring investments being made in the establishment of VPPs are expected to drive the virtual power plant market at a CAGR of 18.6% during the forecast period (2018–2023). The market revenue stood at $1,975.1 million in 2017 and it is projected to reach $5,510.2 million by 2023. For example, in 2018, Tesla Inc. announced its plan to establish a 250 MW VPP in Adelaide, South Australia. As compared to conventional energy power plants, VPPs require lesser capital for construction as well as management.
The technology segment of the virtual power plant market is categorized into mixed asset, supply side, and demand response. Among these, the demand response category accounted for the largest market share in 2017. This can be ascribed to the cost-effective development and exceptional operational performance of demand response technology-based VPPs. Owing to these advantages, North America is increasingly adopting such VPPs, to cater to the high electricity demand in the region. Of the North American countries, the U.S. will create a higher demand for such VPPs in the upcoming years.
According to P&S Intelligence, North America emerged as the largest consumer of VPPs in the recent past and it is expected to retain its position in the forthcoming years too. This can be credited to the soaring sales of EVs, the rising need for grid stability, and the increasing shift toward renewable energy sources in the region. Furthermore, the European, Asia-Pacific (APAC), Latin American (LATAM) regions are also expected to adopt a substantial number of VPPs in the coming years.
Whereas, Middle East and Africa (MEA) is projected to exhibit the fastest growth in the virtual power plant market during the forecast period. This can be primarily owed to the establishment of new renewable energy power plants in countries such as South Africa, Saudi Arabia, and the U.A.E., owing to the surging focus of these countries on diversifying their economies by promoting non-conventional energy. These MEA nations are setting up VPPs for the effective management of distributed energy sources.
Thus, the growing focus on non-conventional energy power plants, mounting investments being made in the establishment of VPPs, and improving EV charging infrastructure will fuel the development of VPPs in the coming years.