Virtual power plants (VPPs) are the future of our electric grids. The grid's current aging infrastructure was built around electricity flowing in one direction, from the central power plant to the end-user. However, with the introduction and the resulting rise in popularity of distributed energy resources (DERs) like solar panels, wind turbines and battery storage systems, the grid is now required to handle electricity coming from the central power plants and the end-users. The most effective way to manage these increasingly complex networks is through the implementation of a VPP.

German VPP pioneer Next Kraftwerke defines a VPP as "a network of decentralized, medium-scale power generating units such as wind farms, solar parks and combined-heat-and-power units, as well as flexible power consumers and storage systems." VPPs are made up of multiple DERs that are then dispatched and controlled remotely from a central control room but remain independent in their operation and ownership. To manage these VPPs, control rooms use aggregation software that offers functions meant to mimic those of a traditional power plant control room. In addition, the VPP is integrated directly into the grid and is assembled using assets connected to any part of the grid, which allows for a high degree of flexibility.

A key feature of VPPs is that they can aggregate flexible capacity to address peaks in electricity demand. In this respect, they can replace traditional natural-gas-fired generators commonly used to meet peak demand and help address distribution network bottlenecks — usually without the same capital expenditure. In turn, VPPs enable effective grid management by optimizing the real-time dispatch of available resources to keep the grid balanced. As a result, effective grid management results in lower electricity costs and other financial incentives for participants while creating a more resilient and stable electric grid without requiring expensive overhauls to the current infrastructure.