The development of virtual power plants in China is accelerating, creating a new space for private enterprises to grow in a market projected to be worth hundreds of billions. Virtual power plants are akin to masters of an energy puzzle, skillfully integrating fragmented resources such as wind, solar, energy storage, and adjustable loads into a dynamic power grid. They also serve as a “super intermediary” in the electricity market, turning decentralized resources like charging stations and backup power sources into valuable commodities and transforming peak-shift electricity into tangible profits. As a new model in the electricity system, virtual power plants are increasingly capturing the attention of policymakers and market players alike.
On April 11, the National Development and Reform Commission (NDRC) and the National Energy Administration released the Guiding Opinions on Accelerating the Development of Virtual Power Plants, which emphasizes the need to enhance the scale and capabilities of virtual power plants, establish supportive policies and market systems, and encourage private enterprises and various social capital to invest in their construction and operation. With the clear establishment of the operational status of virtual power plants at the national level, their potential in building a new power system is significant, with a market scale in the hundreds of billions opening new avenues for private economic growth.
From Policy Pilots to Market Breakthroughs
The essence of virtual power plants lies in their role as new productive forces in energy. The central government has already incorporated virtual power plants into the core strategy of the new power system. Recent documents, including the Action Plan for Accelerating the Construction of the New Power System, have clarified the industry position of virtual power plants as platforms for aggregating flexible resources. In 2024, the National Energy Administration issued the Guiding Opinions on Supporting Innovative Development of New Operating Entities in the Electricity Sector, encouraging virtual power plants to aggregate distributed solar, decentralized wind, new energy storage, and adjustable loads to provide flexible adjustment capabilities for the electricity system. The first national standards for virtual power plants, including the Management Specification for Virtual Power Plants and the Resource Allocation and Assessment Technical Specification for Virtual Power Plants, came into effect on February 1 this year, establishing foundational standards for the sector.
The recently released Guiding Opinions propose five key tasks, including promoting tailored development, enhancing construction and operational management levels, perfecting mechanisms for participating in electricity markets, improving operational safety, and advancing technological innovation and standardization. These initiatives will significantly facilitate the construction of virtual power plants and contribute to the development of a new power system.
According to Kang Chongqing, head of the national key research and development project on “Key Technologies for Interactive Control of Scalable Flexible Resource Virtual Power Plants” and a professor at Tsinghua University, virtual power plants are emerging as a new force within the new power system. They address the need for the absorption and balance of renewable energy on both the main and distribution networks, sustainably optimizing the flexibility supply capabilities across multiple time and space dimensions within the power system.
Recent explorations and practices across various regions are resulting in a rapid expansion of application scenarios for virtual power plants. In Jiangsu, a “virtual energy pool” has been created by aggregating household appliances like air conditioners and water heaters, awakening residents’ loads. Since the summer of 2024, over one million households have participated in load adjustments, releasing over 500,000 kilowatts during peak periods. In Shenzhen, 18,000 charging stations have connected to a virtual power plant management center, responding to grid dispatch for peak adjustment and generating profits for participants, part of which is shared with vehicle owners. Shanghai boasts the largest adjustable capacity in a single city at 704,300 kilowatts, with over 30 instances of peak shaving verified last summer, demonstrating that the virtual power plant is equivalent to a large coal-fired generator.
From the current research and practical experiences in China, virtual power plants can provide a certain level of energy balance services for power security. Demonstration projects in cities like Shenzhen and Shanghai have proven their capabilities in secondary frequency regulation and short-term standby power responses. As a low-carbon and economical “new power source,” the scalable configuration and regular operation of virtual power plants will offer robust support in managing the random risks of source-load matching in the electricity system and enriching adjustment methods.
Market Prospects and Future Outlook
The market outlook for virtual power plants is exceptionally promising. The Guiding Opinions indicate that by 2027, the national adjustment capacity of virtual power plants is expected to exceed 20 million kilowatts, and by 2030, this figure is projected to reach over 50 million kilowatts. According to Huatai Securities, the market size for virtual power plants in China is expected to reach 10.2 billion yuan by 2025, and by 2030, it could potentially hit 100 billion yuan, with a compound annual growth rate of 37.2%. As virtual power plants venture into the “deep waters” of the energy revolution, it is anticipated that the end of the 14th Five-Year Plan and the beginning of the 15th Five-Year Plan will be a critical phase for exploring commercial models.
Currently, most virtual power plants in China primarily generate revenue through demand response, with some provinces participating in peak shaving, frequency regulation, and standby services, while only a few can engage in medium to long-term power trading and spot trading, resulting in a relatively singular business model. Fan Pengfei, head of the Energy Policy and Market Research Institute at the Electric Power Planning and Design Institute, notes that demand response involves sporadic trading, characterized by low frequency and uncertainty. Considering the flexible regulation features and functional positioning of virtual power plants, future participation in spot markets and auxiliary service markets can better reflect their adjustment value and yield favorable returns.
