How Does a Virtual Power Plant Work?

The Case of the Swiss Company TIKO

(Read in Mandarin)

A few days ago I went to Olten, Switzerland, and had the honor to visit the start-up virtual power plant company TIKO.

This was the first time I visited a virtual power plant at work, and thus I was very interested in how they operate and manage their business, which is also somehow related to the master thesis I am working on right now.

How Can Demand Side Solutions Provide Control Reserve?

TIKO pools household power-to-heat demand to provide primary control services on the control reserve market. To do so, TIKO must predict the default behavior of each household heating devices with historical and existing data. Then it would provide positive and negative control reserve by shifting the schedule of different devices.

To understand the concept better, consider the following model of the states of devices. At the beginning of each day, all the devices are in state №1, where their flexibility capabilities are not yet exploited, and the heating demand of households are not yet met.

At this state, the devices can enter either state №2 or state №3. State №2 is the negative control reserve mode, where devices are switched off when they would be switched on by default, so that they can be switched on immediately whenever negative balance energy is needed. State №3 is the positive control reserve mode, where devices are switched on when they would be switched off by default, so that they can be switched off immediately whenever positive balance energy is needed.

Once the flexibility capacity of a device is exploited, it enters state №4. Later, all devices will return to state №1 at the end of the day.

With this method, it is possible to provide important control reserve in the market, even without generation sources. It should be noted that P2H demand is more common in winter, so TIKO is currently trying to develop other flexibility resources that fit better in summer (ex. solar panels and batteries).

The Bidding Strategies and the Effect of Market Design Changes

The bidding strategy in the control reserve market differs from that in the energy only market. In the control reserve market, participants receive the price they bid as their revenue (in contrast, all participants will get a uniform price in the energy only market). Therefore, it is important for participants in the control reserve market to bid a price as high as possible but not too high to remain in the market.

One popular strategy is to bid a very high energy price for one’s marginal capacity in the control reserve market, such that a very high profit is obtained during the extreme situations when those capacity are called for balancing energy.

The bidding strategies due to the pay-as-bid rule of the control reserve market is just one example of how market design can alter the revenues of the participants.

Another example is the change of bidding rules in the primary CRM. In the past, the primary control market was symmetric; that is, participants must provide both positive and negative control reserve in the same product. Currently the TSOs in Europe are allowing asymmetric products to enter the primary control market. On one hand, this enables VPPs like TIKO to bid more in the market; on the other hand, since all control reserve providers are doing the same thing, the price plummets and the profit in the market also falls.

Finding Incentives beyond the Current Market

Since flexibility is still not sufficiently rewarded in the electricity market, TIKO’s strategy is to cooperate with business partners that recognize the future value of flexibility. Utilities can decide whether they want to build a new gas power plant as a peaker or dedicate to smart solutions now, but those who recognize the trend of the future will choose the latter.

It is also important to provide extra incentives for end-consumers to join the flexibility pool. One reason for them to do so is the energy management services TIKO could provide. Alarm systems and eco-mode options will enable end-consumers to reduce their energy bills and renovate their energy consumption devices when necessary.

Demand Side Flexibility Potentials in Asia-Pacific Markets

Although TIKO currently has not yet entered the Asian-Pacific market directly, it is still a region with high flexibility potentials from demand side resources.

Household air conditioners systems have smaller heat capacity than heating systems, so it would be difficult to control them without compromising end-users’ comfortability. Yet, large HVAC systems in commercial buildings might be able to perform demand side response. Phase change thermal storage systems might also provide good flexibility potentials on the demand side.