To ensure the sustainable and scalable development of virtual power plants, the implementation of a well-structured electricity market mechanism to provide reasonable returns is essential. Wu Peng, chief engineer at the Economic and Energy Supply and Demand Research Institute of the State Grid Energy Research Institute, highlights significant issues such as unclear revenue expectations that hinder orderly development. Specifically, virtual power plants face challenges including limited participation in electricity markets, with current focus primarily on energy quantity markets and peak-shaving auxiliary service markets, while the 2025 Energy Work Guidance Opinion emphasizes the goal of achieving comprehensive coverage of provincial-level electricity spot markets, which may gradually replace peak-shaving market functions.
Additionally, disparities in market access standards, such as requiring adjustment capacity of no less than 5 megawatts in Shandong and 20 megawatts in Shanxi, further complicate the landscape. There are also issues with the disconnection and efficiency loss in price transmission between wholesale and retail markets. To address the lack of unified understanding regarding the definition and functional positioning of virtual power plants, the Guiding Opinions clearly state the need to promote tailored development, urging local governments to formulate development plans for virtual power plants based on their actual conditions, accelerate the cultivation of virtual power plant entities, and facilitate fair participation in electricity markets or demand response, thereby broadening revenue channels.
Encouraging Private Enterprises
As a crucial flexible resource aggregation platform in the new power system, virtual power plants not only bring technological innovations to the energy sector but also create new opportunities for private enterprises to engage in the energy revolution. The Guiding Opinions encourage energy companies, industry chains, and various enterprises to actively invest in virtual power plants, strongly supporting the participation of private firms in their development and management.
Currently, participants in China’s virtual power plant market include state-owned enterprises, private publicly listed companies, and emerging startups, creating a diverse competitive landscape. Private enterprises, leveraging their flexible operational models and innovative technologies, are significantly driving the rapid development of virtual power plants. Fan Pengfei notes that private companies involved in virtual power plants include private electricity sales firms, energy service companies, energy technology firms, electric vehicle manufacturers, renewable energy companies, and power monitoring equipment manufacturers. In regions with higher marketization like Shanghai and Shenzhen, more than half of the operational virtual power plants are funded by private enterprises.
Industry insiders believe that as the construction of virtual power plants continues, entry barriers will likely increase, imposing higher demands on operators and presenting greater challenges for private enterprises. Currently, it can be said that this is a promising time for private firms to enter the virtual power plant space. Liu Zhuo, market director of Hengshi Shengjing Energy Technology Company, emphasizes that the Guiding Opinions act as a strong incentive for private capital, demonstrating the national determination to leverage virtual power plants to tap into the trillion-yuan market on the user side and witnessing the gradual disruption of traditional metering and settlement models in the power system after ten years of reform.
How can we encourage more private enterprises to engage and excel in this field? Fan Pengfei suggests actively promoting private capital to leverage their identities as electricity sellers and specialized aggregation service providers to invest in virtual power plant development and management, enriching the investment landscape. Additionally, continuous enhancement of policy support is crucial, encouraging financial institutions to provide low-interest loans, credit guarantees, and green bond issuance to support private enterprises in their virtual power plant initiatives, thereby reducing financing costs and economic pressures. It is also encouraged to explore tax incentive policies to further lower the costs associated with the construction and operation of virtual power plants for private enterprises.
Wu Peng emphasizes that virtual power plants should enhance load management capabilities by refining internal energy management platforms, improving management models, and increasing supporting energy storage devices. This approach will facilitate efficient energy management and adjustment to better respond to electricity market price signals, thereby enhancing participation in the operation of the electricity system and achieving reasonable returns. Furthermore, user retail packages should be improved to guide orderly participation in load adjustment.
In the future, as market mechanisms are refined and data availability improves, more private enterprises are expected to join the construction of virtual markets, further invigorating market dynamics. Wu Peng asserts, “We must adhere to the direction of market-oriented reform, allowing the market to play a central role in the allocation of electricity resources. Continuous opening of the spot market and auxiliary service market, along with the marketization of electricity retail prices and the linkage of wholesale and retail prices, will achieve sufficient price fluctuations, guiding various resources to participate in the power system and market balance, thus realizing adequate returns for electricity users and promoting the practical implementation of virtual power plant operations.”
With multiple efforts underway, coupled with policy advantages, the comprehensive opening of the electricity spot market, and breakthroughs in AI technology, virtual power plants may become a new focal point for the development of private enterprises in the energy sector.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/accelerating-development-of-virtual-power-plants-in-china-a-new-horizon-for-private-enterprises-in-the-trillion-yuan-market/
